The Past, Present, and Future of Tontines: A Seventeenth Century Financial Product and the Development of Life Insurance [1 ed.] 9783428556151, 9783428156153

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Comparative Studies in the History of Insurance Law Studien zur vergleichenden Geschichte des Versicherungsrechts Volume / Band 2

The Past, Present, and Future of Tontines A Seventeenth Century Financial Product and the Development of Life Insurance

Edited by

Phillip Hellwege

Duncker & Humblot · Berlin

PHILLIP HELLWEGE (ED.)

The Past, Present, and Future of Tontines

Comparative Studies in the History of Insurance Law Studien zur vergleichenden Geschichte des Versicherungsrechts Edited by /  Herausgegeben von Prof. Dr. Phillip Hellwege

Volume / Band 2

The Past, Present, and Future of Tontines A Seventeenth Century Financial Product and the Development of Life Insurance

Edited by

Phillip Hellwege

Duncker & Humblot  ·  Berlin

The project ‘A Comparative History of Insurance Law in Europe’ has received funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (grant agreement No. 647019).

Bibliographic information of the German national library The German national library registers this publication in the German national bibliography; specified bibliographic data are retrievable on the Internet about http://dnb.d-nb.de.

All rights reserved. No part of this book may be reproduced, translated, or utilized in any form or by any means, electronic or mechanical, without the expressed written consent of the publisher. © 2018 Duncker & Humblot GmbH, Berlin Printing: CPI buchbücher.de GmbH, Birkach Printed in Germany ISSN 2625-638X (Print) / ISSN 2625-6398 (Online) ISBN 978-3-428-15615-3 (Print) ISBN 978-3-428-55615-1 (E-Book) ISBN 978-3-428-85615-2 (Print & E-Book) Printed on no aging resistant (non-acid) paper according to ISO 9706

Preface The present volume is the second volume in the research project: ‘A Comparative History of Insurance Law in Europe’ (CHILE). CHILE has received funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (grant agreement No. 647019). The deadline for submitting the final papers was 31 May 2017. I would like to thank Michael Friedman for his critical comments on an earlier draft of this volume and for correcting the English. Augsburg, July 2018

Phillip Hellwege

Summary of Contents Phillip Hellwege Chapter 1: Introduction ............................................................................................... 9

Part 1 The Framework for the Development of Tontines Christian Rietsch and Georges Gallais-Hamonno Chapter 2: Lorenzo Tonti.......................................................................................... 19 Georges Gallais-Hamonno and Christian Rietsch Chapter 3: Financial Engineering in the 17th and 18th Centuries – Tontines in England, France, and Ireland ................................................................. 49 Robin Pearson Chapter 4: The Socio-Economic Setting for Developing Tontines from the 17th to the 19th Centuries ........................................................................................... 79 Part 2 A Comparative Legal History of Tontines Sophie Delbrel Chapter 5: Tontines in France from the Ancien Régime to the Third Republic ...... 109 Boudewijn Sirks Chapter 6: Tontines in the Dutch Republic and the Early Kingdom (1670–1869) . 121 John MacLeod Chapter 7: Tontines in England and Scotland ......................................................... 143 Martin Sunnqvist Chapter 8: Tontines in Scandinavia ........................................................................ 153 Phillip Hellwege Chapter 9: Tontines in German-Speaking Territories ............................................. 167 Kent McKeever Chapter 10: Tontines in Portugal – Nicholas Bourey’s Paleo-Tontine of 1641 ...... 193 Maura Fortunati Chapter 11: Tontines in Italy .................................................................................. 203 Rafael Illescas Chapter 12: Tontines in Spain ................................................................................ 229

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Summary of Contents

Kent McKeever Chapter 13: The Evolution of the Tontine in North America ................................. 239 Marcelo Nasser Chapter 14: Tontines in Latin America .................................................................. 259 Jan Halberda Chapter 15: Tontines in Poland .............................................................................. 273 Balázs Tőkey Chapter 16: Tontines in Hungary ........................................................................... 289 Tamara Korchagina Chapter 17: The Russian Experience with Tontine Insurance ................................ 297 Part 3 The Present and Future of Tontines Moshe A. Milevsky Chapter 18: What Can Tontine Design of the Future Learn from Its Past? ............ 307 Jan-Hendrik Weinert Chapter 19: Tontines in Europe Today ................................................................... 317 Jonathan Barry Forman and Michael J. Sabin Chapter 20: Tontines in the Western World Today ................................................ 329 Salvatore Mancuso Chapter 21: Tontines and other Forms of Rotating Credit Associations in Africa . 343 Part 4 Comparative Analyses Jerònia Pons Pons Chapter 22: A Comparative Analysis from the Perspective of Economic History . 367 Phillip Hellwege Chapter 23: A Comparative Analysis from the Perspective of Legal History ........ 383 List of Contributors ..................................................................................................... 399 Index ............................................................................................................................ 401

Chapter 1: Introduction By Phillip Hellwege A. A modern definition of tontines .................................................................................. 9 B. The practical importance of tontines ........................................................................ 10 C. Tontines and the history of life insurance ................................................................. 11 D. Lorenzo Tonti as the inventor of tontines ................................................................. 12 E. The present and future of tontines ............................................................................ 12 F. The objective and structure of the present volume ................................................... 13

A. A modern definition of tontines A tontine may be described as a pooled life annuity.1 Investors buy a predefined number of shares, paying the same purchase price for each share. The issuer in turn promises to pay interest each year on the total amount of raised capital – that is, the total sum of the purchase prices – as annuities to the investors. The characteristic feature of tontines is that the annuities of deceased investors are shared by surviving investors. The investors’ heirs have no rights in the tontine. Thus, the total sum of annuities is, each year, divided between the surviving investors. The more investors that die, the higher the share of each surviving investor is, until the last surviving investor receives the total amount of annuities. With the death of the last survivor, the issuer’s obligation to pay annuities terminates. Furthermore, the issuer has no obligation to repay the raised capital back to the investors: the capital is lost to the issuer. To give a simple example: an issuer offers 100 shares, each at a cost of 100 Euro and promises to pay 5% interest per annum. The raised capital is 10,000 Euro. The annuities thus amount to 500 Euro per annum. As long as all 100 investors are alive, each of them will each year receive 5 Euro as annuity. When 50 investors have died, the 50 survivors will share the total annuities amount of 500 Euro: each surviving investor will receive 10 Euro as his or her annuity. When there are only 10 investors left, each will receive 50 Euro per annum. The last surviving investor will receive 500 Euro per annum – based on his or her original investment of 100 Euro. A tontine can serve different functions. Investors can use it as a pension product: the longer an investor lives, the higher his or her chances are of outliving ___________ 1

In detail see Gallais-Hamonno and Rietsch, 50, below.

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the other investors and, correspondingly, the higher his or her chances are of receiving an increase in annuities. A tontine may also be used as a means to provide for close relatives: the investor and the annuitant do not need to be identical. 2 The issuer, for his part, may use a tontine as a tool to raise capital: once the last annuitant dies, the obligation to pay interest on the capital terminates and he has no obligation to repay the capital to the investors.

B. The practical importance of tontines It is generally believed that the Italian Lorenzo Tonti (1602–1684) invented tontines and that he proposed them to Cardinal Mazarin (1602–1661) in 1653. However, Tonti’s original plan of 1653 failed to be implemented. A Danish plan of the same year similarly failed to be implemented. It is generally thought that the first tontines in Europe were successfully launched in Holland: 1670 in Kampen and 1671 in Amsterdam and Groningen, with more to follow. France issued its first tontine in 1689, with England coming soon after in 1692. The first German tontine is said to have been issued in 1698. It is thought that tontines witnessed their apex in the 18th century. Nevertheless, the number of tontines mentioned in modern literature is small: it discusses a handful of tontines in France, England, Ireland, and Denmark. For Germany, modern literature usually refers to tontines in Bolzano (1737), Gotha (1752), Austria (1760), Nuremberg (1777 and 1783), Potsdam (1788), and a small number of tontines in Hamburg.3 It is only the Dutch literature that has identified a larger number of tontines for the 17th and 18th century. German literature asserts that tontines were replaced by modern life insurance products in the early 19th century. Yet it seems that they resurged in the second half of the 19th century: U.S. life insurance companies offered tontine life insurance products on the European market, and these products were controversially discussed. As a consequence of the problems which these products generated, tontines were banned in many, but not all European countries. Furthermore, by the end of the 19th century it was generally thought that tontines were a form of gambling. In some European countries, tontines have nevertheless persisted, but only as a financial niche product. With the implementation of the Second European Life Insurance Directive of 1990,4 life insurance companies have again been allowed to offer tontine products in all Member States of the EU. Still, it seems that they have not regained any prominence. ___________ 2

In detail see Gallais-Hamonno and Rietsch, 50 f., below. In detail see Hellwege, 167, below. 4 Council Directive 90/619/EEC of 8 November 1990 on the coordination of laws, regulations and administrative provisions relating to direct life assurance, 29 Nov. 1990, 50–61. 3

Chapter 1: Introduction

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C. Tontines and the history of life insurance In conclusion, it seems that tontines are a purely historical phenomenon. And from an historical perspective, they seem to have been of only minor practical importance. Nevertheless, modern German-language literature stresses that tontines had a lasting impact on the development of life insurance. It is argued that ‘tontines … helped spread the idea of insurance and made wider circles receptive for the idea of life insurance’ (‘Das Tontinenwesen … hat den Versicherungsgedanken verbreitet und weite Kreise für die Lebensversicherung reif gemacht.’).5 Others add that tontines were forerunners of pension schemes 6 and that they were important in further developing mortality tables and actuarial science. 7 With respect to legal developments Hans-Martin Oberholzer claims:8 Dadurch, dass den Tontinen … ein so grosser Erfolg beschieden war, sahen sich die Staaten schon früh gezwungen, gesetzgebungsmässig gegen die gröbsten Auswüchse vorzugehen und so das Fundament für unser heutiges Versicherungsrecht zu legen. Eine Folge dieser Versicherungsgesetzgebungen war die Herausbildung von vertrauenswürdigen Versicherungsanstalten. Due to the fact that tontines … were such a great success, national legislators felt impelled at an early stage to intervene with respect to their greatest defects. Thereby they laid the basis for today’s insurance law. A consequence of this insurance legislation was the creation of trustworthy insurance companies.

Or in the words of Gunter Kürble, who focuses more on the design of different insurance products rather than on their legal development:9 Der Weg zu einem funktionierenden Lebens- und Rentenversicherungsmarkt war die Krankengeschichte (Anamnese) der Tontine. The path towards a functioning life and pension insurance market was the patient history (anamnesis) of the tontine.

And L. Gustav Du Pasquier summarizes:10 Die Tontinen haben in der Entwicklung des Versicherungswesens eine ausserordentlich wichtige Rolle gespielt.

___________ 5 Heinrich Braun, Urkunden und Materialien zur Geschichte der Lebensversicherung und der Lebensversicherungstechnik (1937), 100. 6 Peter Koch and Wieland Weiss, Gabler. Versicherungslexikon, vol. 3 (1996), 836. 7 Peter Koch, Geschichte der Versicherungswissenschaft in Deutschland (1998), 34–36. 8 Hans-Martin Oberholzer, Zur Rechts- und Gründungsgeschichte der Privatversicherung (1992), 91. 9 Gunter Kürble, Der Exodus der amerikanischen Lebensversicherer aus Deutschland – die Tontine und die Vorgeschichte des Jahres 1894, (1990) 79 Zeitschrift für die gesamte Versicherungswissenschaft 581–623, 598. 10 L. Gustav Du Pasquier, Die Entwicklung der Tontinen bis auf die Gegenwart, (1910) 46 Zeitschrift für Schweizerische Statistik 484–513, 484.

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Phillip Hellwege Tontines played an extraordinary important role for the development of insurance.

Yet despite the extraordinary importance of tontines for the development of insurance and insurance law having been stressed, there is relatively little literature covering the history of tontines. And this literature asserts rather than proves the importance of tontines. But how could a financial instrument that seems to have had little practical importance been of such great significance for the development of insurance and insurance law? And how can Oberholzer claim that tontines were a great success? There seems to be an inherent contradiction in the coverage of tontines in modern literature. Moreover, modern literature does not resolve this contradiction. Many works on the history of insurance simply refer to the fact that tontines existed, assert their importance, claim that they have to be put into the context of the history of life insurance, and describe, in general terms, how tontines functioned technically.

D. Lorenzo Tonti as the inventor of tontines There are further problems in the state of research on the history of tontines. The first problem relates to Lorenzo Tonti himself. Some authors claim that he was a medical doctor, but usually he is referred to as an Italian banker. Even his dates of birth and death are unclear. In all, the details of Tonti’s vita remain nebulous. Secondly, even though Tonti is often referred to as inventor of tontines, it is generally acknowledged that he was at a minimum inspired by transactions which had already been known in Italy prior to 1653. Yet the literature has never fully identified and analysed just what Tonti’s innovation really was.

E. The present and future of tontines The preceding paragraphs concerned the history of tontines. However, the ongoing period of low-interest rates currently being experienced has stimulated debates as to a resurgence of tontine products. Such a re-introduction will, however, have to overcome the lasting reservations against tontines: modern German literature, for example, still looks upon tontines as a form of gambling,11 and it thereby refers back to the experiences with tontines in the late 19 th century. Only a careful analysis of the history of tontines will allow us to assess whether these reservations against tontines are well-founded or whether there is a potential future for tontines.

___________ 11 See e.g., Peter Präve, in: Joachim Kölschbach et al. (eds.), Prölls. Versicherungsaufsichtsgesetz (12th edn., 2005), § 1 paras. 14.

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13

Furthermore, tontines seem to remain widespread in Africa and in the Far East: rotating credit associations in the informal sector are called tontines. However, these tontines have nothing in common with the pooled life annuity schemes of the 17th and 18th centuries. Tontines thus have a lively presence in Africa and in the Far East in name only.

F. The objective and structure of the present volume The present volume is part of a greater research project on a comparative history of insurance law in Europe. The starting point of that project was the observation that hitherto research on the history of insurance had a clear focus on maritime insurance and on insurance operated on a commercial basis. Furthermore, the research has been led by economic historians, with the consequence that legal developments have largely been neglected. Finally, research on the history of insurance has developed distinct national narratives. The research project on a comparative history of insurance law in Europe wants to go beyond these national narratives and analyse the history of insurance law in Europe from comparative perspectives. It wants to do so by focusing on possible points of interaction between the different national lines of legal development. The research agenda is mapped out in detail in the project’s first publication.12 There, tontines have been identified as one possible point of interaction, and for a number of reasons tontines would seem to be the perfect candidate with which to start the implementation of the research agenda. (1) They have existed and have been known in all parts of Europe. (2) German literature claims that they were of great importance for the development of life insurance and life insurance law. (3) And tontines indeed existed during the formative era of life insurance and life insurance law. Thus, the overall objective of the present volume is to assess the impact which tontines had on the development of life insurance and life insurance law in Europe. However, it is impossible to analyse the legal history of tontines without a clear understanding of tontines as a financial product and without a clear understanding of the socio-economic setting in which tontines were developed. Furthermore, it is the objective of the present volume to link the historical findings to a discussion on the present and future of tontines. Accordingly, the different chapters of the present volume are grouped together in four parts. The first part is entitled: ‘The Framework for the Development of Tontines’. First, Christian Rietsch and Georges Gallais-Hamonno shed new light on the vita of Lorenzo Tonti. The findings are important when assessing what ___________ 12 Phillip Hellwege (ed.), A Comparative History of Insurance Law in Europe. A Research Agenda (2018).

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Tonti’s innovation really was. Did he ‘invent’ tontines? Did he adapt financial schemes already known in Italy in such a way that his proposal was a true innovation? Or did he simply copy financial schemes which were known all along? Rietsch and Gallais-Hamonno reach the conclusion that Tonti invented tontines. Against the findings of Rietsch and Gallais-Hamonno on Tonti’s vita and against the findings of the other authors contributing to the present volume, I remain sceptical. It was, however, not my aim as editor to see that all authors reach the same answer to a given question. Rather, I have tried to openly address remaining questions in my comparative analysis in the last chapter. In particular it has not been possible to develop a final answer as to Tonti’s innovation. Such a final answer could be reached only on the basis of a complete analysis of financial products offered in the 17th century. However, such an analysis would have been beyond the scope of the present volume. The focus of the present volume is on the Wirkungsgeschichte (literally: impact history) of tontines – the history of the impact which tontines had on the development of life insurance and life insurance law. In their second contribution, Gallais-Hamonno and Rietsch analyse tontines as a financial product, contrasting in particular French tontines with English and Irish tontines. Gallais-Hamonno and Rietsch hint at an important point which will reappear in the remaining contributions: the term ‘tontine’ was used to label more than exclusively pooled life annuity schemes as defined above. GallaisHamonno and Rietsch mention lotteries, which have also carried Tonti’s name. This rather loose use of the term ‘tontine’ will be observed in other chapters, too. In the third paper belonging to the first part of the present volume, Robin Pearson explores ‘The Socio-Economic Setting for Developing Tontines from the 17th to 19th Centuries’. The second part of the present volume is central for the purpose of the project on a comparative history of insurance law in Europe. It is entitled: ‘A Comparative Legal History of Tontines’. I asked the respective authors to identify and discuss the different legal problems which tontines raise and to investigate whether tontines had any impact on the history of life insurance and life insurance law. Altogether, thirteen countries are covered. I have already mentioned that in the second half of the 19th century tontine life insurance products, which were offered by U.S. life insurance companies on the European market, were controversially discussed and led to tontines being banned in many European legal systems. For that reason, it seemed straightforward that the present volume should also include a chapter on tontines in North America. Furthermore, my preliminary research induced me to also include a chapter on the developments in Latin America. Originally, I had not planned to include a separate chapter on the developments in Portugal. In a first version of his contribution, Rafael Illescas had covered an early Portuguese tontine proposal dated 1641 in an annex to his chap-

Chapter 1: Introduction

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ter on the developments in Spain. At the same time, Kent McKeever had submitted a small, yet more elaborate contribution discussing and analysing the same proposal. Illescas and McKeever based their papers on two different sources. 13 The proposal of 1641 is important for assessing what Tonti’s innovation really was as it predates Tonti’s proposal. In order to avoid repetitions, Rafael Illescas was so kind to agree that I could include McKeever’s text as a separate chapter and that his own coverage of the proposal would not be printed in the present volume. Nevertheless, it needs to be recognized that Illescas, too, brought the proposal of 1641 to light. Bringing the papers of the second part of the present volume into a sensible order was a challenge. Should the chapters be sorted according to the chronological order of the first tontine proposals? Under that rubric the chapter on Portugal should have come first. Or should the chapters be sorted according to the chronological order of the first successfully launched tontines? Then the chapter on tontines in German-speaking territories should have come first because the city of Gdańsk had successfully issued its first tontine as early as 1657, and thus thirteen years before the tontine of the city of Kampen in 1670. In the end, I decided to adopt an order which represents the present state of research and which, thus, reflects the readers’ expectations. Accordingly, the second part of the present volume commences with a chapter on the developments in France. The chapters of the second part are of different length. The reasons are simple. (1) Tontines were of different practical importance in the different countries. In some countries tontines had existed as early as the in 17th century. In these countries, tontines had a long history. In other countries tontines were introduced only in the late 19th century in the form of tontine life insurance products, and shortly after their appearance tontine products were banned or disappeared again. In these countries tontines had only a rather short history. (2) In their chapter in the first part of the present volume, Gallais-Hamonno and Rietsch explain tontines as a financial product. They point out that the term ‘tontine’ was used rather loosely. Lotteries were also called tontines. Thus, the authors of the chapters of the second part had to again analyse what types of financial schemes existed under the name of tontines in their respective countries. (3) I had asked the authors of the second part of the present volume to identify and discuss the legal problems which tontines caused and to investigate whether tontines had any impact on the history of life insurance and life insurance law. However, many authors faced the problem of finding primary sources. Tontines may have existed in all European countries, but in some legal systems they have not left their mark in legal discourse, not to mention the discourse on life insurance law. An extreme example ___________ 13 Illescas cited the work of Albino Lapa, Seguros em Portugal, estudo histórico (1939) and McKeever referred to António Henrique de Oliveira Marques, Para a historia dos seguros em Portugal, notas e documentos (1977).

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seems to be Ireland: I had planned to include a chapter on Ireland. However, the Irish colleague whom I had contacted informed me after his preliminary research that, beyond the fact that there had been tontines in Ireland, he was not able to trace any legal discussion of tontines. Thus, Ireland is not covered in the second part of the present volume. There is also one example characterizing the other extreme. As modern German literature identifies only a small number of tontines, I was subsequently surprised by the volume of primary sources on tontines and tontine plans in the 17th, 18th, and 19th centuries. Furthermore, there is, relatively speaking, rich contemporary German-language (legal) literature on tontines. The results of my research on the development of tontines in Germany will be published in a separate volume, and the present volume thus contains only a summary of that publication.14 The third part of the present volume raises the questions as to the present and future of tontines. As pointed out above, the currently ongoing phase of lowinterest rates has stimulated debates as to the resurgence of tontine products. Moshe A. Milevsky answers the question of what the tontine design of the future can learn from its past. He thereby links the discussions as to the future of tontines with the historical findings of the present volume. Jan-Hendrik Weinert as well as Jonathan B. Forman and Michael J. Sabin then analyse the potential of tontine products. Furthermore, Weinert introduces the reader to a rare presentday example of a tontine: in France. Indeed, tontines still exist. Weinert discusses the tontines offered by Le Conservateur and briefly mentions the French real estate tontine. Additional modern tontine-like financial products could be discussed, but they are beyond the scope of the present volume. Instead, Salvatore Mancuso introduces the reader to rotating credit associations found in the informal sector in Africa. They are called tontines, but prima facie they have little to do with their historic predecessors. However, they may serve as yet another, present-day example of a rather loose use of the term ‘tontine’. The present volume closes in its fourth part with two comparative analyses, one from the perspective of economic history and the second from the perspective of legal history.

___________ 14 Phillip Hellwege, A History of Tontines in Germany. From a multi-purpose financial product to a single-purpose pension product (2018).

Part 1: The Framework for the Development of Tontines

Chapter 2: Lorenzo Tonti By Christian Rietsch and Georges Gallais-Hamonno* A. Introduction .............................................................................................................. 19 B. The early years ......................................................................................................... 20 C. A Neapolitan activist ................................................................................................ 23 D. Mazarin’s agent ........................................................................................................ 25 E. The project designer ................................................................................................. 26 I. Three unsuccessful tontine and lottery plans ..................................................... 27 1. The tontine plan of 1653 .............................................................................. 28 2. The lottery plan of 1656 ............................................................................... 33 3. The plan for an ecclesiastical tontine of 1660 .............................................. 35 II. Other tontine plans ............................................................................................ 36 1. The Danish tontine plan of 1653 .................................................................. 36 2. A Hamburg tontine plan of 1653 .................................................................. 37 3. The tontine plan of 1663 for the States of Brittany ...................................... 37 4. The tontine plan of 1667 for the States of Languedoc .................................. 37 III. Further projects and plans ................................................................................. 39 F. Personal financial problems ...................................................................................... 41 G. Tonti in prison .......................................................................................................... 43 H. Epilogue ................................................................................................................... 47

A. Introduction Little is known of the life of Lorenzo Tonti with the exception of (i) his project for a tontine submitted to Cardinal Mazarin (1602–1661) in 1653 and (ii) the life of two of his sons, who explored Canada. Most sources indicate that Lorenzo Tonti, whose name is in second- and third-hand text sometimes transformed into Tontin, Tontino or Tontini, was born in 1602, yet some sources mention 1603, 1620, and even 1630. As we will see later, in 1646 Henry II de Lorraine, 5th Duke of Guise (1614–1664), referred to Tonti as a man of a certain experience. A birth in 1630, thus, seems unlikely. Tonti spent his youth in Italy, yet under another name. It is generally accepted that he was governor of Gaeta, a town close to Rome, that he was a Neapolitan banker of note, and that he married Isabella di Lieto, with whom he had three children: Henry de Tonty, Alphonse de Tonty, and Enrico de Tonti. Most sources are in agreement that Henry was born in Gaeta ___________ * The authors thank Janine Gallais-Hamonno for her help with the English revision of this article.

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Christian Rietsch and Georges Gallais-Hamonno

either in 1647 or 1650.1 Alphonse was allegedly born in Paris in 1659 and was baptized at St. Sulpice on 7 July of the same year. Enrico does not seem to have left any trace apart from a mining project which he proposed to Louis II Phélypeaux, Comte de Pontchartrain (1643–1727), on behalf of his brother,2 plus possibly some poems.3 When Lorenzo Tonti arrived in France, he brought with him the ideas of tontines and lotteries. He proposed both ideas successively to Louis XIV. Both failed to be implemented, but for different reasons. He also proposed a tontine to the clergy of France – which similarly never saw implementation. His projects were not limited to France: he proposed to set up, with the help of his partners, a tontine in Denmark. Furthermore, he had plans for tontines in the provinces of Brittany and Languedoc. And, his activities covered a variety of other fields. For example, he authored a book which earned him the royal ire. Finally, pressed by need for money, he proposed to betray his French protector for the benefit of Spain, which earned him, together with two of his sons, nearly eight years in the Bastille. When he was released, weakened, his idea of a tontine was in the process of escaping him in favour of his new partner, De La Salle, who profoundly upset its architecture. Lorenzo Tonti died in 1684 (though some Italian biographies mention 1695). As we will see below, most of this information needs to be considered with caution.

B. The early years In 1647, Naples was under Spanish domination, with Rodrigo Ponce de León, Duke of Arcos (1602–1658), as the viceroy. An increase in the taxation on fruit caused a riot, led by Masaniello (1620–1647), whereupon the viceroy withdrew in a fortress. A few days later, Masaniello was assassinated by order of the viceroy. Another viceroy being appointed quieted down troubles until the revolution resumed under the leadership of Gennaro Annese (1604–1648). Annese proclaimed the Neapolitan Republic under the peculiar name ‘Royal Republic’. It came under the protection of the Duke of Guise, and through him, the protection of France. The republic ended on 5 April 1648, when Spanish troops entered the ___________ 1 The title of a recent book proposes that 1647 is the correct date: Pietro Vitelli, Enrico Tonti. Gaeta, Italia, 1647 – Mobile, Alabama, USA, 1704 (2004). However, the author admits that he does not have any proof for the correctness of the date. 2 C.J. Russ, Tonty, Alphonse (de), Baron de Paludy, in: Dictionary of Canadian Biography, vol. 2 (1969), 631–633. 3 See, e.g., (1690) 11 Mercure Galant 259: Mr. Tonti, ‘whose ancestor was the first who proposed the establishment of the tontine’, wrote a poem to the glory of the tontine which starts with the two following verses: ‘Toi qui de mes ayeux tire son origine/A tous ces grands desseins tu vas servir, Tontine.’ (‘You who from my ancestors derive your origin / To all these great designs you will serve, Tontine’). This descendant of Tonti – it is unclear whether it was a son or a grandson – published on several occasions poems without ever giving his first name.

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city. The Neapolitan revolution was a turning point in the life of Lorenzo Tonti. But let us start in the beginning. Lorenzo Tonti was born as Lorenzo Baroncini4 into very modest conditions. He was the son of Simon Baroncini, a gardener near Monte Cavallo in Rome, and his wife Alessandra, a washerwoman. He was baptized (no date indicated) at the parish of San Marcello in Rome. He spent an unruly youth going from taverns to brothels. For some time he worked in the kitchen of Abbot Montaldo. Then he moved to Rome and worked in the service of Giuscaro Gentile, an agent of Paolo Giordano II Orsini, Duca di Bracciano (1591–1656), and later became an embroiderer at the Duke’s household. He used this employment as an opportunity to spy on the whole household.5 After that he repaired chairs of the great inquisitor Salgado, and, so doing, entered the service of Manuel de Acevedo y Zúñiga, Conte di Monterey (1586–1653), who was the Spanish viceroy from 1631 to 1637. When Monterey was recalled and preparing for his departure, Baroncini spied on him on behalf of Ramiro Núñez de Guzmán, Duca di Medina de Las Torres (1600–1668), who was at the time in Naples incognito and who became Monterey’s successor as viceroy from 1637 to 1643. Baroncini, thus, discovered a way of making a living by giving advice (especially on financial matters), which always brought him some reward (doubtless, the origin of the legend of Tonti as a banker). Finally, he went to Rome and became dependant on Duke Ludovisio, the pope’s nephew. At this time Lorenzo Baroncini changed his name to Lorenzo Tonti and claimed to have family ties with the late Michelangelo Cardinal Tonti (1566– 1622),6 taking advantage of the presence of Michelangelo Tonti’s nephew Abbot Tonti.7 At that time Lorenzo Tonti became an appointed spy of Ludovisio for 100 crowns a year.8 Furthermore, Tonti arranged that his brother-in-law Agostino de Lieto, who had just escaped to Rome after robbing silver dishes from the Duke ___________ 4 The following account is primarily based on Camillo Tutini and Marino Verde, Racconto della sollevatione di Napoli accaduta nell’anno MDCXLVII (ed. by Pietro Messina, 1997), 271–280. Tutini seems to have had personal knowledge of Tonti and Agostino di Lieto during their Italian years, but he hated both. There is, however, also a different version of his early life. According to that account, Tonti was the son of Simonazzo Tontoli, a carter (Guiseppe Coniglio, Il viceregno di Napoli nel sec. XVII (1955), 285; Francesco Capecelatro, Diario di Francesco Capecelatro, vol. 2 (1853), 116), sometimes called Zonti (Giovanni Semprini, La politica del Mazzarino durante i moti napolitani (1934), 13, 28). Vitelli (n. 1), 55, claims that Tonti was the son of Cassandra, a sister of Cardinal Michelangelo Tonti. 5 Tutini (n. 4), 272. 6 Tutini (n. 4), 273. 7 Henri Arnauld, Négociations à la cour de Rome, et en différentes cours d'Italie, vol. 5 (1748), 387. 8 Tutini (n. 4), 272.

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of Arcos in Naples,9 was granted by Ludovisio the title of captain in a battalion company in Calabria.10 According to Camillo Tutini (1594–1667/70), Tonti had married Angela di Lieto, who was, just like one of her sisters,11 a prostitute,12 but most authors refer to his wife as Isabella di Lieto. It may have been that after the death of Angela, Lorenzo married her sister Isabella. The relationship with his brother-in-law Agostino, who was the son of a jobbing tailor,13 who was involved in a sex incident with a young man, and who regularly encountered young men of dissolute manners,14 was one of mutual trust throughout their lives. Thanks to Ludovisio, Tonti was granted the management of the principality of Rossano and was appointed to govern the city of Rossano. However, the local nobility soon hated him for his alleged acts of theft.15 As a consequence, Tonti had to flee. During the time of the uprising in Naples he stayed in Rome, with great wants and small means. However, at the time the Gazette of 1646 seems to give a different impression of Tonti’s standing: ‘De Venise le 3 octobre 1646 … Les sieurs … Agostino …Tonti … ont été déclaré Nobles par notre grand Conseil, moyennant cent mille ducats chacun’ (‘From Venice on 3 October 1646 ... the gentlemen ... Agostino ... Tonti ... were declared Nobles by our great Council, for 100,000 ducats each’).16 There were at least two Italian noble families with the name Tonti, one from Pistoia, the other from Rimini.17 And besides Abbot Tonti, there existed a Count Antonio Tonti in the entourage of the Duke of Guise.18 Lorenzo Tonti seems to have availed himself of the resulting confusion and ‘borrowed’ the titles to which he had no right. What is certain is that from 1647 onwards, Tonti assumed the titles of a ‘Roman Gentleman’, ‘Knight of Paludi’ and others as well – titles that his sons would use, too.19 ___________ 9

Tutini (n. 4), 276. Henry II de Lorraine, Mémoires du Duc de Guise, vol. 1 (Collection des mémoires relatifs à l’histoire de France, vol. 55, 1826), 106. 11 Tutini (n. 4), 331. Innocenzo Fuidoro, Successi historici raccolti dalla sollevatione di Napoli dell’anno 1647 (1994), 245 confirms the name of Tonti’s wife as Angela. 12 Tutini (n. 4), 273 and 331. 13 Tutini (n. 4), 420. 14 Tutini (n. 4), 331. 15 Tutini (n. 4), 474. This may be the origin of the legend about Tonti commanding Gaeta’s fortress. 16 (1646) Gazette, No. 132, 986. 17 Vittorio Spreti (ed.), Enciclopedia Storico Nobiliare Italiana, vol. 6 (1932), 192, 198 and vol. 8 (1935), 627, 730. 18 De Lorraine (n. 10), 324. 19 Thus, the nobiliary particle is added to their name. Paludi is a small town near Naples. ‘Tonty, Baron de Paludy’, in: (1911) 8 La Revue Franco-Américaine 212: Arms: Silver to the strip engraved with sand. Crest: a bird naturally confronted by three gules ostrich feathers as descendant of the counts Dondi in Venice. Crown of baron and lord. 10

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C. A Neapolitan activist The Revolution in Naples did not come as a surprise to Tonti as his brotherin-law had warned him of events when he had fled from Naples. Tonti had taken advantage of the situation to introduce himself to relatives of the Duke of Guise, and he passed on information to them which he had gained through his brotherin-law or which he had picked up from people in the taverns of the port. He was also the one who induced the Duke of Guise to take a leading role in the Neapolitan revolution. Tonti passed on information to the pope and to the French Ambassador in Rome, François Du Val Fontenay-Mareuil (1594?-1665), and through him to Mazarin and the Court of France. Finally, he was appointed the representative of the new Republic in Rome to the pope and to the ministers of France, with a provision of 500 crowns per month.20 Thus, Tonti was at the centre of intrigues, which were all the more complicated as instructions took time to arrive (21 days between Naples and Paris) while ambitions and betrayals made situations shift very rapidly. This central position brought him power and money. He is described as ‘Signor Capitano’ in the letters patent from the Duke of Guise.21 As regards power, he had Agostino de Lieto appointed captain of the Duke of Guise’s guards. His protectors praised his know-how, his interpersonal skills, his intelligence, his detailed knowledge of all military forces, gold, wheat reserves, etc., but also his caution and wise advice. The Duke of Guise described Tonti as a man ‘[d]e peu de naissance, mais un esprit adroit’22 (‘of low birth, but with some cunning’) and as a ‘diligente et fidèle’23 (‘diligent and faithful’) person. Henri Abbot Arnauld (1597–1692), representative of France in Rome, said that ‘Lorenzo est très habile… Il a été autrefois parfaitement bien auprès du Comte de Monterey, viceroi de Naples’ (‘Lorenzo is very clever ... He used to be on very good terms with the Count of Monterey, the Viceroy of Naples’).24 Even Tutini praised the acute intelligence of Tonti when facing a delicate situation. Agostino de Lieto25 and Tonti gave advice to Guise as to the attitude to adopt in Naples – advice which was considered as judicious, even though Guise spoke of a ‘lettre fort curieuse’,26 and on several occasions Tonti’s perceptiveness and caution were praised. On 21 De___________ 20

Arnauld (n. 7), 370. Vittorio Siri, Il Mercurio: overo historia de’ correnti tempi, vol. 10 (Casale 1668), 519. 22 De Lorraine (n. 10), 106. 23 Siri (n. 21), 519. 24 Arnauld (n. 7), 387. 25 Cf. Amédée David de Pastoret, Le duc de Guise à Naples ou mémoires sur les révolutions de ce royaume en 1647 et 1648 (1825), 150, 160–164. 26 De Lorraine (n. 10), 153. 21

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cember 1647, Mazarin wrote, for example, to Fontenay-Mareuil about Italian affairs and confirmed that Tonti had developed plans to the benefit of the French and to clear Naples and its surroundings, so as to get rid of the Spanish peril.27 Of course, Tonti did not hesitate to require money for his services.28 A number of pensions were granted to Tonti and Lieto, which did not prevent them from supplementing their income with embezzlements of money, swindling money entrusted to them, weapon trafficking, selling bread to hungry Naples, stealing from and defrauding middle-class people as well as financial institutions in Naples, and practising denunciation.29 As long as French forces operated in Italy, Tonti served as an agent for Mazarin. Tonti obeyed Mazarin’s orders and served as his informant through the French ambassador, Fontenay-Mareuil. Fontenay-Mareuil himself monitored the envoy of the King of France, Clerisantes, on behalf of Mazarin. FontenayMareuil used Tonti to intercept Clerisantes’ letters and communicate them to him. Tonti had learnt from Don Gioseppe Francischino, Archpriest of Cerignola, how to intercept letters, open them, produce false ones, spread rumours, and imitate signatures.30 However, all these important people were also suspicious of Tonti. They considered him as manipulative and overly greedy. Tutini denounced Tonti’s trickiness on multiple occasions. Mazarin had only limited trust in Tonti during the whole period: he suspected him of being ready to betray him at any time and to act only with money in mind. Mazarin’s younger brother Michele Mazzarino (1605–1648), Cardinal of St. Cecilia, then in Rome, wrote to his brother that Tonti was greedy for money and that the Abbot of Saint Nicolas was somewhat enthused by the possibility of the Neapolitan adventure.31 On 7 February 1648, Mazarin wrote to Fontenay-Mareuil about Italian developments: there was one, Lorenzo Tonti, he was wary of, and he hoped to make him work in the interest of France.32 On 24 April 1648, Mazarin wrote to Fontenay-Mareuil: ‘Lorenzo Tonti et son beau-frère ne valent rien à ce que je puis juger de toutes les relations qui me viennent, et sont capables de toutte meschancetez’ (‘Lorenzo Tonti and his brother-in-law are worth nothing as I can judge from all reports which I receive; they are capable of any evilness’). On 15 May 1648, Mazarin complained ___________ 27 Adolphe Chéruel (ed.), Lettres du cardinal Mazarin pendant son ministère, vol. 2 (1883), 557, 1058. 28 See De Lorraine (n. 10), 62. 29 Tutini (n. 4), 331 f., 592; Capecelatro, vol. 2, (n. 4), 317. 30 Tutini (n. 4), 275; De Lorraine (n. 10), 35. 31 Tutini (n. 4), 275 f. 32 See Adolphe Chéruel (ed.), Lettres du cardinal Mazarin pendant son ministère, vol. 3 (1877), 32, 38.

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to Tonti that he had begun to criticize the Duke of Guise only after he had fallen from power. Everyone played a complicated game, with plans for the future, betrayals, and traps – the clumsiness of some of the French party being a handicap whereas the Spanish were superior in number and had plenty of money. Thus, when Tonti arrived in Paris he had accumulated lies as regards basically all aspects of his previous Italian life: he lied about his own identity (his name was Baroncini, not Tonti) and about his past activities (he had never been a known banker in Naples,33 nor did he ever command Gaeta’s fortress34).

D. Mazarin’s agent When the revolution in Naples collapsed, Fontenay-Mareuil indicated two helpful actors to Mazarin:35 Tonti and Abbot Arnauld. A special fund of 50,000 pounds and gold chains was set up ‘to gratify the people’ who had helped France, among whom the names of Annese and Tonti were quoted.36 Mazarin sent two despatches to Fontenay-Mareuil on 30 June and 3 August 1648 to announce that the King was granting a pension of 600 crowns to Tonti and a gratuity (of an unspecified amount) to his brother-in-law.37 Tonti and Lieto first took refuge in Tuscany and then in Piedmont.38 Finally, they departed for Paris to escape prosecution for their involvement in the pro-French party. It seems that Tonti’s family stayed for a while in Italy before joining him, since Lorenzo sent Gueffier of the embassy to Rome to hear from them in July 1651.39 From the earliest times he was in Paris, and even before he had produced his tontine and lottery plans, Cardinal Mazarin paid him an annual pension of 6,000 pounds, and each year, through the intermediary of the Archbishop of Reims, 400 pistoles from the cardinal’s incomes, these sums being paid from 1648 or ___________ 33 Tonti is often referred to as a doctor: Terence O’Donnell, History of Life Insurance in Its Formative Years (1936), 159; Moshe A. Milevsky, King William’s Tontine: Why the Retirement Annuity of the Future Should Resemble its Past (2015), 42. This is likely to be a confusion with Matteo Tonti, who conducted chemistry experiments in the 1790s with Anton Rup(p)recht von Eggenberg (1750–1808) at the mining academy in Schemnitz (Banská Štiavnica). 34 The only reference in favour of the command of the port or fort of Gaeta is given by Salvatore Boni, Gaeta nello splendore della sua nobiltà e i suoi governatori (2008), 176, but his account is doubtful, for Tonti’s wife did not go to Paris – contrary to what Boni says – since Gueffier saw her in Rome in 1651. 35 Arnauld (n. 7), 445. 36 Siri (n. 21), 568. 37 Pastoret (n. 25), 309. 38 Boni (n. 34), 176. 39 François Ravaisson (ed.), Archives de la Bastille, vol. 7 (1874), 294.

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1649 to 1660.40 Some time later, Tonti boasted of having saved the royal family in 1651, thanks to a notice he allegedly had given to Louis I de Bourbon (1612– 1669), Duke of Vendôme and later Cardinal of Santa Maria in Portico, who communicated it to the Queen Mother.41 Tonti had access to the King’s court, and he corresponded with Mazarin, Jean-Baptiste Colbert (1619–1683), Pierre Louis Reich de Pennautier (1614–1711), and Charles de La Porte, Marshal de la Meilleraye (1602–1664); he saw Gian Lorenzo Bernini (1598–1680), also known as Cavalier Bernin, on his journey to France on 12 October 1665;42 and he knew the Queen Mother, and many more. When in France, Tonti and his brother-in-law were used by Mazarin for a number of operations, but at the same time they were kept under observation. Mazarin was suspicious of their informing the Spaniards: La Reyne désire absolument qu’aprez en avoir parlé à S.A.R. et qu’elle l’aura approuvé, on fasse arrester Lorenzo Tonti et Agostino Lieti, Napolitains, qui sont à Paris et qu’on devroit desja en avoir chassez il y a longtemps … de meschants esprits, qui donnent des advis en Flandres, qui sèment des bruits pour allumer des séditions dans Paris, et qui, en dernier lieu, n’ont rien oublié, au Palais, pour aigrir les esprits …43 The Queen demands that after having spoken to His Royal Highness and receiving His approval, Lorenzo Tonti and Agostino Lieti, Neapolitans, who are in Paris and ought to have been expelled long ago, are arrested ... wicked minds, who give advice in Flanders, spreading rumours to kindle seditions in Paris, and have spared no effort to exasperate minds in the Palace ...

Despite these words in a letter from Mazarin to Le Tellier (Michel Le Tellier, 1603–1685), Mazarin continued to write to Tonti and pay him his pension.

E. The project designer Tonti was at first an Italian refugee, anchored with Mazarin. According to Jacques Savary des Bruslons (1657–1716), he was a ‘grand donneur d’avis’ ___________ 40 Julien Coudy, La ‘Tontine Royalle’ sous le règne de Louis XVI, (1957) 35 Revue Historique de Droit Français et Étranger 127–147, 128. It is an open question why this does not correspond to what Comte de Brienne proposed to Marquis de Fontenay: ‘Quant au sieur Lorenso Tonti, on pourra lui donner quelque bon présent, soit en argent et en une chaîne, ou tout en argent s’il l’aime mieux, et avec cela un brevet de pension des meilleurs.’ (‘As to Lorenso Tonti, we can give him some good present, either in money and a chain, or the whole in money if he so prefers, and with it a pension certificate of the best.’), letter of 18 November 1647: (1875) 13 Mémoires de la Société archéologique de l’Orléanais 222. 41 Émile Laloy, La révolte de Messine, vol. 1 (1929), 406. 42 Paul Fréart de Chantelou, Journal du voyage du Cavalier Bernin en France (1885), 229. 43 Mazarin in a letter of 18 September 1650 to Le Tellier.

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(‘great advice giver’),44 particularly in financial matters. His business, and allegedly his invention, were life annuities with the right of increase for survivors (reditus ad vitam cum augmento). They were later named after him: tontines. I. Three unsuccessful tontine and lottery plans It has been argued that tontines originated in an Italian institution called Monte delle doti, practised in particular in Florence since 1425, as reported in Book VI of the Republic by Jean Bodin (1530–1596).45 Under this scheme, a person paid on the birth of his daughter in her name 100 pounds to the Monte (capitalized at the rate of 5% per annum); the Monte disbursed 1,000 pounds when she turned 18. The idea behind the scheme was simple: were the daughter to die, there was no need for a dowry and the initial sum of 100 pounds was kept by the Monte,46 both the girl and the deposit being lost by the parents. If the daughter survived, she would be able to marry honourably without her parents having to deprive themselves during her younger years for her dowry. To do justice to Tonti, even if he borrowed the idea from the Monte delle doti, the operation as described was incomplete and defective. It was incomplete because the Monte could keep its promise only if there were a large number of contracts. A Monte delle doti was not pooling together nominees in age groups whose shares in the capital increased with the death of other nominees. Furthermore, Antoine Deparcieux (1703–1768) later proved that the scheme was defective:47 three quarters of the girls would have to die before their 18 th birthday so that one quarter of the girls could receive a dowry of 1,000 crowns. Human mortality rates were, however, considerably lower. According to a variation of the scheme, a father deposited the money only when the girl had reached the age of five. However, then the time of capitalization was reduced whereas the high mortality rates of the early years of life, which favoured large increases, were lost. With a capitalization rate of 11% or 12%, the operation would have been financially feasible for the parents but very difficult to abide by for the Monte, the case then being that of a pyramid- or Ponzi scheme in which what was promised to ___________ 44 Jacques Savary des Bruslons, Dictionnaire universel de commerce, vol. 3 (Paris 1730), 1253. 45 Tonti knew Bodin’s book and referred to it in his own book (n. 78). A similar scheme had been proposed by the Compagnie Commerciale du Morbihan in 1629. It promised to return at the end of 16 years a sixfold capital of the initial investment and nothing in the event of death; the scheme was never implemented. 46 Scipione Anmirato, Istoria fiorentine (Florence 1648), Liv. XIX. 47 Antoine Deparcieux, Essai sur les probabilités de la durée de la vie humaine (1746). Addition à l’essai (1760) (edited by Cem Behar, 2003), 6, 128.

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rightful claimants was less than what was recovered on the market. Thus, in essence it was impossible to keep the promise under ordinary mortality rates. Finally, it is important to note that a Monte functioned differently than a tontine: the investment in one girl was not simply shared by the surviving girls. Instead, the sum which was to be paid out was determined in advance. In fact, it was insurance in case of survival. However, the idea of this type of scheme proved persistent as in 1802 a ‘Tontine commerciale ou mont-de-piété établi en tontine avec l’approbation et sous la surveillance du gouvernement’48 (‘Commercial Tontine or Mount of Piety established as a tontine with the approval and under the supervision of the government’) was proposed by General Gabriel Adrien Marie Poissonier Desperrières (1763–1852). Or as Honoré de Balzac’s (1799–1850) joke put it in 1840: ‘[u]ne fille, pour sa dot, ne s’adresse plus à sa famille, mais à une tontine’ 49 (‘for her dowry, a daughter no longer has to address her family but a tontine’), thus pointing to an unresolved problem. Let us go back to the origin of the tontine of 1653. The financial and political situation of France was difficult due to the Fronde.50 Public debt was very high and would likely burden the budget for many years. In order to obviate the problem, the idea was to convert perpetual rents into long annuities or to issue annuities (in particular life annuities) to pay perpetual rents.51 In both cases a financial miracle would be expected with the financial burden on the state expiring after a certain time. 1. The tontine plan of 1653 Tonti proposed his tontine to the King in a letter dated 6 February 1652, written at Saumur and entitled: ‘Avis présenté au Roi par Laurent Tonti, où il expose son invention de la tontine’ (‘A Notice presented to the King by Laurens Tonti, in which he is presenting his invention of the tontine’).52 It is a rather strange document: an entity called the ‘royal tontine’, which was to be represented by ___________ 48

Archives of the Mont-de-piété, 2nd series, No. 413. Mercadet in Honoré de Balzac, Le Faiseur (1840), Act 1, Scene 5. 50 The preamble to the act which established the tontine of 1653 referred to ‘guerres, tant domestiques qu’étrangères de ce royaume, nous ayant obligé de si grandes et si excessives dépenses, que non seulement nous avons été contraints, pour les soutenir, outre la recette de nos revenus ordinaires, d’avoir recours à des moyens extraordinaires’ (‘wars, both domestic and foreign, have obliged us to have so great and excessive expenses, that we not only have, to support them, been compelled besides the receipt of our ordinary income, to resort to extraordinary means’). 51 Preamble to the act establishing the tontine of 1653. 52 1652, Ms Godefroy 130 / Fol. 135. 49

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Tonti and his associates, would – without giving any further detail – make use of an annual fund of 4 million pounds; drafted by Tonti himself, the document was the first in which the term tontine appeared. In the remainder of the letter, a number of benefits were provided for Tonti: an annual remuneration of 50,000 pounds for the administration of the tontine; one-tenth of the amounts raised; his office would be hereditary; a tenth of these rights would also apply to possible future tontines; he and his heirs would share in the hereditary privileges enjoyed by the ancient nobility of the kingdom; and, finally, Tonti would receive letters of naturalization. Tonti felt that the matter was on the right track: on 30 March 1652 and, thus, before the deal was completed, he donated to Henry de Codony, the King’s and Queen’s ordinary counsellor, the dixiesme des deniers qui pourront provenir des advis qu'il propose ou proposera à sa dite Majesté, pour le bien et adventage de ses affaires, soulagement de ses subjectz et augmentation de ses finances tenth of the sum of money which will come from the advices that he submits or will submit to His Majesty, for the good and advantages of His business, relief of His subjects and increase in His finances

as well as ‘la vingtième partie des deux tiers dudit dixième des deniers à lui accordés’ (‘the twentieth part of the two thirds of the said one-tenth of the moneys awarded to him’) in order to thank Codony for the troubles which he had taken.53 On 30 September he added a stake of the same value to be taken on the profit he would obtain in the future from another patent of same nature as that just obtained from the King. Tonti gave Mazarin several memoranda in which he discussed his invention of the tontine.54 The preamble of the edict of 1653 referred to these memoranda.55 Other concurrent proposals were also made. The Council of the King reached the conclusion that of all the projects ‘celui de Laurent Tonti fut trouvé le plus avantageux à l’État et aux propriétaires des rentes; ce qui le fit préférer à tous les autres’ (‘that of Laurent Tonti was found most advantageous to the State and to the owners of the rents; which made him preferred to all the others’). Accordingly, ‘nous avons par ce présent édit perpétuel et irrévocable créé, érigé et établi… une société qui sera nommée tontine royale’ (‘we have by this present, ___________ 53 É. Campardon, Ch. Samaran, M.-A. Fleury and G. Vilar (ed.), Châtelet de Paris. Y//188-Y//190. Insinuations (3 mars 1651–10 mars 1654). Inventaire analytique (2002), fol. 243v. 54 See Antoine Louis Marie Hennequin and Henri-Nicolas Emmery, Choix de plaidoyers de MM. Hennequin et Emmery (1824), 201. 55 The preamble of the act establishing the tontine of 1653 expressly referred to ‘Tonty’.

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perpetual, and irrevocable edict created, erected and established ... a society to be named royal tontine’). Tonti had thus turned his name into a generic term. The edict was published in November 1653.56 On 1 December 1653, without waiting for the registration of the Parliament of Paris, Tonti obtained the privilege of the King to have the text printed by Pierre Le Petit, the King’s printer, publisher, and bookseller. Tonti also received a monopoly on the sale of the edict to the public, under penalty of a fine of 3,000 pounds for any printer or bookseller who contravened the order. The 31-page booklet, dated 1654, was entitled ‘Edict du roy pour la création de la société de la tontine royalle, avec un Advis touchant l’establissement d’icelle et les advantages généraux et particuliers qu’elle produira’ (‘Edict of the King for the Establishment of the Royal Tontine Society, with an Opinion concerning this establishment and general and particular advantages which it will produce’), and it bore as a subtitle ‘Avec les raisons qui doivent oster aux interessés en icelle toute crainte de voir jamais divertir les fonds destinés au payement de leurs revenus’ (‘With the reasons which should suspend the persons concerned of any fear of ever seeing diverted the funds intended for the payment of their income’).57 Turning to its substance, the pamphlet reproduced the text of the edict and then presented the advantages of a tontine: for the modest sum of 300 pounds the subscriber would ‘[a]voir des espérances si disproportionnées au fonds qui les produit … qu’elles ne sont pas quasi concevables’ (‘have hopes so disproportionate to the fund that produces them ... that they are almost not conceivable’); ‘avec cent écus on peut avoir un jour cent mille livres de rente et en jouir sa vie durant’ (‘with a hundred crowns one can have a rent of one hundred thousand pounds a year and enjoy it his life long’); and, as a reminiscence of the Italian system of the Monte delle doti, it was argued that ‘les filles auront par ce même moyen assez de bien pour être mariées avantageusement’ (‘the girls will have enough means to be married advantageously’). The pamphlet also explained that the cadets of noble houses, to whom custom only left a very small portion, would ‘trouveraient un moyen infaillible de soutenir la splendeur de leur naissance’ (‘find an infallible means of supporting the splendour of their birth’). Old age, hitherto a calamity, would now lead the dependants to pamper an old person who ‘se trouvera avec assez de bien pour obliger au respect et aux soins les personnes qui auront intérêt d’en souhaiter la durée’ (‘will find himself with enough possessions to commit those persons who will have interest in his survival to respect ___________ 56

Edict du Roy pour la création de la Société de la Tontine Royale (1653). Lorenzo Tonti, Edict du roy pour la création de la société de la tontine royalle, avec un Advis touchant l’establissement d’icelle et les advantages généraux et particuliers qu’elle produira. Avec les raisons qui doivent oster aux interessés en icelle toute crainte de voir jamais divertir les fonds destinés au payement de leurs revenus (Paris 1654). 57

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him and to care for him’). Finally, a master could express his gratitude to a servant by bequeathing him a share in a tontine. Thanks to the collected sums, ‘Sa Majesté ne pouvait trouver un plus assuré moyen pour rétablir la foi publique’ (‘His Majesty would not find a more secure means to restore public faith’). The King would use the funds for the redemption of annuities. The public debt would be gradually extinguished: ‘il lui sera aisé, non seulement d’éteindre toutes les rentes’ (‘it will be easy for him not only to extinguish all rents’), but also to ‘soulager le peuple des levées extraordinaires’ (‘relieve the people of the extraordinary levies’) and ‘retirer tous les domaines engagés’ (‘to withdraw all pledged estates’). Tonti deduced that with restored finances, France ‘se rendrait redoutable à toutes celles [les puissances] de l’Europe, et mettrait le nom François en la même vénération, parmi toutes les nations, qu’il l’était au temps de l’empereur Charlemagne’ (‘would render itself formidable to all [the powers] of Europe and put the name of France in the same veneration among all nations as it was at the time of Emperor Charlemagne’). The text was communicated to the bodies of the city of Paris, the Châtelet, and the Parliament, and it was sent by the Court to the Six Merchant Guilds. The King’s letters were not verified, and thus they could not be registered. Therefore, this tontine remained a project or, as Honorat de Racan (1589–1670) said, ‘[e]lles n’eurent point de lieu qu’en la bouche des colporteurs’ (‘it existed only in the mouths of peddlers’).58 There were two main official reasons for refusing to undertake registration. First, it was alleged that it was impossible for the State to calculate the price of the loan. This reasoning was, of course, false. Secondly, it was criticized that the rate paid to subscribers was the same regardless of their ages at subscription. This seemed inequitable for elderly subscribers. This point of criticism was perfectly accurate. The tontine of 1689 remedied this defect. There were also unofficial reasons, which were to emerge later. Most importantly, the interest rate of 5% seemed too low to the members of Parliament, who were potential investors in the tontine. Perpetual annuities, for example, had been issued since 1634 at 5.56%, and also life annuities promised, depending on the annuitant’s age, higher returns.59 The tontine of 1653 was made up of 10 classes or age-groups. They were spread over a 7-year period: the 1st class from the day of birth to the age of 7, the 2nd class from 7 to 14 years, with this continuing to the 10th class for those who ___________ 58 Honorat de Racan, Histoire des tontines, lotteries et blanque royale, in: Henri Sauval, Histoire et recherches des antiquités de la ville de Paris, vol. 3 (Paris 1724), 59. 59 Life annuities on the Hôtel-Dieu, e.g., earned 5% for a subscriber of 30 years, 5.66% for those of 35 years, 9.09% for those of 55 years, and 10% for those of 60 years of age. Life annuities on the Hôpital Général offered between 6.25% (30 years) and 12.5% (70 years): Katia Béguin, Financer la guerre au XVIIe siècle (2012); Marcel Fosseyeux, L’Hôtel-Dieu de Paris au XVIIe et au XVIIIe siècle (1912).

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were 63 years old and beyond.60 Each class was to pay in a total of 2,050,000 pounds, an individual share being 300 pounds.61 In return the King committed himself to pay out a total of 1,025,000 pounds in annuities: 102,500 pounds per annum for each of the 10 classes. The initial annuity per share amounted to 15 pounds, representing an interest rate of 5%. But this sum was to increase through the death of the members of the class: Les places pour chacune des dix classes dont notre société se trouvera remplie, demeureront éteintes par la mort des acquéreurs, et les intérêts d’icelles appartiendront aux cointéressés survivants en même classe par droit d’accroissement, et seront divisés à leur profit d’année en année. The shares for each of the ten classes, of which our society will be constituted, will become extinct by the death of the purchasers, and their arrears shall belong to the surviving co-interested of the same class by right of increase, and shall be divided for their benefit from year to year.

Thus, for an initial investment of 300 pounds, the last survivor would receive an annual payment of more than 100,000 pounds. Each year, 25,000 pounds were to be paid as management fees to Tonti, including 12,500 pounds during the first year. Several guarantees were offered to subscribers, and a system of self-administration was to be adopted. The members of each class would designate a specified number of members as their representatives. The money was removed from the royal hand with respect to its receipt and its distribution: ‘Dix bons et notables bourgeois de notre bonne ville de Paris, seront par nous commis et préposés pour les deniers qui proviendront de ladite société’ (‘Ten good and noble bourgeois of our good city of Paris will be committed and appointed by us for the moneys that will come from the aforesaid society’). There was no remuneration provided for these representatives of each class. On 7 September 1652, the King had a patent issued to Tonti to grant him a tenth of all the sums that would come from the subscriptions to the tontine. The patent was signed by Phélypeaux (Louis Phélypeaux de la Vrillière, 1599–1681), Loménie (Henri-Auguste de Loménie de Brienne, 1594–1666), Le Tellier, and Guénégaud (Henri du Plessis-Guénégaud, 1609–1676), all four Secretaries of State. The subsequent refusal by the Parliament of Paris to register the plan was a tough blow for Tonti: he had been certain that his tontine would soon take place, ___________ 60 There is no rational explanation for the seven-year period. We believe that it is a reminiscence of the sacred numbers that lead to Leibnitz’s climacteric theory, according to which the renewal of the cells of the human body occurs every seven years. As the seventh year is particularly dangerous, it leads to a peak in mortality, with the worst year being the 63rd, the great climacteric. 61 Of course, the numbers do not add up as 2,050,000 cannot be divided by 300.

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as he wrote to his brother-in-law on 13 December 1653: ‘Mon affaire s’achemine icy si lentement que je ne puis pas me promettre de toucher aucune somme considérable jusqu’à la fin du moyt prochain … les apparances me font espérer un heureuz succès’ (‘My business is proceeding here so slowly that I cannot promise myself to receive any considerable sum until the end of next month … Appearances make me hope for a happy success’), and on 19 December: ‘mon affaire est en très bon état’ (‘my business is in very good condition’). Contrary to his hopes nothing happened. Tonti did not drop the effort: for 10 years he would return to it, improve it, and change some important elements in it. Thus, on 4 April 1662, he sent Colbert a petition intended for the King, asking him to communicate it to the first president and to the public prosecutor at the Châtelet, reminding the latter that the sovereign had asked him ‘[d]e revoir l’affaire de la tontine’ (‘to review the case of the tontine’). In January 1663 nothing had been done and, in a new petition, Tonti complained of the delays and the expenses he had incurred, since the project of the tontine ‘été retardé à cause de la chambre de justice’ (‘was delayed because of the Chambre de justice’).62 In March 1663, Tonti warmly thanked Colbert for a second edict concerning a tontine: ‘Je vous rends un million de grâces de la bonté que vous avez eu de faire sceller un second édit de tontine’ (‘I send you a million thanks for the kindness you have had to seal a second edict on the tontine’), and he hoped that ‘par votre ministère le roi verra bientôt cette affaire établie’ (‘by your ministry the King will soon see this business established’). This second edict has never been identified,63 and once again, nothing happened. Nevertheless, Tonti did not give up – but strangely enough, he did not modify his tontine in order to take into account the main reasons why Parliament had refused to register the tontine project, foremost, that the interest rate was the same for all the classes. And already after his first tontine plan of 1653 had failed, he launched a second plan. 2. The lottery plan of 1656 In 1656, an old wooden bridge between the Louvre and Faubourg Saint-Germain burned down.64 In order to finance the rebuilding of the bridge in stone, ___________ 62 The Chambre de justice was instituted in November 1661 and allowed the King to recover large sums from financiers. As a result, it served as a substitute for the issuance of a loan and made the proposed tontine less necessary. 63 Pierre Hébrard, Les tontines et rentes viagères de la monarchie française, de leur création sous Louis XIV à leur liquidation par la convention nationale (Thesis, Paris 2017), 202. 64 (1656) Gazette, No. 118, 1028.

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Tonti suggested a ‘Blanque or lottery’.65 For its establishment, the King granted letters patent in December 1656,66 which were verified by Parliament on 30 December 1656 and registered at the Châtelet and the City Hall on 10 January 1657. The Civil Lieutenant authorized the opening of the Blanque on 8 January 1657. The lottery contained 50,000 tickets, each at a price of 2 louis d’or (22 pounds). A capital of 1,100,000 pounds was to be raised. 540,000 pounds were provided for the construction of the bridge and a new pump. 60,000 pounds were intended for Tonti for the advice to initiate the lottery, as compensation for the costs of establishing the lottery, and as management fees.67 The remainder, 500,000 pounds, were divided into 1,215 prizes, one of 30,000 pounds, four of 10,000, 10 of 3,000, 200 of 500, and 1,000 of 300 pounds. Thus, there were 48,785 losing tickets. All tickets were to be put in a chest closed by four keys. These were held by the Marshal de L'Hopital, the provost of merchants, Comte de Brienne, and the officers of the King of the Châtelet. The closed safe was to be deposited at the City Hall. It would be opened only for the draw at the Great Office for the Poor (Grand Bureau des Pauvres) on Place de la Grève. The lottery would be drawn when the number of sold tickets reached 50,000. A 12- to14year-old child would then draw the tickets one by one as the drawn tickets were read out, and the winners were to be paid on the spot. Everyone was in favour of this plan ‘[t]ellement nécessaire pour le commerce de l’un & de l’autre côté de ladite ville’ (‘so necessary for the commerce of one and the other side of the said city’) (letters patent), and suddenly things were pressing. An Ordinance for the establishment of this lottery was published on 6 February 1657, stating that it was ‘nécessaire d’accélérer au plutôt’ (‘necessary to accelerate [the process] as soon as possible’) and that the blanque would be opened from 8 February forward. Individuals interested in tickets had to make a declaration to the Lieutenant-General. The Lieutenant-General would then register their submissions, and subscribers had to pay for the tickets at the City Hall. Despite all the activities promoting the lottery and all the discussions surrounding it, it was neither filled nor drawn. Several explanations for this failure ___________ 65 This lottery was sometimes – and wrongly – called a tontine ‘because we still had the fresh memory of the first tontine that Mr. Tonti had invented’ (‘parce qu’on avait encore la mémoire fraîche de la première tontine que Monsieur Tonti avait inventé’): Racan (n. 58), 60. This confusion would last. It was again referred to as a tontine more than one hundred years later by Jean Paganucci, Manuel historique, géographique et politique des négocians, ou Encyclopédie portative de la théorie et de la pratique du commerce (Lyon 1762), 486, and again more than two hundred years later: Pierre Bujon, Petite histoire de Paris (1887), 200, mentioned ‘lotteries in Paris called tontines’ (‘des loteries à Paris appelées tontines’). 66 A complete copy is reproduced in Nicolas de La Mare, Traité de police, vol. 1 (Paris 1707), 502. 67 De La Mare (n. 66), 474.

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can be advanced. Let us start with some technical points first. The Fronde had exhausted Parisians, and there was no money left. The problem was that no one subscribed because the country was just coming out of a foreign war at the same time as a civil war. At the end of these wars the needs of the treasury were immense. Income from old loans was not being paid or was paid very randomly and very partially, money was seized wherever it could be found, and there was no trust left.68 And the fear, well or ill-founded, of a breach of public trust prevented everyone from putting money into the lottery, ‘[l]e public n’y ayant aucune confiance’ (‘the public having no trust’).69 This fear was all the more justified as annuities had been suppressed year after year.70 Furthermore, the price of tickets was high, with very small probabilities to win, which is prohibitive for lotteries. In addition, there are political explanations for the failure of the lottery. The six merchant guilds of Paris considered the bridge in question as favouring competition and did everything they could to prevent its realization. As a result, Parliament passed a ban on lotteries on 16 January 1658. Nevertheless, the bridge was rebuilt, yet only in wood and only many years later. Thess actions sealed the failure of Tonti’s second project. Yet here again, this setback did not discourage Tonti from working out new plans. Eventually he resumed the idea of a genuine tontine. And this time, the tontine had a specific target group: the clergy. 3. The plan for an ecclesiastical tontine of 1660 Three years later, in 1660, Tonti proposed a third scheme under the name of ‘tontine ecclésiastique pour fournir des fonds à l'effet d'éteindre la dette du clergé’ (‘ecclesiastical tontine to provide funds for the purpose of extinguishing the debt of the clergy’). This was Tonti’s last plan for a tontine at the national level. The plan was of great importance to Tonti. He hoped to be the comptroller general of the tontine with a salary of 25,000 pounds. To succeed, he gave himself all the elements of respectability and used the name of messire, knight and baron of Paludi. Furthermore, he used a straw man, Bragelone who was a Maître de la chambre aux deniers. The assembly of the clergy took place at the convent of the Grands-Augustins in Paris. The plan which Bragelone developed was such that the clergy ‘pourrait profiter sans créer de nouveaux fonds, [et] sans faire de nouvelles impositions’ (‘might benefit from it without creating new funds, [and] without making new impositions’). How? – By creating a tontine. The proposed scheme was a copy ___________ 68 Racan (n. 58), 60; Alphonse Feillet, La misère au temps de la Fronde et Saint Vincent de Paul (Paris 1862). 69 Louis de Beausobre, Introduction générale à l’étude de la politique, des finances et du commerce, vol. 3 (Bruxelles 1791), 103. 70 See, e.g., Hébrard (n. 63), 187.

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of the tontine of 1653. Bragelone argued that it would pay the debts of the clergy. The collected funds would be used to repay pensions, debts, and pledges owed by the clergy. The proposal was very well received by the assembly, and the King, too, was in favour of it. The bishops of Auxerre, Chartres, and Laon were instructed to examine the project with the help of the archdeacons of Narbonne, Vannes, and Toulon. Yet ultimately, in his report of 20 November 1660, the Bishop of Auxerre dismissed the project in a somewhat Jesuitical way, without approval and without condemnation, praising the project as a very beautiful and very ingenious invention. We can only guess that the clergy was not ready to enter into a speculation on the lives of men, into a kind of macabre lottery between unknown people who would associate only to desire the death of their neighbours and to enrich themselves at the expense of their lives: Christians ought not to foment a desire so distorted, nor benefit from the death of their brethren.71 II. Other tontine plans 1. The Danish tontine plan of 1653 In late 1653, Tonti sent his brother-in law de Lieto to negotiate with Poul Klingenberg (1615–1690) over the establishment of a tontine in Denmark while he was pursuing his business in France.72 Thereupon Klingenberg left for Copenhagen to meet with the authorities without having knowledge of the entire project. He was supervised by Tonti’s correspondent, Honoré II de Coriolis, Baron de Limay (1600–1668). When negotiations were advanced, Tonti sent to Klingenberg details of the scheme, partly by code, allowing him to disclose its content to the King, provided that the latter was committed by letter not to disclose the details to third parties. The negotiations were progressing but then came to a halt due to a competing proposal made by Duarte de Lima from Hamburg. Both proposals were submitted to the Council of the King on 4 and 6 April 1653. Finally, Klingenberg received a patent from the King and began to implement the tontine named Det Frugtbringende Selskab (The Fruit-bearing Society) or, in German, Nutzbringende Gesellschaft (Beneficial Society). The tontine was composed of eight classes, each of eight years’ span: from birth to the age of 8 on up to the class for those from 56 to 64 years of age. It had 2,000 shares per class at a cost of 100 crowns for each share. The interest rate was 5% regardless of the class, as in the proposed French tontine of the same ___________ 71 72

Racan (n. 58), 61. On the developments in Denmark see Sunnqvist, 154–162, below.

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time. In the first draft of the project, the organizers were to receive 20% (presumably) of the raised capital, a percentage eventually reduced to 10%, with Tonti and Klingenberg each to have 5%. Among the subscribers was, for example, the Danish chancellor Christian Thomesen Sehested (1590–1657), with whom Klingenberg had negotiated. He took 20 shares, but asked Klingenberg to repurchase 15 of them. Nevertheless, the tontine was not a success despite having sparked huge excitement throughout the country: because of a lack of money and threats of war, the subscription rate was only about 5%.73 Klingenberg had sent an agent through the country and had requested the subscriptions of important people. The project came to a halt, yet it established the first step to Klingenberg’s fortune, whose energy and intelligence had been noticed by all in the Danish court. The following year, he was appointed Postmaster General, and later on he became, for instance, a member of the Board of Admiralty. 2. A Hamburg tontine plan of 1653 In a letter to Lieto of 19 December 1653, Tonti mentioned another private tontine that Klingenberg considered establishing in Hamburg, his home city, for middle-class people and traders. In the immediate future nothing happened. But the idea of a tontine did eventually materialize: the cities of Kampen and Groningen initiated tontines in 1670, Middelburg and Amsterdam in 1671, and Goes in 1673. Amsterdam created its tontine in order to finance a war. 3. The tontine plan of 1663 for the States of Brittany In a letter to Colbert of 19 October 1663, Tonti proposed to establish a tontine in Brittany through Marshal de La Meilleraye, who ‘[a]vait jugé l’affaire de la tontine fort bonne, et très avantageuse pour la province de Bretagne’ (‘had considered the case of the tontine very good, and very advantageous for the province of Brittany’). Yet once again the project failed; this time because the province had no disposable income to guarantee the annual payments to subscribers. 4. The tontine plan of 1667 for the States of Languedoc In 1667, Tonti proposed a tontine to the States of Languedoc, which would eventually be carried out at his initiative and according to his ideas. However, ___________ 73 Anders Hald, A History of Probability and Statistics and their Applications before 1750 (1990), 120.

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the following year would see Tonti imprisoned. When he was released, weakened – ‘Mon père se trouvant indisposé’ (‘my father not being well’) as his son wrote on 9 November 1677 – he resumed his idea of a tontine for the States of Languedoc. Through his son, he proposed to the President of the States, a ‘royal tontine’ with a more elaborate model which, in some respects, had similarities with the proposals advocated on his behalf by De La Salle. Indeed, in his proposal, there would be 14 classes of five years’ length, the last one ‘[c]ommencera à la soixante-cinquième année pour finir à la soixante-dixième, avec pouvoir néanmoins à ceux qui auront un âge plus avancé de se faire inscrire, sy bon leur semble’ (‘starting with the sixty-fifth year to end at the seventieth, however with the possibility for those who were of a more advanced age to be registered, if they so wish’).74 These classes were priced, ‘[a]ffin d’éviter le préjudice que causeroit la disparité des âges’ (‘so as to avoid the harm that would result from the disparity of ages’), with a gradation every 15 years, except for the first price group which went from the birth until the age of 25. Tonti introduced special provisions in order to make this tontine more attractive for those who subscribed to more than one share. Similar provisions were proposed for the Danish tontine plan of 1653. Que tous les estrangers qui y achepteront dix places ou au-dessus, seront naturalisés françois et jouïront des privilèges de la nation. Que tous ceux qui achepteront cent place, tant françois qu’estrangers, seront déclarés nobles. That all the foreigners who will buy ten shares or more, will be naturalized French and enjoy the privileges of the nation. That all those who will buy one hundred shares, both French and foreigners, will be ennobled.

Tonti did not forget himself: he requested more or less the same benefits as he did in his letter written on 6 February 1653 at Saumur: as initiator of the tontine he was to be granted a patent ‘signé par les quatre secrétaires d’état’ (‘signed by the four State Secretaries’). He was to be given ‘en titre d’office héréditaire et à perpétuité’ (‘hereditary title’) of the ‘controoleur général’ (‘general comptroller’) of the tontine as well as ‘de toutes celles qui s’establiront dans le royaume’ (‘of all those which will be established in the kingdom’). By way of compensation, he demanded the ‘dixième partie de toutes les sommes qui proviendront par l’establissement de la tontine’ (‘tenth part of all the sums which will result from the establishment of the tontine’). However, he was ‘prest à se désister de ce droit’ (‘ready to desist from this right’) and to be satisfied with the ‘dixième partie des augmentations qui se feront par la mort des associés’ (‘tenth part of the increases which will result from the death of the associates’) and a ‘louis d’or seulement’, ‘just one golden louis’, for each sold share. If the deal were to work, he would make a fortune! But his position was delicate, his health poor, and people were ___________ 74 (1879) 5 Les Chroniques de Languedoc. Revue du midi historique, archéologique, littéraire et bibliographique.

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wary of him. He sensed this, so he asked his correspondent to intervene, with Colbert to be called to prepare the project on site: he begged ‘très humblement votre éminence de vouloir agréer afin que l’on m’envoie aux estats travailler à cette belle affaire, et y ménager mes intérêts’ (‘humbly your eminence to approve that I should be sent to the States to work on this attractive affair and to save my interests there’). The deal would restore his official position and would bring him back into business, which he no longer was. At the same time, it would restore his finances. He renewed these requests a few weeks later in Italian. They were passed on to Colbert on 20 December 1677, but nothing happened, which means that the affair had come to an end as regards Tonti. Colbert no longer wanted to hear about the man and his projects. Nevertheless, seven years later, in 1684, a new proposal was brought forth to the President of the States of Languedoc, with ten age-groups only. This project constituted a pale imitation of the project suggested by Tonti. It was the conclusion of Racan that ‘Laurent Tonti … a publié trois tontines qui ont fait grand bruit et peu d’effet’ (‘Laurent Tonti … published three tontines which caused a big stir and had little effect’).75 Yet this remark is unjustifiably disparaging as regards someone who created, albeit without seeing its realization in his lifetime, an institution which still bears his name today, an institution that let thousands of people dream of a tangible fortune for their later years. Moreover, Tonti proposed more than just three tontines. And the assessment of Racan ignores that Tonti’s activity was not restricted to promoting his idea of the tontine. III. Further projects and plans Tonti was an informant, a project-maker, and an adventurer – as one liked them at the time. His ideas concerned the financial sector and economic questions in general. His setbacks did not prevent him from meditating on other useful projects. On 22 May 1666, Tonti wrote, for example, a long letter from the prison to Colbert, proposing a number of projects.76 First, as if necessary for one of the leading Mercantilists, he advised Colbert to be wary of smuggling and trafficking on stockings from England. Secondly, he suggested establishing nurseries of white mulberry trees throughout the kingdom, to plant them along roads, so as to obviate the population’s need to resort to foreign silks. He also proposed a draft law that would prevent ‘toutes oppressions et violences des grands seigneurs envers les faibles, toutes rapines, voleries et pillages des officiers de justice’ (‘all ___________ 75

Racan (n. 58), 58. An extract of this letter is published in Georg Bernhard Depping, Correspondance administrative sous le règne de Louis XIV, vol. 3 (1852), 17–22, 21. 76

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oppressions and violence of the great lords towards the weak, all the rapine, theft and plunder of the officers of justice’). Finally, he had an idea ‘pour rendre la société des Indes en moins d’un an la plus puissante de l’Europe’ (‘on how to make the India Company in less than a year the most powerful in Europe’). Unfortunately for Tonti, Colbert did not react to his proposals. At times, Tonti also turned to politics, particularly concerning his home country. For example, around 1664, during the conflict between Louis XIV and Pope Alexander VII, he offered to kidnap with the help of 2,000 to 3,000 outlaws the pope and his family in Castel Gandolfo, to set fire during the same night to all the palaces and furniture belonging to the pope’s parents, to bring them to the coast, and to put them into boats sailing towards French warships. However, this far-fetched plan does not seem to have been taken heed of.77 In a note dated 30 August 1665, Tonti wrote to Colbert about a book which he had authored in 1664: ‘Relation de la conduite présente de la cour de France’ (‘Description of the present conduct of the court of France’).78 The chancellor, Le Tellier, had on behalf of the King forbidden him from publishing it. Against Le Tellier’s order, a bookseller had, as Tonti claimed, ‘the effrontery to have it printed’. Tonti now appealed, through Colbert, to the King’s justice. The book – its narrator was a religious man who addressed a cardinal in Rome – described recent political developments in France. The passages on the King and his ministers were, as could be expected, full of praise. However, in the midst of the book the narrator criticized overly greedy financiers who were forced by the Chambre de justice to comply with its orders. Tonti disclosed to Colbert that ‘I composed last year the “Description”’. Indeed, the first edition may be considered as bearing his signature. It is signed: ‘LT of Paris on 11 August 1664’. Then, in the light of Le Tellier’s order, he became frightened and tried to distance himself from the publication: ‘against my hope and without my knowledge, it had been printed’. In later editions the signature was changed to SVNV, and the work was attributed to Giovanni Battista Gasparo Nani, ambassador of Venice in France. In conclusion, it seems that Racan was too harsh with his assessment of Tonti’s work:79 Laurent Tonti … s’est érigé en donneur d’avis, où il a été fort fertile et peu heureux, et n’a rien oublié pour faire accroire qu’il savait une infinité de moyens d’enrichir ceux qui le voudraient écouter, en peu de temps, à peu de frais et sans être à charge à qui que ce soit ; mais n’ayant su prendre pour soi-même les trésors qu’il promettait aux autres, il mène une vie obscure et se repaît encore ou d’espérances ou de fumée.

___________ 77

Laloy (n. 41), 406. Relation de la conduite présente de la cour de France (Leyde 1665; 2nd edn., Cologne 1665). 79 Racan (n. 58), 58. 78

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Laurent Tonti set himself up as an ... advice-giver, an activity in which he was very innovative but less successful, and forgot nothing to make us believe that he knew an infinity of means to enrich those who would listen to him, in a short while, at little cost and without being a burden to anyone else; but not having been able to pile up for himself the treasures he promised others, he led an obscure life feeding on hopes or smoke.

F. Personal financial problems When the revolution of Naples collapsed, all those who had taken part in it fled to other Italian principalities or took refuge in France. Mazarin, their compatriot, always did what he could do for them and made as much use of them as possible, preserving the possibility of using them to the advantage of France in the event their services became necessary in Italy. After Mazarin’s death, the situation of the Italian refugees changed. Louis XIV had no ambition as regards Italy. The feeling in France was that it was better to refrain from intervention in Italy and to concentrate on affairs in the north and in the east of France. Besides this, Colbert sought to reduce expenses. The Neapolitan refugees were directly affected by this change of policy. In his letters to Colbert, Tonti pointed out that he had received a pension from 1648 (or 1649) to 1660. Thereafter, he received only half the pension, and it was paid only intermittently. From then on, Tonti multiplied his letters to Colbert and to the King and augmented them with the following arguments: on the one hand, he described what he had brought to France, and he always availed himself of Mazarin’s judgment, who considered that ‘[l]’affaire de la tontine était un trésor caché dans ce royaume’ (‘the affair of the tontine was a hidden treasure in this kingdom’)80 and ‘une minière d’or pour le roi, et d’en tirer tous les ans plusieurs millions qui ne seront jamais sujets à remboursement’ (‘a gold mine for the King, drawing several millions every year, which will never be subject to reimbursement’).81 On the other hand, he never failed to recall the services he had rendered to France at the time he was in Italy, and all that it had cost him: ‘[e]n considération des grands services qu’il a rendu à Votre Majesté tant dedans que dehors le royaume’ (‘in consideration of the great services rendered to Your Majesty both within and outside the kingdom’),82 and ‘pour m’être sacrifié pour Son service, les grandes pertes que j’ai fait pour la même cause’ (‘for sacrificing myself for His service, the great losses I have made for the same cause’);83 ‘en considération des services que j’ai rendus à l’État et des pertes de biens que j’ai souffert pour ___________ 80

1 March 1663. 19 January 1663. 82 Petition to the King. 83 To Colbert, 19 January 1663. 81

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m’être sacrifié pour cette couronne’ (‘in consideration of the services I rendered to the State and the loss of property which I suffered for having sacrificed myself for the crown’).84 His letters were filled with grievances about the embarrassment in which he lived with a household of 17 (or even 19) people. He confessed his poverty, expressed the fear of being imprisoned (‘as I am pursued by my creditors’), and implored the pity of the King and the minister, summoning the latter, in the name of Mazarin, their former common protector, to come to his rescue. Through Colbert, on 19 January 1663, Tonti asked the King to pay him the pension which was already well behind: he had received nothing ‘années 1661 et 1662 de la pension de 6000 livres par an que feu Monsieur le cardinal de Mazarin lui faisait donner par ordre de Sa Majesté’ (‘during the years 1661 and 1662 of the pension of 6,000 pounds a year that Cardinal Mazarin had granted him following an order from His Majesty’), both in consideration of the services rendered outside the kingdom and for the expenses incurred for the promotion and establishment of the tontine.85 On 27 November 1664, he again solicited Colbert and the King to procure him a prompt assistance for what has been ‘[d]û du passé, et le rétablissement de la pension qui m’a été payée depuis l’année 1648 jusqu’à 1660’ (‘due to him of the past, and the restoration of the pension which was paid to me from 1648 to 1660’). On 19 October 1668, while in prison, Tonti, through Colbert, solicited the Queen to contribute ‘[p]ar ses soins et par ses diligences’ (‘by her care and diligence’) to the trousseau of his daughters entering a convent, because he wanted to give two of his daughters ‘pour épouse à Jésus-Christ, qui prieront toute leur vie pour la santé et la prospérité de toute votre famille’ (‘as wives to Jesus Christ, who will pray all their lives for the health and prosperity of all your family’).86 In a note attached to the letter, Tonti begged the Queen to help his daughters enter a convent. A previous request by Tonti had in fact been successful: the Gazette announced that on 7 January 1664, the Queen Mother had gone to the Convent of the Daughters of Mercy in the Faubourg Saint-Germain, where ‘sa Majesté donna le voile à la fille du Sieur Tonty, gentilhomme romain, la cérémonie ayant été faite par le cardinal Antoine et la prédication par l’évêque d’Amiens’ (‘her majesty gave the veil to the daughter of Sieur Tonty, a Roman gentleman, the ceremony having been conducted by Cardinal Antoine and the sermon by the Bishop of Amiens’).87 ___________ 84

1 March 1663. Depping (n. 76), 17–22. 86 Depping (n. 76), 19. 87 Gazette, 12 January 1664, 48. 85

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G. Tonti in prison Tonti had hoped to obtain a 25,000 pounds income from the first tontine, then 20,000 crowns from the planned lottery. From the third planed scheme, he had again hoped to receive 25,000 pounds. Each time, the project had failed, and he had been disappointed. However, he needed money for living, to support his family and many dependents. France seemed deaf to his appeals. He was therefore left without an income; he felt pressed by need, abandoned by the King, and he was disappointed – both for financial and moral reasons – ‘[p]iqué au plus haut point du peu de cas que l’on faisait à la cour de ses services considérables’ (‘sharply wounded of the little case made at the court of his considerable services’). Tonti resorted to another solution, drawing on his Neapolitan experience: he tried to take advantage of the rivalry between France and Spain. As his hopes in France were disappointed, he now tried to play the Spanish card. Accordingly, Tonti offered his services to the Spanish ambassador. He was ‘[r]ésolu de se sacrifier désormais pour le service du Roi d’Espagne’ (‘ready to sacrifice himself henceforth for the service of the King of Spain’). He offered to provoke trouble in France, which would be an easy task given the existing discontent ‘in all classes ... because of the prosecutions made by the royal treasury to extort the last penny from them’. Furthermore, he offered to inform the Spanish ambassador of everything the King of France did, and of all information he had on foreign sovereigns. He noted that, having ‘l’amitié des grands de la cour et particulièrement de M. de Turenne et de ses fils servant auprès du roi’ (‘the friendship of the grandees of the court, and particularly of M. de Turenne and his sons serving the King’), he could serve all the plans of the ambassador. This change of allegiance had to be paid at the fair value of what Tonti considered necessary for restoring his fortune, and his requests were substantial. Unfortunately for him, the letter fell into the hands of the French government,88 but nobody told Tonti officially. Thus, he always claimed that it was for the publication of the aforementioned book that he was arrested. He was imprisoned in the Bastille by a royal order of 30 January 1668, countersigned by Le Tellier, who was at the time State Secretary for War. His two sons followed: the eldest on 15 February, the order being countersigned by Lionne, who was the State Secretary for Foreign Affairs, and the second, ‘[l]’un des mousquetaires de ma seconde compagnie de mousquetaires à cheval’ (‘one of the musketeers of my second company of mousquetaires à cheval’), on 3 March, the order being countersigned again by Le Tellier.

___________ 88 Laloy (n. 41), 406–408, discovered the letter and cited it from: Affaires Etrangères, Naples, vol. 11, f. 57, 85.

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At first there was a strict order that his two sons should not communicate with each other and that they should not communicate with their father. A few weeks later, the prisoners were allowed to walk together on the terrace (1 June 1668, order by Le Tellier). Then the two sons could share the same room (8 September 1668, Le Tellier). Finally, the father also shared that room (22 April 1669, Le Tellier). In March 1669, Tonti’s wife died, doubtless of misery. The King, ’ayant écouté avec sa bénignité ordinaire la supplication de la famille’ (‘having listened with his usual benignity to the supplication of the family’) to impart such bad news, authorized the family to announce the death by means of a ‘jésuite ou telle autre personne que le gouverneur de la Bastille désignerait’ (‘Jesuit or any other person whom the Governor of the Bastille would designate’).89 Tonti was a prisoner at his own expense, that is to say, he had to buy food and clothes with his own money; having no money left, he had to borrow money from his fellow prisoners. He also sought money elsewhere: Cardinal de Retz (JeanFrançois Paul de Gondi, 1613–1679) on 17 June 1669 explained to his correspondent that Tonti, who was in the Bastille ‘demande effrontément de l’argent’ (‘shamelessly asked him for money’) and that he was not going to give any to him.90 Later on Tonti was more fortunate. On 4 March 1675, he most graciously thanked Colbert for having obtained from the King a sum of 600 pounds, ‘lesquels ont été employés à m’habiller et à me donner du linge comme aussi pour donner les mêmes choses à mes deux fils qui sont détenus en ce lieu avec moi’ (‘which were used to dress me and give me linen as well as to give the same things to my two sons who are being held in this place with me’). But again he could not help soliciting additional money:91 J’espère aussi que Son Excellence me procurera de Sa Majesté, lorsque le bon Dieu le lui inspirera, les 1600 livres que je dois à ceux de ce château qui m’ont fourni depuis sept ans les choses qui m’ont été nécessaires et à mes fils aussi; cependant je vous conjure, … de continuer vos bontés pour la subsistance de ma fille, qui est chargée du reste de la famille, et laquelle est réduite dans la dernière nécessité. I also hope that His Excellency will procure from His Majesty, so God will inspire him, the 1,600 pounds that I owe to those of this castle, who for seven years have furnished me with the things which have been necessary to me and to my sons too. Yet I entreat you … to continue your kindness for the subsistence of my daughter, who is in charge of the rest of the family, and who is reduced to the last necessity.

Then things began to improve: on 20 October 1675 the director of the Bastille, François de Montlezun de Besmaus set Tonti free under the custody of De La ___________ 89 Ravaisson (n. 39), 294. See also Giovanni Ermengildo Schiavo, Four Centuries of Italian-American History (1992), 86, with a facsimile of various mails from and to Tonti in the Bastille. 90 Jean François Paul de Gondi, Cardinal de Retz, Oeuvres du cardinal de Retz, vol. 8 (1887), 270. 91 Ravaisson (n. 39), 296.

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Salle, in order to ‘get himself cut’ (to be operated on) for stones as is stated in a note. The order was countersigned by Seignelay (Jean-Baptiste Antoine Colbert, Marquis de Seignelay, 1651–1690), who was the son of Colbert. Tonti’s two sons were released on 29 November 1675 under the guard and responsibility of the same De La Salle against his written promise to represent them whenever needed. The order was countersigned by Colbert. There is still some confusion as to which of Tonti’s sons were imprisoned together with him. It is alleged that it was his two eldest sons, yet this is impossible. It is generally accepted that the eldest son was Henry Tonty. However, at the time he was in the navy. In 1668 he had enlisted as a cadet, and he served as a marine guard for four years in Marseille and Toulon. He participated in seven campaigns, four of which were on vessels and three on galleys. In Messina he was appointed captain-lieutenant of the camp-master. In 1677 his hand was injured by a grenade at the headquarters in Libisso (today Porto Torres) and had to be replaced with an iron hand. Then he was taken prisoner for six months, to be finally exchanged for the son of the governor. Returning to France, he solicited for some benefits and received 300 pounds; he then left for Sicily, where he served as a volunteer on a galley. 92 It is generally accepted that Tonti’s second son was Alphonse. Again, it is very unlikely that Alphonse was imprisoned together with his father in 1668. He was born only in 1659. Thus, he was too young to be a spy in the pay of the Spaniards. And the order of arrest and detention expressly spoke of a musketeer, which again excludes nine year old Alphonse. Who then was imprisoned together with Lorenzo Tonti? We do not know. Tonti talked about 17 or 19 dependents, including at least 5 girls. It is probable that the prisoners belonged to Tonti’s direct family, as he spoke of his sons in his letter to Colbert. The two imprisoned sons may have been those of Tonti and Angela di Lieto. After her death, he may have married Isabella di Lieto, her sister, and had three further boys with her. As for the five girls, we do not know who their mother was. And who is this Sieur De La Salle who took Tonti and his sons under his custody, and what is his role in this story? Usually, he is said to be René Robert Cavelier de La Salle (1643–1687).93 However, Pierre Hébrard convincingly argues that it was François De La Salle, Lord of Chastelux.94 He was an advisor and an ordinary gentleman of the King’s chamber. He knew Tonti because, while the latter was in prison, he was ‘[c]hargé de toutes les propositions de la famille du dit Tonti’ (‘in charge of all the proposals of the family of the said Tonti’) with ___________ 92

Benjamin Sulte, Les Tonty (1893), 4. See, e.g., Ravaisson (n. 39), 296. 94 Hébrard (n. 63), 200. 93

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the mission of representing him and organizing the promotion of all his projects. Hébrard discovered several documents which prove his point. De La Salle proposed to create a new royal tontine ‘sans y changer ni ajouter que fort peu de choses’ (‘without changing or adding anything, but very little’). In fact, he completely upset its architecture. The number of classes increased from 10 to 15. Their amplitude dropped from 7 to 5 years. Only the French King’s subjects living in France were allowed to subscribe. The initial annuity was changed. From each annuity one pound was to be deducted for the costs of administration. The subscription period was four months. A draft of an edict followed. There were further major changes to the original plan. First, it was henceforth De La Salle, not Tonti’s children, who would administer the tontine. However, Tonti’s children were to be compensated for all the losses that they had as well as for the expenses incurred by their father. And at De La Salle’s death, Tonti’s children would inherit his right to be the tontine administrator. Secondly, De La Salle proposed to take into account the ages of the underwriters: ‘[l]es premiers mourants n’auraient pas été suffisamment récompensés de la perte de leur capital, si leur revenu n’avait été payé qu’au denier vingt’ (‘the first dying persons would not have been sufficiently rewarded for the loss of their capital if their income had been paid only 5%’). As a result, remuneration became progressive: the age groups had a span of 5 years and two consecutive age-groups were to receive the same interest rate; for example, the two youngest classes (from birth to under 5 years and from 5 to under 10 years) were to earn 5.56%, the next two groups (from 10 to under 15 and from 15 to under 20 years) 5.88%, up to the oldest age-group (70 years and more) which was to receive 10%.95 The project did not materialize. The confusion between Cavelier De La Salle and François De La Salle stems from the fact that it was Cavelier De La Salle who in 1678 first recruited Henry, and then in 1685 Alphonse, to accompany him to Canada.96 According to his own writings, Henry, who was patronized by the Prince de Conti, was recommended ___________ 95 This was the exact scheme (age-groups and interest rates) of the first French tontine of 1689. 96 The elder one, Henri, organized with unusual energy the exploration of Canada and the Mississippi basin – named by him Colbert river; see E.B. Osler, in: Dictionary of Canadian Biography, vol. 2 (1969), 633–636. The younger one, Alphonse de Tonty, baron de Paludy (all in a Gallicized form with a ‘y’; the name was preserved: (1872) 7 Revue nobiliaire, héraldique et biographique 276) founded a French post in Detroit, Fort Pontchartrain du Détroit – it was Pontchartrain who issued the first french tontine. He had, as aide-de-camp, his cousin Pierre-Charles de Lieto (Liette/de Liette/Deliette). Alphonse is known for his irascible character (quarrels with Cavelier de la Salle, with the Hurons, and with passing Europeans) and for his financial problems, which he tried to solve in every possible way: Russ (n. 2), 631–633.

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by the Prince to Cavelier de la Salle on a day when Henry was at Versailles in search of a new assignment.97

H. Epilogue Tonti died in 1684 or earlier. Indeed, De La Salle’s draft edict of that year opened with the words: ‘La tontine royale est une affaire qui fut inventée en l’année 1652 par le défunt Laurens Tonti’98 (‘The royal tontine is a business that was invented in 1652 by the late Laurens Tonti’). His death is also confirmed in a report on the first successfully launched tontine in 1689, which again mentioned ‘the late Mr. Tonty’.99 He died in utter poverty: ‘Tonty mourut inconnu, plus malheureux, plus pauvre que quand il vint en France’ (‘Tonty died unknown, more miserable, and poorer than when he came to France’). 100 However, he was not forgotten: the lutenist Robert de Visée (1660–1732) dedicated to him a tombeau, a composition on the occasion of his death.101 Everything in his life seemed to have been a failure. The Neapolitan revolution had collapsed. His many projects had proved chimeras. Despite this lack of success, Tonti had brought to France two things which, although having already existed in one form or another in Italy, were innovations for the former country: lotteries and tontines. In the case of lotteries, the aleatory element is that of the draw. In the case of tontines, the aleatory element is that of mortality – the mortality of others and one’s own mortality. Both lotteries and tontines may lead to fortune: tontines are lotteries on life. This link was already identified in the Encyclopédie méthodique, Finances of 1787, which stated that a tontine is ‘[une] [e]spèce de rente, qui a pris son nom de Laurent Tonti, Napolitain, qui, le premier, proposa cette sorte de loterie en France, en 1653’ (‘[a] kind of annuity which took its name from Laurent Tonti, a Neapolitan who, for the first time, proposed this type of lottery in France, in 1653’).102 When he died, Tonti had only one triumph to his credit – and no small one: he had given his name to the financial scheme which he had designed, the tontine.

___________ 97 Henry de Tonti, Dernières découvertes dans l’Amérique septentrionale de M. de la Salle (Paris 1697), 2. He disavowed the book by asserting that it was not his; but the text is based on numerous petitions and reports that he sent to Paris. 98 See Hébrard (n. 63), 181. 99 Mercure Galant, December 1689, 261. 100 C.B. Merger, Des assurances terrestres. Traité théorique et pratique, vol. 1 (1858), 19. 101 Monique Rollin, Les tombeaux de Robert de Visée, (1953) Bulletin de la Société d’étude du XVIIe siècle 73–78, 75. 102 ‘Tontine’, in: Encyclopédie méthodique, Finances, vol. 3 (Paris 1787), 705.

Chapter 3: Financial Engineering in the 17th and 18th Centuries – Tontines in England, France, and Ireland By Georges Gallais-Hamonno and Christian Rietsch* A. Introduction .............................................................................................................. 49 B. Some general points on tontines ............................................................................... 50 I. Definitions......................................................................................................... 50 II. The origins of tontines in France and England compared ................................. 51 III. Financing wars .................................................................................................. 52 C. The diversity of tontine designs ................................................................................ 53 I. The actuarial fairness of tontines....................................................................... 53 II. Tontines as an attractive investment ................................................................. 54 D. The designs of English, Irish, and French tontines ................................................... 56 I. The English and Irish tontines ........................................................................... 56 II. The French tontines ........................................................................................... 61 III. The cost of tontines for issuers .......................................................................... 66 E. A critical assessment ................................................................................................ 67 I. The age span of classes ..................................................................................... 68 II. Introducing subdivisions ................................................................................... 69 III. Capping the annuities ........................................................................................ 72 IV. The administration of tontines........................................................................... 72 V. Preventing fraud ................................................................................................ 73 VI. The objectives of investors ................................................................................ 75 F. Conclusion ................................................................................................................ 77

A. Introduction Peter G.M. Dickson proved that the industrial revolution1 was preceded by a financial revolution starting with the Glorious Revolution in 1688. On the basis of this, Douglass North and Barry Weingast2 demonstrated that the change in the balance of power was an essential condition for the financial revolution: the budget came under the control of Parliament. Investors no longer had to fear a ___________ * The authors thank the editor for his help tracking down remaining errors in a first version of this chapter. Of course, the authors are responsible for remaining errors. 1 Peter George Muir Dickson, The Financial Revolution in England. A Study in the Development of Public Credit, 1688–1756 (1967). 2 Douglass North and Barry Weingast, Constitutions and Commitment: The Evolution of the Institutions Governing Public Choice in Seventeenth-Century England, (1989) 49 Journal of Economic History 803–832.

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sovereign default. By comparison, France lagged behind as to financial practices. This explains the French delay as regards the industrial revolution, too. According to this narrative England is considered as a model: a country which knew how to manage its loans, committed to paying its public debts and actually paid them. By contrast, France appears as an out of control monarchy, having incompetent financiers in charge and being regularly bankrupt as to its public debt. There are numerous papers discussing the relevance of these findings, particularly as regards their political implications – the link between a change in the political system and the commitment to pay debts as well as questions of credibility – and their economic policy consequences, especially considering developing countries and their recurring problems of national debt crises. Some authors have underscored the adequacy of these findings: John Wells and Douglas Wills as well as David R. Weir.3 By contrast, very significant nuances were added to the discussion by Stephen Quinn, Wells and Wills, David Stasavage, Nathan Sussman and Yishay Yafeh.4 However, an almost forgotten financial scheme – the tontine – proved successful in France whereas it went through a set of failures in England. A close comparison will show that, at least for this financial domain, the technical and financial superiority of England may be questioned.

B. Some general points on tontines I. Definitions A tontine (or tontine loan) is a financial scheme under which a group of people invest in a closed fund. Each contract is based on the life of a person duly named (who can be either the investor himself or someone else). At the end of each year, the interest on the principal (the annuities) is paid by the tontine issuer to the investors whose nominees are still alive, with surviving members sharing the annuities due to deceased members. Thus, surviving members enjoy an increase of their annual income, this increase being called revenant-de-bon in French and ___________ 3

John Wells and Douglas Wills, Revolution, Restoration, and Debt Repudiation: The Jacobite Threat to England’s Institutions and Economic Growth, (2000) 60 Journal of Economic History 418–441; David R. Weir, Tontines, Public Finance, and Revolution in France and England, 1688–1789, (1989) 49 Journal of Economic History 95–124. 4 Stephen Quinn, The Glorious Revolution’s Effect on English Private Finance: A Microhistory, 1680–1705, (2001) 61 Journal of Economic History 593–614; David Stasavage, Public Debt and the Birth of the Democratic State: France and Great Britain, 1688–1789 (2003); Wells and Wills (n. 3); Nathan Sussman and Yishay Yafeh, Institutional Reforms, Financial Development, and Sovereign Debt: Britain, 1690–1790, (2006) 66 Journal of Economic History 906–935.

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‘sweetness’ or douceur in English. Consequently, the last surviving member will receive the total income due to the whole of his group. The death of the last member puts an end to the issuer’s debt – the principal never being reimbursed.5 Tontines have four categories of participants: (1) the issuer of the tontine – the Exchequer in England, the Trésor (Treasury) in France; (2) the investor or contributor who pays the price of the share; (3) the payee who receives the annuities; (4) the nominee on whose life the contract is based. As long as the nominee lives, the payee (or the payee’s heirs) receives the annuity. Even though it is possible to distinguish four categories of participants, often the contributor, the payee, and the nominee were one and the same person. II. The origins of tontines in France and England compared Tontines came to France via Italy. In 1653, Lorenzo Tonti (1602–1684), an Italian adventurer, proposed the scheme to Cardinal Mazarin (1602–1661), who noted: ‘C’est une mine d’or pour le Roi’ (‘It’s a gold mine for the King’).6 Mazarin wrote the draft of the edict which was supposed to implement the first tontine. However, this draft was not approved by Parliament for three reasons: (1) the impossibility of measuring the costs of the tontine; (2) the belief that the costs would be very high; (3) the annuity rate paid to payees being the same whatever the age of their nominees was. For unknown reasons Mazarin did not amend his text and the project was abandoned.7 36 years later, in 1689, the idea reappeared. Finally, ten public tontines were issued, respectively in 1689, 1696, 1709, 1733, 1734, in January and February 1743, 1744, 1745, and in 1759.8 The three first were notably undersubscribed, the six following tontines collected the expected capital, and the last one was largely oversubscribed. By contrast, tontines came to England via Holland: William of Orange brought them over when he invaded England. His financial advisers were wellversed in tontines, which had been issued by numerous Dutch cities. However, tontines did not appeal to the English people. Consequently, only four tontines were issued during the 17th and 18th centuries: in 1693, 1757, 1766, and 1789. The tontine of 1757 had to be cancelled. The three others proved failures, collecting only a tiny share of the expected capital. The tontine of 1789 will be further discussed below: while initially a true success, it was later transformed ___________ 5 The fact that the capital is not repaid is of importance. It was not a loan and, thus, the ban on interest did not apply. 6 Georges Gallais-Hamonno and Jean Berthon, Les emprunts tontiniers de l’Ancien Régime, un exemple d’ingénierie financière au XVIIIe siècle (2008), 8. 7 Gallais-Hamonno and Berthon (n. 6), 125. 8 In addition, in 1714, like in 1653, a tontine was planned but not issued.

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by the Exchequer into a failure because of the issue of another more attractive scheme. Conversely, the three Irish tontines issued in the 1770s were successful, but they were each of a small size and had serious organizational limitations. III. Financing wars The public French and Anglo-Irish tontines were issued for the same reason, to finance wars: the War of the League of Augsburg (financed through the French tontines of 1689 and 1696 as well as the English tontine of 16939), the War of the Spanish Succession (financed through the French tontine of 1709), the War of the Polish Succession (financed through the French tontines of 1733 and 1734), the War of the Austrian Succession (financed through the French tontines of 1743, 1744, and 1745), the Seven Years War (financed through the English tontine of 1757 and the French tontine of 1759), and the American War of Independence (financed through the English and Irish tontines of 1766, 1773, 1775, and 1777). There is only one example of a public French and public Anglo-Irish tontine which was not used to finance a war: the English tontine of 1789. Often, the purpose of financing a war is expressly referred to in the preamble to the act establishing a public tontine. For instance, the act for the French tontine of 1745 mentions the ‘[l]’augmentation des dépenses auxquelles Nous sommes obligez par la continuation de la guerre’ (‘increase of the expenditures necessary for the continuation of the war’). The preamble to the act establishing the English tontine of 1693 refers to ‘carrying on the present war against the French king’, and a similar phrase is found in the other English acts, too. Sometimes, the approach is closer to modern marketing techniques. The French tontine of 1696 is supposed to have originated from a request made to Louis XIV by his subjects: ‘Si Nous voulions en aliéner de nouvelles [rentes] en diminuant le pied des six premières classes, ils en feraient l’acquisition avec plaisir’ (‘They [the subjects] would be happy to buy some new annuities if the deniers of the first six agegroups were decreased’). The decrease of the so-called deniers meant an increase of the interest rate and, thus, of the annuities. Accordingly, the interest rate of these age-groups was increased from 5% to 7.14%. The same occurred in the Irish tontine of 1777: the interest rate was increased from 6% to 7.5%. But why did the French Treasury and the English Exchequer opt for tontines to finance wars as opposed to choosing other financial instruments? It was thought that in addition to being very profitable for investors if the nominee lived many years, a tontine was at the same time not very costly for the state, or as the act establishing the French tontines of 1734 put it: ‘Une créations de rente viagère est de tous les ___________ 9 The dating of this tontine raises a small problem: it was issued in 1692 according to the Julian calendar which was still in use in England, but in 1693 according to the Gregorian calendar which was already in use in many continental countries. We use the 1693 dating.

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expédiens le moins onéreux pour Nous procurer les secours nécessaires au paiement des dépenses de la guerre’ (‘An issue of life annuities [the act referred to the tontine as a life annuity] is the less costly technique for giving us the necessary relief for paying the war expenditures’).

C. The diversity of tontine designs Theoretically, the design of a tontine is simple. Five points need to be considered. The first two points relate to the actuarial fairness of a tontine. The other three points are important for successfully marketing a tontine. I. The actuarial fairness of tontines The most important component is the distribution of the nominees among age groups or classes in order to group together nominees having a similar probability of surviving. Thus, the introduction of classes is at the heart of the fairness of a tontine. In France, these classes generally covered five years, more rarely a maximum of ten years. If they included too many persons, an issuer might have subdivided them. The introduction of subdivisions may have had a positive side effect for the issuer: it may have induced subscribers to purchase several shares in order to be represented in several subdivisions. The following table presents the number of classes and subdivisions in the different French, English, and Irish tontines. French tontines: 1689: 14 classes 1696: 15 classes, 60 subdivisions 1709: 16 classes, 16 subdivisions 1733: 7 classes, 210 subdivisions 1734: 15 classes, 175 (150 planned) subdivisions 1743: 15 classes, 109 (105 planned) subdivisions11 1743: 15 classes, 103 (105 planned) subdivisions 1744: 15 classes, 100 subdivisions 1745: 15 classes, 100 subdivisions 1759: 8 classes, 815 subdivisions

English tontines: 1693: 0 classes 1757: 5 classes10 1766: 0 classes 1789: 6 classes Irish tontines: 1773: 3 classes 1775: 3 classes 1777: 3 classes

Strangely enough, only the last English tontine had age-groups. The presence of Dutch financial advisers in England did not prove useful in this respect. ___________ 10 The tontine of 1757 was cancelled. It was planned with five classes. It was replaced by a standard life annuity scheme without distinguishing different age groups. 11 There were two French tontines issued in 1743, the first one in January, the second one in February.

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The second fundamental component of a tontine is an increase in the interest rate along with the average age of each class. The underlying idea is that the payee should be reimbursed on the invested principal over time. Otherwise, the tontine is actuarially unfair. The importance of this component was recognized by contemporaries early on. Its absence had led the French Parliament to refuse to register Mazarin’s project in 1653. The following table presents the interest rates offered in the different French, English, and Irish tontines. 12 French tontines: 1689: 5% to 12.5% 1696: 7.14% to 14.3% 1709: 6.67% 1733: 7.14% to 12.5% 1734: 8% to 13% 1743: 5%11 1743: 5% 1744: 6.7% to 13% 1745: 6.7% to 13% 1759: 7% to 12%

English tontines: 1693: 10% for 7 years, then 7% 1757: 4% to 5%10 1766: 3% 1789: 4.15% to 5.6% Irish tontines: 1773: 6% 1775: 6% 1777: 7.5%

Thus, the interest rates differed greatly between the three countries. The French interest rates were very high, around 9% on average. This ‘generosity’ reflected the French Treasury’s financial needs owing to the wars. The idea that the interest rate increased along with the average age of each class was not fully carried through in all French tontines: with the tontine of 1696, the same interest applied to all classes until the age of 40 years. The tontine of 1709 and the two tontines of 1743 had one interest rate for all classes. And with the tontine of 1733, the same interest rate applied to two classes covering the age span of 10 years. By contrast, the interest rates offered by English tontines were very low, between 3% and 5%, with the exception of the tontine of 1693 offering 10% for the first seven years and then reducing it to 7%. These low interest rates may partly explain the success of competing financial instruments, which were issued by the English Exchequer at the same time, to the detriment of the tontine. Finally, Ireland seems not to have understood how tontines functioned: in all three tontines, the interest rate was the same for all classes. The first two tontines were issued at 6%. The third tontine was initially promoted at the same rate, but, facing problems, the rate was increased to 7.5%. II. Tontines as an attractive investment In order to make an investment in a tontine more attractive it was firstly important not to introduce a cap on the increase in the annuities. Accordingly, the ___________ 12

For the French tontines, see Gallais-Hamonno and Berthon (n. 6).

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redistribution of the annuity of deceased nominees continued until the last nominee died. The payee who owned the share on this last surviving nominee received the total amount of annuities of the respective class or subdivision. The second point which needs to be observed in order to successfully market a tontine is obvious: no competing financial instrument, and especially no instrument which is more profitable for investors, should be issued at the same time. This problem became visible in England: if a tontine did not attract enough subscribers, the unsold shares were offered again. In England, this was looked upon as a second issue. Accordingly, the tontine plan again had to go through the whole legislative process. The fact that the original issue had not been sold out proved that the offered interest rate was not considered as satisfactory by potential investors. In order to make the scheme more appealing, the second issue might have been offered at a higher interest rate. Thus, there were nearly simultaneously two issues with two different rates of return. Of course, investors would elect the more profitable scheme. Thirdly, there is the problem of pricing the shares. This problem is, of course, not restricted to tontines but needs to be addressed with all financial instruments. France and Great Britain followed diverging policies. In France, the standard investment was a perpetual annuity. The typical price was 2,000 livre tournois, which very roughly represents the current value of 30,000 Euro.13 Consequently, only members of the upper-class were able to invest in perpetual annuities. Due to the financial circumstances existing in 1689, the price per share in the first tontine was only 300 livre tournois (4,500 Euro). Thus, an investment in the tontine of 1689 was also possible for the middle-class. The objective of opening tontines to wider circles was clearly stated in the preamble to the act establishing the tontine of 1689. And indeed, a detailed analysis of the subscribers according to their position in the poll tax shows that they came from all the 22 socio-economic classes (except three):14 35% from the upper-class, 53% from the middleclass, and 12% from the working-class. These 12% should be accentuated because 300 livre tournois was a relatively large sum. The price of 300 livre tournois per share became standard with two exceptions. (1) In 1759, the price per share was lowered to 200 livre tournois. This pricing partially explains the great success of the last French tontine. (2) In 1709, due to a financial crisis, it was possible to pay for the shares with depreciated state bonds. In England and Ireland the price per share in a tontine was very high: in England 100 pounds (roughly the value of 20,000 Euro) and in Ireland 100 Irish ___________ 13 The equivalence of 15 Euro for 1 livre tournois is based on a comparison of the salaries of academics during the 18th century and university members today: GallaisHamonno and Berthon (n. 6), 11 f. 14 Gallais-Hamonno and Berthon (n. 6), 3–40.

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pounds (roughly the value of 18,000 Euro). The annual median income of an English family was 15 pounds and the average annual income (which is biased by the weight of large fortunes) was 39 pounds.15 Surprisingly, this high price did not prevent all social classes from participating in the tontine of 1693. A statistical analysis gives the following distribution of investors: 66% of the investors came from the upper-class, 26% from the middle-class, and 8% from the working-class. These percentages show a smaller level of democratization than in France, but the British price was fourfold the French one.16 In order to attenuate the effect of these prohibitive prices, the possibility was introduced to pay by instalments. For instance, with the English tontine of 1789 it was allowed to pay 10 pounds and 5 shillings at subscription with subsequent instalment payments of 15 pounds on 21 August, 25 September, 30 October, 27 November, and 24 December 1789; a final instalment of 15 pounds was due on 29 January 1790.

D. The designs of English, Irish, and French tontines I. The English and Irish tontines The first English tontine was created in 1693.17 The Exchequer could have taken its inspiration from at least two models: the French tontine of 1689 on the one hand and a series of Dutch tontines on the other hand. The French tontine was well organized and it was issued at national level. However, it had a strong psychological drawback: England was at the time at war with France. By contrast, the Dutch Republic was an ally of the English. And the Dutch tontines were known by some of William III’s Dutch advisers. However, the Dutch tontines were issued by cities. They were, thus, operated on a smaller scale. Still, they were put on the market with success: 200 tontines had been issued by the Dutch by 1700.18 Nevertheless, neither of these examples were followed by the English: the first English tontine had no less than four errors – errors which the French and the Dutch tontines did not suffer from. First, the English tontine of 1693 did not have classes. Thus, the oldest nominees were competing with the youngest. The choice of nominees was biased in ___________ 15 Peter Lindert and Jeffrey Williamson, Revising England’s Social Tables 1688–1812, (1982) 19 Explorations in Economic History 385–408. 16 Georges Gallais-Hamonno and Christian Rietsch, Tontine et rentes viagères en 1693 en Angleterre, (2016) 30 Revue Française d’Economie 26 f. 17 An Act for granting to Their Majesties certain Rates and Duties … and Advantages in the said Act mencoed to such Persons as shall voluntarily advance the Sūme of Ten hundred thousand Pounds towards carrying on the War against France, 4 Will. & Mar. c. 3. 18 Kent McKeever, A Short History of Tontines, (2009) 15 Fordham Journal of Corporate & Financial Law 490–521.

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favour of the young. The tontine was inherently unfair. It is surprising that the oldest male nominee was, nevertheless, 51 years old and that the oldest female nominee was 46 years old.19 Moreover this bias had a negative effect on the success of the issue: economically, it did not make sense for older people to invest and to name themselves as nominees. Yet, this group of people could have been an important group of investors. Secondly, the annuity rate was the same for all subscribers without taking into account their ages. Again, this error affected the fairness of the tontine. Furthermore, the interest rate of 10% decreased after seven years to a much less attractive rate of 7%. Thirdly, the increase of annuities was capped at the amount when there were seven survivors left. Consequently, the annuity of the last payee was reduced to 1,081 pounds instead of being 7,567 pounds.20 Finally, at the same time life annuities were being issued at an interest rate of 14%, and subscribers to the tontine were given the possibility to switch from the tontine to the life annuities. With such differences in returns, it does not come as a surprise that the English tontine of 1693 proved to be a failure. The government collected only 10.8% of the expected capital: 108,100 pounds instead of 1 million pounds.21 In 1757, the Exchequer wanted to raise 2.5 million pounds. It offered to subscribers two options.22 First, they could invest in a tontine. It had five classes.23 Yet once again, a cap on the increase was introduced: the distribution of the increases was limited in time. 1st class: age below 20; interest rate 4%; initial annuity per share 4 pounds; duration of increase 60 years; 2nd class: age 20–30; interest rate 4.25%; initial annuity per share 4 pounds, 5 shillings; duration of increase 50 years; 3rd class: age 30–40; interest rate 4.5%; initial annuity per share 4 pounds, 10 shillings; duration of increase 43.5 years; 4th class: age 40–50; interest rate 4.75%; initial annuity per share 4 pounds, 15 shillings; duration of increase 38.5 years; 5th class: age 50–60; interest rate 5%; initial annuity per share 5 pounds; duration of increase 35 years.

___________ 19 National Debt Office, History of the earlier years of the funded debt, from 1694 to 1786 (1898), 45. 20 The collected capital was 108,100 pounds at 7% after June 1700. The total annuities, thus, amounted to 7,567 pounds. 1,081 pounds was a one-seventh part. 1,012 lives were nominated, 604 males and 408 females. 21 For a detailed analysis of the tontine of 1693 see Gallais-Hamonno and Rietsch (n. 16). 22 London Chronicle, 24–26 March 1757. 23 The classes were defined in a rather curious way: for instance, the group for nominees of 20 to 30 years in age was defined as ‘twenty years and above’ and the next class as ‘30 years and above’. And the 1st class was defined as ‘nominee of any age’.

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The second option was a terminable annuity, with the same interest rates, but a slightly longer duration. This longer duration was said to compensate for the lack of an increases of the annuities as compared to the tontine. 1st class: age below 20; annuity per share 4 pounds; duration 66 years; 2nd class: age 20–30; annuity per share 4 pounds, 5 shillings; duration 54 years; 3rd class: age 30–40; annuity per share 4 pounds, 10 shillings; duration 46.5 years; 4th class: age 40–50; annuity per share 4 pounds, 15 shillings; duration 41 years; 5th class: age 50–60; annuity per share 5 pounds; duration 36.75 years.

This tontine was similarly a failure: the subscriptions amounted to only 313,000 pounds, 12.5% of what the Exchequer had hoped to raise. Facing such failure and pressed by financial needs, the Exchequer reacted with a new financial scheme, which it published on 28 April 1757.24 The capital to be collected was raised to 3 million pounds. A hybrid instrument was offered: a perpetual annuity for 3 pounds per year plus a standard life annuity at an interest rate of 4.125%. All subscriptions to the earlier tontine were converted into the new issue and the tontine plan was cancelled.25 The second scheme was a success. Eight years later, in 1766, the same failure was renewed. The Exchequer published a plan for a financial scheme.26 It wanted to collect 1.5 million pounds. Each of the 15,000 shares at the cost of 100 pounds was composed of three different components: (1) 40 pounds in a standard redeemable annuity at 3%, (2) 20 pounds in a tontine at 3%, and (3) 40 pounds in lottery tickets. The lottery had 60,000 tickets at 10 pounds each. Thus, each share came with four lottery tickets. There were 48,055 blanks in the lottery, each valued at 6 pounds, and 11,945 winning tickets valued in total at 311,670 pounds. What was played out was a redeemable annuity on the winning sum with an interest rate of 3%. Consequently, each share offered a minimum annuity of: (1) 1.2 pounds (40 pounds at 3%), (2) 0.6 pounds (20 pounds at 3%), and (3) a minimum of 0.72 pounds (4 lottery tickets each with 6 pounds at 3%), and thus in total 2.52 pounds or 2.52%. On average the scheme was planned to cost the Exchequer 3% (45,000 pounds on a raised capital of 1,500,000 pounds): Component Annuity at 3% Tontine at 3% Blanks at 3% Winning tickets at 3% Total interest rate: 3%

principal 600,000 pounds 300,000 pounds 288,330 pounds 311,670 pounds 1,500,00 pounds

payout 18,000.00 pounds 9,000.00 pounds 8,649.90 pounds 9,350.10 pounds 45,000.00 pounds

___________ 24

National Debt Act 1757, 30 Geo. 2 c. 19. It is symptomatic that the official document on the National Debt by the National Debt Office (n. 19) does not mention the failed tontine. 26 National Debt Act 1766, 5 Geo. 3 c. 23. 25

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The tontine had 6 classes each with a total annuity of 1,500 pounds. These classes were based not on the age of the nominees, but on the subscription order: they were ‘numbered in arithmetical progression, according to the course in which the said certificates shall be delivered to the said auditor’ (section 21). In the case of a nominee bearing two shares or more, the investor could name him into several groups. It seems that the Exchequer had not understood the rationale for creating classes in a tontine. The scheme received in total only 900 subscriptions. Thus, the investment in the tontine amounted to only 18,000 pounds with annuities totalling to 540 pounds. The total annuity of 540 pounds was too small to constitute a complete class. William de Grey (1719–1781) and Charles Yorke (1722–1770) were asked for advice whether the Exchequer had to reimburse the shareholders or whether it should treat the issue to be valid even though not all shares were sold, and on their advice the Exchequer adopted the latter position.27 The last survivor, ‘Lieut.-Gen. Sir John Slade died on 18 August 1859 after having enjoyed the whole of the annuity of £540 for about four years’.28 In spite of these failures, a further tontine was issued 22 years later in 1789.29 The tontine observed both points which were fundamental for its fairness: it had classes based on the age of the nominees and the interest rates increased from class to class: 1st class: age below 20; interest rate 4.150%; initial annuity per share 4 pounds, 3 shillings; 2nd class: age 20–29; interest rate 4.275%; initial annuity per share 4 pounds, 5 shillings, 6 pence; 3rd class: age 30–39; interest rate 4.425%; initial annuity per share 4 pounds, 8 shillings, 6 pence; 4th class: age 40–49; interest rate 4.675%; initial annuity per share 4 pounds, 13 shillings, 6 pence; 5th class: age 50–59; interest rate 5.075%; initial annuity per share 5 pounds, 11 shillings, 6 pence; 6th class: age 60 and above; interest rate 5.6%; initial annuity per share 5 pounds, 12 shillings.

___________ 27 National Debt Office (n. 19), 45: ‘A case was laid before the Law Officers of the Crown (Sir C. Yorke and Sir Wm de Grey) in order that they might advise what steps were proper to be taken in these circumstances. They advised that although even the 1st class could not be completed by reason of the paucity of subscribers, yet these were entitled to the benefits for which they had subscribed, and directions were accordingly given by the Treasury on the 26th July 1766, for carrying the provisions of the Act into execution’. 28 National Debt Office (n. 19), 45. 29 Tontine Annuities Act 1789, 29 Geo. 2 c. 41.

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The investors had until 10 October 1790 to designate a nominee.30 The tontine was a financial success despite the slow rate of early subscriptions. William Pitt the Younger (1759–1806), Prime Minister since 1783 observed: ‘The subscription had come in extremely slow … to propose to a farther time … to extend it till the 5th April … intending if the nominations should not then be made, … to propose to convert the tontine in long annuities …’31 But finally the financial objective was met: 10,000 shares, each at the price of 100 pounds and 5 shillings, were sold and brought the expected sum of 1,002,500 pounds. 32 Nevertheless, there was a noteworthy incident in the marketing of the tontine: 33 ‘the shares first sold at a premium, but got to a considerable discount’. This led to complaints requesting the conversion which Pitt had spoken of. Consequently, the Exchequer changed its policy:34 investors were given the possibility to swap their tontine shares for shares in a simple annuity running for 69.25 years at an interest rate of 4.25% and paying annuities of 4 pounds and 5 shillings per share, starting on 10 October 1790. 4,381 subscribers holding together 5,733 shares made use of this option. The subscribers to 4,219 shares remained in the tontine. The shares were on the lives of 3,518 nominees who were called ‘contributor nominees’. According to the original plan the payees should have received in total 18,298 pounds and 7 shillings as annuities. In order to prevent these payees, who had remained in the tontine, from being penalized by the introduction of the possibility to swap the tontine shares for shares in a simple annuity, a clever but complicated scheme was introduced. Its aim was to put the payees, who had remained in the tontine, in the same position as if the exchange had not taken place.35 The Exchequer created, by a kind of simulation, a total group of nominees representing the longevity distribution of the original nominees’ population. Finally, the Exchequer had understood the longevity aspect of a tontine. It had to name a ‘notional’ nominee for each of the 5,733 shares which had been swapped.36 These ‘notional’ nominees were called ‘Government nominees’. They had no pecuniary advantage, but their identities and dates of death were ascertained because of their so___________ 30 The subscribers had the right to change their nominee(s) until that date. The same advantage had been granted to subscribers to the Irish tontines. 31 The Parliamentary register; or, History of the proceedings and debates of the House of Commons, vol. 27 (London 1790), 640. 32 The figures come from National Debt Office (n. 19), 45 f. 33 John James Grellier, The terms of all the loans which have been raised for the public service (London 1799), 33. 34 Tontine Annuities Act 1790, 30 Geo. 3 c. 45. 35 Pitt advocated this scheme because the oldest nominees had the option to change from the tontine to the simple annuity, which they made use of. 36 48 shares were cancelled because they had not been paid in due time.

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cial origins, and no fraud could be suspected on their behalf. Their unique function was to make complete the nominal number of participants in the tontine so as to diversify the longevity risk of the participants. A large pool of ‘potential Government nominees’ had to be constituted under the unique condition of these nominees having been born in the United Kingdom and living there as well. Section 13 of the 1790 Act presented a long list of persons who could be so qualified. The actual Government nominees were finally chosen by a drawing. The last member of the tontine of 1789 died on 31 October 1887, being 99 years old. In spite of their innovative correcting scheme, the death rates studied by John Finlaison (1783–1860)37 and his son Alexander Glen Finlaison (1806–1892)38 show a difference between the ‘contributor nominees’ and the ‘Government nominees’. The Irish tontines differed from the English ones. First, they were issued consecutively during a very short period of time: 1773, 1775, and 1778. By contrast, the issue of the English tontines was spread over a whole century. Secondly, the raised capital was small: 265,000 Irish pounds in the tontine of 1773, 175,000 Irish pounds in the tontine of 1775, and 300,000 Irish pounds in that of 1777. Thirdly, all three tontines were successful. This may be explained on the basis of the small size of these tontines. Fourthly, all three tontines had three classes: below the age of 20 years, between 20 and 40 years of age, and above the age of 40 years. The shares were priced at a cost of 100 Irish pounds. For the first two tontines the interest rate was 6%; for the tontine of 1777 the interest rate was raised to 7.5%. The 1773 tontine capped the increase in the annuity at the original cost of a share: 100 Irish pounds. Moreover, to facilitate the management of the tontine, the surviving members only started to benefit from the death of other members once the increase in the initial annuity per share amounted to 0.5%. II. The French tontines Tonti’s proposal of 1653 had failed: it had not received the approval of the Parliament.39 36 years later, in great financial need – it was the time of the War of the League of Augsburg – the proposal was dug out from the archives of the Contrôleur général des finances (Minister of Finance). The text was modified in order to reflect the Parliament’s critique of the original proposal, and it was then resubmitted to Parliament. Parliament registered it on 2 December 1689. Financially, the tontine of 1689 was a failure. Of the expected 19,600,000 livre tournois, it collected only 3,610,800 and thus only 18.4%. Nevertheless, it is of ___________ 37

John Finlaison, Life annuities (1829), 69. Alexander Glen Finlaison, Tontine and Life annuities (1860), 29. 39 The following analysis is based on Gallais-Hamonno and Berthon (n. 6). 38

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special importance as it set the standard for future tontines:40 (1) The tontine had classes based on the age of the nominees. These classes usually covered an age span of 5 years. In the tontine of 1689, there were 14 classes with the last one for those of the age of 65 years and older. Later tontines usually had 15 classes with the last class for those of the age of 70 years and older. (2) The interest rates increased with each class. The investment was, thus, actuarially fair. (3) Anyone who was the king’s subject and who lived in the kingdom was allowed to subscribe to the tontine. The exclusion of foreigners, which was not part of Tonti’s proposal of 1653 and which did not reappear in later tontines, was certainly due to the fear of fraud about the registration of deaths. (4) The subscription mechanism was complex and formal. It was the same as for investing in a perpetual annuity, this supplemented with the necessity of proving the nominee’s age. (5) The price of a share was much reduced in comparison to the traditional asset of perpetual annuities: 300 instead of 2,000 livre tournois (roughly the equivalent to 4,500 Euro instead of 30,000 Euro). The wish to democratize the scheme and to open it to the middle class was clearly stated in the preamble of the act establishing the tontine. (6) The tontine was issued by the City of Paris, but the State gave as guaranty for the annuity payments the income from some specified indirect taxes. Moreover, the annuities benefited from the same advantages as perpetual annuities: they could not be seized, even by the State, and they were not subjected to taille (tallage). A second tontine was issued in 1696: the War of the League of Augsburg was still continuing and so were the financial needs. Yet once again, it was a financial failure: a total capital of 2,929,500 livre tournois was collected, only 20.46% of the expected capital of 14,320,000 livre tournois. The tontine of 1696 had a very similar design to the one of 1689, with three modifications. The first modification was minor: a 15th class was added for those of the age of 70 years and above. The other two modifications were more significant. First, instead of increasing the interest rate with each class from 5% for the 1st class to 8.33% for the 9th class as in the tontine of 1689, the first eight classes received the same interest rate of 7.14%. This modification was actuarially unfair. Secondly, the tontine of 1696 introduced an innovation: the classes were divided into subdivisions. Every class receiving 80,000 livre tournois in annuities was divided into four subdivisions of 20,000 livre tournois each. In 1709, the War of the Spanish Succession had been going on for six years and the French situation was terrible.41 France was losing everywhere in Europe,

___________ 40 41

For a full analysis see Gallais-Hamonno and Berthon (n. 6), 14-28. A. Vührer, Histoire de la dette publique en France, vol. 1 (1886), 128.

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facing the English and Austrian armies, and the Trésor was empty. The Contrôleur général des finances Nicolas Desmarest (1648–1721) was, thus, forced to launch a financial scheme of which a tontine was just one component. A tontine will be a financial success only if it attracts the attention of a large number of potential subscribers. To this end, the rules of subscription were modified: (1) In contrast to the tontines of 1689 and 1696, foreigners living either in or outside the realm were no longer excluded from subscribing to the tontine. Indeed, foreigners had always been allowed to buy French perpetual annuities. (2) It was now possible to name a nominee who was not affiliated with the subscriber. It was sufficient that the nominee had granted written consent. (3) The tontine was also opened to monks and nuns who could subscribe to the tontine with the consent of their abbots. The issue of 1709 was a hybrid financial instrument. It was planned to raise a capital of 6 million livre tournois. 10,000 shares were to be sold, each at a price of 600 livre tournois. This was double the price compared to the first two tontines. The interest rate was fixed at 8.33%. Each share had two components: a perpetual annuity and a tontine. From the perpetual annuity payees received an annuity of 30 livre tournois. The initial tontine annuity amounted to 20 livre tournois. Thus, there was a further important modification: the annuity of the tontine was identical whatever the age of the nominee was – a detail which made the scheme actuarially unfair. The Trésor made a fundamental mistake when issuing the tontine: it had simultaneously placed two traditional perpetual annuities on the market, the first at an interest rate of 5.5% and the second at 6.25%. Investors preferred to receive less – but with certainty – and thus subscribed to the perpetual annuity. Consequently, the administration was forced to extend the subscription period for three years. In 1713, France was on the verge of bankruptcy. Nevertheless, the first two tontines were unaffected by this financial crisis. This may explain the success of the subsequent tontines, which may have been considered as a safe investment. Finally, in 1714, the third tontine was closed, the State having collected 5,992,200 livre tournois and, thus, 99.9% of the expected 6 million livre tournois. In conclusion, the three tontines issued under Louis XIV were mostly well designed and organized. But economic and psychological conditions prevented them from being successful.42 By contrast, innovation and success would characterize those tontines issued under Louis XV. A first tontine was launched in 1733 with a capital of 12 million ___________ 42

For two reasons the terms ‘success’ and ‘successful’ can hardly be applied to the third tontine. First, the issue had to be kept open for three years instead of just one year or two quarters of a year, thus generating inequalities between subscribers. Secondly, the Trésor had to take recourse to compulsory purchases for the shares of the third tontine.

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livre tournois. It had only seven classes. It, however, introduced an interesting innovation: the systematic use of subdivisions. They made it possible to cluster nominees with a similar age. Each of the seven classes covering an age span of 10 years was subdivided into 30 subdivisions. Each subdivision received a total amount of annuities of 5,000 livre tournois. The interest rates increased from 7.14% to 12.5%. This tontine was a real success: 11,185,800 livre tournois were collected and, thus, 93.2% of the expected capital. The tontine of 1734 raised 15,450,600 livre tournois and had 15 classes with 175 subdivisions. And it saw yet another innovation. It was, in the terminology of Antoine Deparcieux (1703–1768), a tontine composite (compound tontine).43 Only three quarters of the annuity paid on the life of a deceased nominee was shared by the surviving payees of the same class or subdivision. The fourth quarter, the so-called ‘King’s quarter’, was forfeited to the benefit of the Trésor as issuer of the tontine. As a consequence, the total sum of annuities was reduced gradually. In other words, this tontine composite was composed of two financial schemes. Three quarters of it was a tontine because three quarters of each annuity benefited the other annuitants. And one quarter of it was a simple life annuity scheme because one quarter of each annuity terminated with the death of the nominee. Despite this decrease of the total sum of annuities in each class, the tontine of 1734 was a clear success. In fact, it collected more capital than planned; its performance ratio was 103%. In January 1743, the Contrôleur général des finances Philibert Orry (1689– 1747) designed a tontine lottery. 30,000 shares were issued, each at a price of 300 livre tournois. The scheme thus raised nine million livre tournois. 150 livre tournois had to be paid in cash when the share was purchased. The shares were then drawn in a lottery. 4,000 shares were winning tickets that received cash prizes; 5,000 shares were winning tickets that received life annuities; 21,000 shares were blanks. However, these blanks received 15 livre tournois as an annuity in a tontine scheme. The tontine had 15 classes and was planned with 105 subdivisions, but in the end it had 109 subdivisions. In each subdivision a total amount of 3,000 livre tournois was paid out as annuities, amounting to annuities of 315,000 livre tournois for the whole tontine scheme. Furthermore, the scheme was a tontine composite: only half of the annuity paid on the life of a deceased nominee was shared by the surviving payees of the same class or subdivision; the other half was forfeited to the Trésor. Nevertheless, the shares were sold out within a month. Due to this success, a second tontine lottery was put on the market in February 1743. The plan was a simple imitation of the January scheme. However, this time the sale had a slow start, and the closure of the subscription period was ___________ 43 Antoine Deparcieux, Essai sur les probabilités de la durée de la vie humaine (1746). Addition à l’essai (1760) (edited by Cem Behar, 2003), 120.

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extended from 30 September to 1 December. In the end only 103 subdivisions were filled. One year later, in November 1744, two different schemes were proposed to investors: (1) a standard life annuity scheme planned to raise 4.66 million livre tournois with eight classes and featuring an interest rate increasing from 7.7% to 14.3%; (2) a simple (not compound) tontine with 30,000 shares at the cost of 300 livre tournois each. The tontine was, thus, expected to raise 9 million livre tournois. It was planned with 15 classes covering age spans of five years and with 100 subdivisions, each subdivision having 300 shares. The interest rates ranged from 6.7% to 13%. The tontine raised 9,090,000 livre tournois and was, thus, oversubscribed. In February 1745, an identical tontine was issued. It was successfully placed on the market and raised the targeted 9 million livre tournois. A further tontine was issued in 1759. Its design was rather different from the two preceding tontines, especially with respect to its size. The expected capital was 30 million livre tournois. The price of a share was 200 livre tournois, a notable decrease. It had 8 classes with an age range of 10 years and 815 subdivisions.44 The interest rate increased from 7% to 12%. The success was overwhelming: instead of collecting 30 million livre tournois, the Trésor collected 48.99 million livre tournois, representing a 63% oversubscription. Despite its success, the tontine of 1759 was the last one to be issued. Since the end of the Seven Years War in 1763, France had been on the verge of a financial crisis due to accumulated debt and the expenditures of the royal court. The financial crisis broke out at the end of 1769, and a new Contrôleur général des finances, Abbé Joseph Marie Terray (1715–1778), was appointed. Terray acted with unbelievable rigour. Perpetual annuities were reduced to 2.25%. Government pensions were reduced. The payment of the debts by the Pays d’Etat and the Provinces was suspended for four years and so was the payment of floating bills. Of course, tontines were not left untouched. A decree of 18 January 1770 converted all tontines into standard life annuities. Consequently, the increase in the annuities was capped at the value which they had on 1 October 1769. The only compensating measure was that the annuity had to represent at least 10% of the investment.45

___________ 44 The Trésor missed the opportunity to issue a loan which was actuarially fair. The number of subdivisions would have permitted the opening of a subdivision for nominees of exactly the same age. Instead, each class was simply divided into subdivisions covering an age range of five years. 45 On the details see Gallais-Hamonno and Berthon (n. 6), 101–103, 107–110.

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Summarizing the performances of the different French, English, and Irish tontines, the overall conclusion is clear: tontines were a success in France and Ireland, but they were a failure in England.46 French tontines in livre tournois 1689: Collected: 3,610,800 Expected: 19,600,000 Performance ratio: 18.4% 1696: Collected: 2,929,500 Expected: 14,320,000 Performance ratio: 20.46% 1709: Collected: 5,992,000 Expected: 6,000,000 Performance ratio: 99.9% 1733: Collected: 11,185,800 Expected: 12,000,000 Performance ratio: 93.2% 1734: Collected: 15,450,600 Expected: 15,000,000 Performance ratio: 103%

1743: Collected: 6,382,50047 Expected: 6,300,000 Performance ratio: 101.3% 1743: Collected: 6,232,500 Expected: 6,300,000 Performance ratio: 98.9% 1744: Collected: 9,090,000 Expected: 9,000,000 Performance ratio: 101% 1745: Collected: 9,000,000 Expected: 9,000,000 Performance ratio: 100% 1759: Collected: 48,990,000 Expected: 30,000,000 Performance ratio: 163% Total amount collected: 118,863,900

English tontines in pounds 1693: Collected: 108,100 Expected: 1,000,000 Performance ratio: 10,81% 1757: Collected: 313,000 Expected: 2,500,000 Performance ratio: 12,5% Tontine cancelled

1766: Collected: 18,000 Expected: 300,000 Performance ratio: 6% 1789: Initially collected: 1,000,500 Expected: 1,000,500 Performance ratio: 100% Subsequently collected: 422,955 Performance ratio: 42,3%

Irish tontines in Irish pounds 1773: Collected: 265,000 Expected: 265,000 Performance ratio: 100%

1775: Collected: 175,000 Expected: 175,000 Performance ratio: 100% 1777: Collected: 300,000 Expected: 300,000 Performance ratio: 100%

III. The cost of tontines for issuers The cost of a loan for an issuer is simply the yield to maturity at the time of issue. This yield is the discounting factor for the series of cash-flows relative to the issue. For a tontine issue, the only difficulty in calculating the cost is to know ___________ 46

Gallais-Hamonno and Berthon (n. 6), 73–98, table 105; National Debt Office (n. 19). There were two French tontines issued in 1743, the first one in January and the second one in February. 47

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at which age all nominees will be dead and, thus, the debt of the State extinguished. With respect to France, this difficulty was, however, only minor because Deparcieux’s mortality table is based on the actual life duration of the nominees of the tontines of 1689 and 1696. Its terminal age is 95 (death of the last nominee during his (or her) 94th year).48 For the logic of a comparison between French and British tontines, we will keep this reference point at 94.5 years.49 The following table presents the yield to maturity at issue.50 French tontines: English tontines: 1689: 8.81% 1743: 4.74%51 1693: 8.47%52 1696: 9.49% 1743: 4.71% 1757: 4.14%52,53 1709: 4.79% 1744: 9.58% 1766: 2.80% 1733: 9.22% 1745: 9.72% 1789: 4.11%54 1734: 9.69% 1759: 9.22% Weighted by the collected amount: 8.87%

Irish tontines: 1773: 5.97%52,55 1775: 5.97%52 1777: 7.58%52

This table shows three levels of yields related to the annuity rates proposed. The highest level was the French one with an average of almost 9% for the 10 tontines. The middle level was for Irish tontines with 6% to 7.6%. The English tontines, with the exception of the tontine of 1693, had very low yields. Two things should be noted relative to the situation of states as issuers of tontines. The classes normally terminated in decreasing order. This allowed the issuer to stop the payment of older classes with the highest interest rates, first. Thus, the cashflows (annuities) would be diminishing over time. But this positive fact was counterbalanced by the length of the payments – almost a century.

E. A critical assessment Today it seems simple to organize tontines, but this was not so during the 17th and 18th centuries. There are two critical components: the age span which classes and subdivisions cover and questions relating to the annuity, especially its increase. Some corrective measures on these components were invented over the ___________ 48 Gallais-Hamonno and Berthon (n. 6), 53 f. The nominees are assumed to die at midyear and thus in the case of the last survivor at 94.5 years of age. 49 Simulations show that the choice of the terminal year (92, 94.5, or 99) is almost irrelevant: it changes the yield only at its third or fourth decimal (in per cent). 50 For the British tontines, the half year payment is taken into account. 51 There were two French tontines issued in 1743, the first one in January, and the second one in February. 52 In fact, the yield is slightly less because the increases were capped for each class after a certain number of years. 53 As projected. 54 Based on the number of subscriptions. 55 The age-groups are equally weighted.

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course of time. In addition, some further points concerning the administration of tontines are worth discussing. I. The age span of classes The problem raised by the age span which a class covers was clearly presented by Deparcieux in 1746: ‘Il n’est pas juste que ceux qui n’ont que 10 ans et un jour aient le même avantage que ceux qui ont 17, 18 ou 19 ans’ (‘It is not fair that anyone who is 10 years plus one day old receives the same advantages as someone 17, 18, 19 years old’).56 The fairness demands the age span of the classes to be small, which was not the case with the English tontines. According to Tonti’s original tontine plan of 1653, the age span was seven years. For the subsequent tontines, the size was reduced to five years, which seemed to have become the standard, as explained in the introduction of the 1689 tontine: Pour établir un ordre plus naturel et plus juste parmi ceux qui voudront prendre lesdites rentes et faire en sorte que chacun se trouve associé avec des personnes à peu près de son âge, voulons que lesdits rentiers soient distribués en 14 classes. For creating a more natural and more equitable situation [among nominees] and in order for them to be associated with persons of almost the same age, we order them to be distributed among 14 age-groups.

Yet there are two exceptions: the tontines of 1733 and 1759 had classes spanning over 10 years of age. With respect to actuarial fairness, it seemed an obvious regression, since the oldest members of each class were competing for survivorship with members who were up to 10 years younger. However, in these tontines the nominees were further grouped in subdivisions: 30 subdivisions per class in 1733 and a total of 815 subdivisions in 1759. As proven by Pierre Hébrard,57 the Trésor set the youngest of the class in the first subdivisions and the oldest in the last subdivisions so that the members of each subdivision had an age span of 5 years. The problem of unequal mortality rates is clearly presented by the following table, which is taken from Deparcieux’s work, who based his calculations on the data of the French tontines of 1689 and 1696.

___________ 56 57

Deparcieux (n. 43), 49. Pierre Hébrard, Imaginer la mortalité par la Xe tontine (Working paper, 2008), 23.

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Probability of death (in %) per age and duration58 5 years old 25 years old 45 years old 60 years old

in 1 year 1,9% 1,0% 1,1% 2,8%

in 5 years 7,2% 5,2% 6,6% 14,7%

in 10 years 10,5% 10,3% 15,4% 33,0%

in 30 years 26,8% 32,0% 66,1% 97,6%

In England, the situation was different: the classes were, with respect to the age span, very large, and the first tontine of 1693 did not even have any classes. The tontine of 1757 had only five classes, with the first class covering 20 years and the four other classes 10 years of age. The tontine of 1766 had no classes, but 30 subdivisions, each with 500 shares and a total annuities pay-out of 15,000 pounds. The subdivisions were not organized according to the age of the nominees, instead being based on the subscription order. Consequently, very young and very old nominees were drawn together in the same subdivision. The last English tontine of 1789 was based on the 1757 tontine, but with an additional class for those above the age of 60 years. Finally, the Irish tontines had only three classes, the first two covering 20 years of age and the third for those above the age of 40 years. II. Introducing subdivisions The introduction of subdivisions based on the age of the nominees was a major innovation which was ignored by the English and Irish tontines. The French tontine of 1689 introduced classes covering five years of age. But the interest rate received by the payees increased only every second class. Thus, the tontine had age-groups spanning over 10 years each, with two sub-groups of five years. The underlying idea was the hope that the class with the older nominees would die off first, thus generating savings for the issuer. The tontine of 1696 made the reasoning behind the introduction of subdivisions explicit as regards the benefit to annuitants: Subdiviser chaque classe [de 80 000 livre tournois] en quatre parties de vingt mille livres de rente, le nombre des rentiers en serait moins grand, les classes en seraient plutôt remplies et l’accroissement plus sensible; ce qui procurerait un avantage aux rentiers et ne Nous serait point à charge. To subdivide each class [of 80,000 livre tournois] into four parts of annuities of 20,000 livre; the number of annuitants will be smaller, the group will fill more quickly and the increases will be more obvious. Thus, the annuitants will be better off.

However, at first the different classes had the same small number of subdivisions. In the tontine of 1696, for example, the nominees were ‘[d]istribué en quinze classes de 80 000 Livres chacune’ (‘distributed over 15 classes of 80,000 ___________ 58

Deparcieux (n. 43), tables 13 and 154.

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livre each’) and each class was ‘subdivisée en quatre parties de 20 000 Livres … de sorte que sitôt que l’une des dites quatre partie se trouvera de 20 000 Livres de rente, les nouveaux acquéreurs seront inscrits dans la seconde division et ainsi successivement’ (‘subdivided into four parts of 20,000 livre … When one of these subdivisions would attain 20,000 livre in annuities, the new contributors would be registered in the second subdivision and so successively’) (Art. 2). In later schemes, the number of subdivisions became larger as the size of the issue grew. In the tontine of 1733, the nominees were ‘[d]istribuée en sept classes de 150 000 Livres de rente chacune… et chaque classe subdivisée en 30 parties de 5 000 Livres de rente’ (‘divided into seven classes of 150,000 livre in annuities … and each class subdivided in 30 parts of 5,000 livre in annuities’). Thus, each class had the same number of subdivisions. The tontine of 1734 brought a further change: the capital collected in each class and subdivision, as predefined in the Edit de création, varied, as did the number of subdivisions in each class. The class for those aged 10 to 15 years, for example, consisted of three subdivisions each with of 8,000 livre tournois in annuities; the class for the ages of 15 to 20 years had nine subdivisions each with annuities amounting to 8,000 livre tournois; the class of the 20- to 25-year-olds had nine subdivisions, each having a little over 8,333 livre tournois; the class of those of the age of 30 to 35 years was constituted with 12 subdivisions, each with a little over 8,666 livre tournois in annuities. There is no logic behind these numbers, but it is most likely that they were based on the experience of the Contrôle Général in charge of the tontines. The last tontine of 1759 had 815 subdivisions. The increases in the annuities were calculated ‘[a]ux survivants de la même classe et subdivision’ (‘for the survivors of the same class and subdivision’). Thus it was only ‘[a]près le décès du dernier rentier de chaque subdivision’ (‘after the death of the last annuitant of each subdivision’) that the debt of the State was considered redeemed (Art. 5). The main advantage of the introduction of subdivisions was to enable investors to diversify their risk by investing in several subdivisions, either with the same nominee or with a different nominee. Predefining the number of subdivisions in the published tontine regulations had an obvious disadvantage: some subdivisions (or classes) might have sold out with even more potential investors who did not receive a share, while the total issue was still undersubscribed. The solution was that the issuer retained the flexibility to modify the number of subdivisions until the issue was complete. The tontine of 1734 offers a good example: in the class for those 55 to 59 years old, nine subdivisions were planned but 16 were opened. In other classes the

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actual number of subdivisions either corresponded to that mentioned in the published tontine regulation or had to be increased. In total, 150 subdivisions were planned and 175 were created.59 The introduction of subdivisions triggered a clever strategy on the side of investors: the purchase of a complete subdivision. At first sight, the strategy seems counterintuitive because investors forwent the chance of an increase in the annuities. However, by naming as many people as possible as nominees, the investor would assure receipt of the full annuity of that subdivision until the last nominee died. The risk existing in a standard life annuity that the nominee would die early was, thus, diversified. Adoption of this strategy first occurred with the tontine of 1745: within the class of individuals 40 to 44 years old, one investor purchased the 14th subdivision and named as nominees 268 different persons. In 1759, 220 subdivisions were purchased by single investors.60 Let us finally analyse the effects on payees which the introduction of subdivisions had. For the first two tontines, the rule was very simple: the last survivor received the total amount of annuities due to his or her class. The last survivor was the ‘winner’. With the introduction of subdivisions, this was changed: each subdivision would have a ‘winner’. Thus, there would be as many ‘winners’ as there were subdivisions, in the case of the tontine of 1759 a total of 815. At first sight, this seems to have been to the advantage of investors, and indeed this point was also stressed in the preamble of the act establishing the 1759 tontine. However, the introduction of a large number of subdivisions was rather to the advantage of the issuer. Even though the mortality risk remained the same, with a large number of subdivisions, each with a small number of nominees, there was the chance that some of these subdivisions terminate earlier. Consequently, the State would benefit from the gradually terminating obligation to pay annuities. For investors, the introduction of smaller-sized subdivisions as compared to very large classes meant that the total amount of annuities, and thus the annuity which the last payee would receive, was smaller, too. However, these advantages for the issuer and disadvantages for investors needed not materialize in each case, as the tontine of 1709 proves: in 1770, 61 years after the issue, the 1st subdivision in the 6th class generated per surviving share 750 livre tournois in annuities, while the 2nd subdivision with a much higher number of shares generated only 193 livre tournois in annuities.61 ___________ 59

Seven classes kept the planned number of subdivisions; in eight classes the number increased. In total, 25 additional subdivisions were opened. 60 Hébrard (n. 57). Compare also Gallais-Hamonno and Berthon (n. 6), 94 and 98. 61 Gallais-Hamonno and Berthon (n. 6), 107. The figures also show an unexpected phenomenon: the slowness with which the increase materialized, even if some payees received enormous sums as shown in the example of the next footnote.

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III. Capping the annuities The last surviving members of the first tontines received enormous sums as annuities.62 However, both in France and England this quickly changed. In France the limitation resulted from the introduction of smaller subdivisions. The issuers of the English and Irish tontines introduced different ways to cap the increase. In the English tontine of 1693, the increases stopped when seven survivors were left. According to the English tontine plan of 1757, the increase in annuities would terminate after a certain number of years: payees in the class for those of the age of 20 years or younger would benefit from the increase only during the first 60 years of the tontine. The increase terminated depending on one’s age at the time of subscription: with a nominee who was 13 years old at subscription the annuity was capped when turning 73; with a nominee who was 18 years of age at subscription this happened only at the age of 78. Thus, this method of capping the increase suppressed the relative actuarial unfairness of clustering classes of people who were not the same age. In the Irish tontine of 1773, the increase was limited to the subscription price: 100 Irish pounds. This method of capping the increase was not adopted in the two other Irish tontines. In the English tontine of 1789, the increases stopped when ‘each annuity should amount to the sum of one thousand pounds’. In the second class for those who were 20 to 30 years of age, this cap took effect only when the two last nominees had survived: the class had 500 shares with an initial annuity of 4 pounds, 5 shillings and 6 pence. In conclusion, capping the increase of the annuities was a bad marketing strategy which certainly contributed to turning the English tontine plans into a series of failures: the psychological incentive of receiving the ‘first prize’ in the tontine scheme was lost for a limited benefit accruing to the issuer. IV. The administration of tontines The management of the French tontines followed partly traditional lines: as with all public loans, the service of debt was in the hands of the Hôtel de Ville de Paris. However, the management also exhibited innovative aspects: there was a system of self-administration. With the tontine of 1689, the Prévôt des marchands of Paris identified in each class the 30 largest subscribers who had purchased at least 10 shares. These individuals had to elect two administrators from among themselves. The first administrator was the syndic honoraire. His duty was to represent his class. The second administrator was the syndic ___________ 62 In 1726, the 13th class of the first tontine of 1689 and the 14th class of the second tontine of 1696 had only one surviving payee, Charlotte Bonnemay, widow of Louis Barbier. During her last year, she died when she was 96 years of age, she received 73,500 livre tournois in annuities: Jacques Savary des Bruslons, Dictionnaire universel de commerce, vol. 3 (Paris 1741), 454.

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onéraire. The technical administration was in his hands, and he was in charge of the lists of the subscribers, of the nominees, and of the annuity payments. And most importantly, he calculated each year the annuity for each surviving member and supervised their payments. The syndic onéraire was well paid: 1,500 livre tournois. And it was in the interest of the syndic onéraire to perform his tasks well because he held a large number of shares. 63 By contrast, in England and Ireland, tontines were administered by the Treasury. Technically speaking, the persons responsible were the auditor and the Clerk of the Pells. In addition, there was the office of the tontine inspector. The office holder received 650 pounds. The clerks dealing with the tontine collectively received 830 pounds.64 However, the management was rather poor as the Treasury had no direct interest in the tontines. V. Preventing fraud A tontine is a special kind of life annuity and faces the same risk of fraud: the payee may continue to claim the annuities even though the nominee is no longer living. The measures taken in France on the one hand and in England and Ireland on the other hand to prevent such fraud were rather similar. In France, the syndic onéraire was notified of the deaths of nominees by parish-priests every six months. However, a payee, too, had incentives to notify the syndic within three months following the nominee’s death. First, the payee, or the heirs in the event the payee and the nominee were the same person, had a right to the pro rata temporis annuity for the year of death. Secondly, there were severe penalties for committing fraud: 6,000 livre tournois; of this, 2,000 livre tournois were for the informant and 4,000 livre tournois benefited the other surviving members of the class or subdivision. Due to pressing financial needs, French tontines were in 1709 opened to foreigners – also foreigners not having their residence in France. This, of course, increased the possibility of fraud. However, there was a preventive measure: the nominees, even those of foreign investors and even those of investors not having their residence in France, had to live in the kingdom. In the event of disputes, a special court met every morning under the presidency of the Prévôt des marchands. An appeal came before the ordinary courts. Nevertheless, it seems that fraud was never an issue. In the United Kingdom and Ireland, the measures against fraud were less sophisticated. Of course, the payee was under a duty to inform the issuer of the nominee’s death during the month following death. In cases of breach there was ___________ 63 For the social aspects of these office holders, see Gallais-Hamonno and Berthon (n. 6), 19, 21–23. 64 (1796) 52 Journal of the House of Commons 54.

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a fine of 10 pounds. If the payee continued to collect annuities, the fine was 500 pounds, half of which were for the King and half of which benefited the informant. A fraud based on the forgery of records in order to receive annuities was punished with death. However, unlike in France, fraud seems to have been a permanent problem. At a minimum, payees kept complaining that mortality was too low because of fraud, and they pointed to two allegedly widespread problems. (1) There was said to have been no control over foreign nominees not living in Great Britain. And at the end of the century, there were complaints about Swiss and English speculators in the Irish tontines. These problems led the Exchequer to ban foreigners from the last English tontine in 1789. (2) Parents who had named one of their children as a nominee were said to present a surviving child as the deceased nominee by simply switching their first names. In a recent article, Moshe A. Milevsky maintains the existence of the latter kind of behaviour.65 Yet while it may indeed have occurred, it was probably not as widespread as believed. The reason why the mortality rate among nominees was lower than in the general population may have had two other explanations. First, where parents had named one of their children as nominee, they had an incentive to look after its well-being with special care. Secondly, there would have been a strong self-regulated selection. Only those in good health were selected as nominees. The best proof of this strong selection is the very old age at which the last members of the classes and subdivisions died. In the French tontine of 1689, the average age at death of the last survivors of the ten classes for which information is available still was 96.66 In the English tontine of 1693, the oldest man died at 93 and the oldest female at 100. In the English tontine of 1789, the last survivor died at 99.67 The figures for Irish tontines are still more emblematic. The last survivor of a class died in eight out of nine cases when he was 90 years or older. In two of these cases he was even 99 years old. These astonishing figures perfectly explain the complaints that nominees were ‘too slow to die’. And indeed, the House of Commons established a Select Committee in 1811, 1812 and 1813 which proved less cases of fraud than cases of carelessness in management.

___________ 65 Moshe Milevsky, Portfolio choice and longevity risk in the late 17th century: a reexamination of the first English tontine, (2014) 21 Financial History Review 225–258. Compare also Gallais-Hamonno and Rietsch (n. 16), 31–34. 66 Gallais-Hamonno and Berthon (n. 6), 40 f. 67 National Debt Office (n. 19), 45 f.

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VI. The objectives of investors A final question needs to be addressed in the present paper: what were the financial objectives of investors? Did they simply want to diversify their portfolio for their current income? Or did they want to use tontines as a sort of retirement plan? An analysis of the subscriptions to the French tontine of 1689 reveals that there were at least two groups of investors with distinct objectives.68 The largest group of investors seems to have simply sought an investment scheme for ‘leurs encaisses oisives’ (‘their idle cash balance’) as the tontine preamble mentioned. Two numbers support this observation: first, 77% of the 5,912 subscribers, i.e. 4,562 subscribers, purchased only one share for themselves. Secondly, the average investment in multiple shares was limited to five shares. In this group, it was family heads buying one or two shares for their spouses and for their children as payees.69 It was only a much smaller group of investors who had in 1689 understood the threefold advantage of tontines: (1) It was an affordable investment. A share was priced at 300 livre tournois as compared to 2,000 livre tournois for a share in a perpetual annuity. (2) The interest rate was high. (3) The initial annuity increased over time. If one accepts that 1 livre tournois is the present equivalent of 15 Euro, if one further assumes that the average annual income of the middle class was 3,000 livre tournois, and if one finally recalls that the average interest rate in the 15 classes of the tontine of 1689 was 8.75% with a resulting initial annuity of a little over 26 livre tournois, then 115 shares would generate right from the start of the tontine a sufficient income without even taking the increase of the annuities into consideration. Such an investment should have been of interest for two classes of people, both of which had no direct heirs: (1) widows and unmarried women and (2) priests. And indeed, examples of such subscribers can be found in the tontine of 1689. First, there was Charlotte Saumaize de Chassan, comtesse de Brégis (1619–1693), former Dame d’honneur to the Queen Mother. She had purchased 100 shares, and it is reported that she bought these shares in the 13th class which was the class for those of 60–65 years of age, but it must have been the 14th class for those above the age of 65 years. The interest rate in this class was 12.5%. She, thus, received an initial annuity of 3,750 livre tournois. Secondly, there was Jacques de Goyon de Matignon (1643–1727), Bishop of Condom, who was the largest subscriber to the 10th class for those 45–50 years of

___________ 68

Compare Gallais-Hamonno and Berthon (n. 6), 31–40, 45–50. The French tontines of 1689 and 1696 only allowed subscriptions to the benefit of parents, children or other family members. 69

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age.70 He purchased 80 shares at an interest rate of 8.33%, generating an initial annuity of 2,000 livre tournois. Of course, these two examples are extreme cases. However, they prove that tontines were used to generate an immediate income. Two further things may be noted: first, the threshold of 3,000 livre tournois, or 10 shares, was of interest for subscribers because it was the minimum investment necessary to be a candidate for the office of the syndic onéraire. 170 of the 1350 subscribers who bought more than one share signed up for 10 shares or more. They represented 12.6% of the multi-subscribers or 2.9% of all subscribers Among them were 18 women, 24 priests, and 23 members of the army. Secondly, the distribution of the 15 largest subscribers in classes for adult nominees exhibits three levels of investment: - between 3,000 and 10,000 livre tournois: four investors, average investment 6,800 livre tournois; - between 10,000 and 20,000 livre tournois: six investors; average investment 11,500 livre tournois; - 20,000 livre tournois and above: five investors; average investment 27,000 livre tournois.

Among these 15 persons were four women (two widows and two unmarried women), two priests, and four high ranking army officers. The presence of these officers is surprising, particularly since France was at war and the risk of death and the loss of the investment was much higher for them than for their civilian counterparts. Indeed, Claude de Chalette, who had bought one share, and Claude Comte de Jussac, who had purchased two shares, were killed at the battle of Fleurus on 1 July 1690. The low price of 300 livre tournois as compared to the price of 2,000 livre tournois for a perpetual annuity – thus opening the possibility of investment to low ranking officers – can only partly explain why military personnel subscribed to tontine schemes. The low pricing can especially not explain why some officers were among the largest subscribers of their class. An officer of the Champagne Regiment invested 12,000 livre tournois and a Général des Bandes Françaises 27,000 livre tournois. In England, the first tontine of 1693 may be looked upon as an innovation of the new political regime. Especially people who wanted to show their support for the new regime subscribed to it.71 The other English tontines are more akin to a diversification of assets, bringing nearly the same return as other investments. By contrast, the Irish tontines were subscribed to by three types of investors: ___________ 70 There is a small poem by Bernard de la Monnoye (1641–1728) on Matignon and Siffredi, who was with 40 shares the second largest investor: Bernard de la Monnoye, Œuvres choisies de feu monsieur de la Monnoye, vol. 2 (La Haye 1770), 270. 71 William Tempest (1653–1700), e.g., subscribed two shares for each of his eight children, the youngest of whom was only one day old.

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(1) wealthy Irish people who collaborated with the English forces, (2) Englishmen, mostly living in London, for whom these tontines brought higher returns than their English counterparts; (3) international speculators (especially Swiss) who were betting that their carefully selected nominees would outlive the others (which they did72).

F. Conclusion Tontines are more sophisticated than may be deemed at first glance. France showed during the 18th century a technical supremacy over England and Ireland in almost all the details: (1) the standardization of classes covering an age span of 5 years; (2) the innovation of subdivisions which made the tontines psychologically more attractive for the contributor and less expensive for the State; (3) the introduction of a subscription price which was affordable also for the middle class; (4) administration by a special syndic onéraire who was more likely to prevent fraudulent behaviour by other investors than was possible under the system of administration of English tontines; (5) furthermore, the interest rates took into account the age of the nominees; (6) finally, for almost a century (1689– 1770) tontines avoided the many bankruptcies which plagued the other financial instruments issued by the public hand, something that may be the main reason for the overwhelming success of the tontine of 1759. In England and Ireland, the situation was very different. The age-groups and the annuity rates were inconsistent. And on several occasions one may wonder whether the Exchequer had understood the underlying mechanism of a tontine and the means for achieving its actuarial fairness. But the biggest problem was that the Exchequer simultaneously issued more profitable investments. Compared to the English tontines, the Irish tontines were more lucrative, which explains their higher success compared to the English tontines.

___________ 72 Robert M. Jennings and Andrew P. Trout, The Tontine: From the Reign of Louis XIV to the French Revolutionary Era (1982).

Chapter 4: The Socio-Economic Setting for Developing Tontines from the 17th to the 19th Centuries By Robin Pearson A. Introduction .............................................................................................................. 79 B. The economic background to the rise of the tontine ................................................. 80 I. General economic conditions ............................................................................ 80 II. Mercantilist theories of population and state power .......................................... 82 C. Explaining the supply of tontines ............................................................................. 84 I. The rise of the fiscal-military state .................................................................... 84 II. Meeting the costs of urban improvement .......................................................... 89 III. Speculation and mutual improvement as motives for private tontine promotions ................................................................................ 95 D. Explaining the demand for tontines .......................................................................... 96 E. American tontine insurance in the 19th century and its British cousins .................... 99

A. Introduction In the year 1308 a contract was drawn up between the Abbot of St. Denis and the Archbishop of Bremen. The latter was to pay the former 2,400 livres in return for a life annuity of 400 livres, upon condition that if the Archbishop died within two years, part of the purchase money was to be paid back to his executors. To the disgust of the Abbot, the Archbishop lived on until 1327. Four years before the Archbishop’s death, the Abbot tried to void the contract on the ground that it was usurious.1 He failed. Pensions in medieval canon law and annuities in common law were usually deemed not to breach the usury prohibitions, although the line between licit and illicit contracts could sometimes be thin. 2 Life-contingent loan products were well known long before the financial revolution of the 17th century. Life annuities were widely sold by urban authorities in Italy, Spain, Netherlands, Switzerland and southern Germany to help them meet the fiscal demands of their rulers.3 By the end of the 15th century life annuities had already allowed some Italian city states to transform ordinary debt into ___________ 1

Hartley Withers, Pioneers of British Life Assurance (1951), 31. Richard H. Helmholz, The Oxford History of the Laws of England, vol. 1 (2004), 369–372. 3 Martin Körner, Public Credit, in: Richard Bonney (ed.), Economic Systems and State Finance (1995), 507–538, 512–515. 2

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consolidated debt. Nevertheless, the volume and variety of life-contingent lending greatly increased after 1650, just as the first tontine schemes began to appear.4 This chapter discusses the social and economic factors behind public and private tontines from their emergence in late 17th-century Europe to the rise of American-style tontine insurance in the later 19th century. As the internal workings of tontines are expertly covered by other authors in this volume and elsewhere, I do not examine these closely, except to the extent that their different reward and pricing structures influenced levels of demand.

B. The economic background to the rise of the tontine I. General economic conditions Although the tontine took many different forms, it is probable that the early interest of governments in adopting it as a means of public finance encouraged private schemes as well.5 The obvious place, therefore, to look for the conditions that gave rise to the tontine is in the relationship between the early modern state and the economies of 17th-century Europe. By the 1650s, just as Lorenzo Tonti (1602–1684) was advocating his scheme to Cardinal Mazarin (1602–1661), rural economies across Europe, decimated by decades of warfare, famine, and disease, had entered a long period of stagnation. Price inflation had evaporated with the decline of the silver supply from Spanish America. Rural population growth was slowing down. Low demand led to falling grain prices. Wealth inequalities widened. An increasing number of families struggled in poverty. Agricultural workers sought to supplement their incomes through employment in industries such as textiles and iron manufacture. Small towns lost labourers and artisans as they moved into the countryside to escape high taxes and guild restrictions. This encouraged putting-out systems of production in industries such as cloth making and hosiery knitting, financed by merchants based in the larger commercial centres.6 Large towns, like the countryside ___________ 4 For the role of Lorenzo Tonti in promulgating the product that bore his name, see Kent McKeever, A Short History of Tontines, (2010) 15 Fordham Journal of Corporate and Financial Law 491–521, 492 f.; David R. Weir, Tontines, Public Finance, and Revolution in France and England 1688–1789, (1989) 49 Journal of Economic History 95–124, 102–104. 5 Milevsky argues that private tontines were popular in England long before Tonti’s plan of 1653: Moshe A. Milevsky, King William’s Tontine: Why the Retirement Annuity of the Future Should Resemble its Past (2015), 37–39. 6 Jan De Vries, The Economy of Europe in an Age of Crisis, 1600–1750 (1976), 84 f., 96; Catharina Lis and Hugo Soly, Poverty and Capitalism in Pre-Industrial Europe (1982), 109–115.

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less easily policed by the guilds, also attracted migrants. An increasing proportion of the urban population became concentrated in cities. 7 With low prices and slow population growth, consumer demand, fuelled by rising purchasing power after 1650, shifted to more taxable goods such as beer and manufactures. This enabled European states to draw more heavily on indirect taxes as sources of revenue,8 a point examined in section C.I below. As well as consuming an increasing diversity of goods with a higher elasticity of demand, the middling ranks in towns began to consume information more than ever before, manifested in the growth of printing, publishing, and newspapers, and the greater use of postal services.9 These better fed, better informed, more numerate, and literate urban dwellers formed the risk pools for the new investment opportunities that emerged after 1650 in the form of tontines, life annuities, lotteries, and other financial devices issued by states and by private promoters, as well as providing capital for new banks, insurance offices, trading corporations, broking firms, shipping companies, and mercantile houses. In cities there was a broadening of the social range of investors in public debt to encompass state employees, merchants, bankers, artisans, and even domestic servants.10 Urban investors found themselves on a learning curve that involved collective adventures in long-term finance and greater resort to contractual forms of association that were less dependent on close-knit communal or familial ties.11 It is also possible that the gradual increase in life expectancy, and the decline in catastrophic shocks from bubonic plague, may have smoothed the way for the expansion of life-contingent investments. Public tontines with large risk pools would perhaps have been less likely to be successful in recruiting subscribers from populations with persistently high mortality. For most of the 16th and 17th centuries plague killed millions across Europe, without counting the cost in lives of war and other disasters. Life expectancy at birth averaged four to eight years ___________ 7

The proportion of the population of Northern Europe living in towns over 20,000 doubled from 4% to 8% between 1600 and 1750: De Vries (n. 6), 154, 158. Other estimates point in the same direction, see idem, European Urbanization 1500–1800 (1984), 32–35, 49–77. 8 See 84–89, below. 9 De Vries (n. 6), 183–189; Walter Minchinton, Patterns and Structure of Demand 1500–1750, in: Carlo M. Cipolla (ed.), The Fontana Economic History of Europe: The Sixteenth and Seventeenth Centuries (1974), 83–176, 105. 10 Körner (n. 3), 529; P.G.M. Dickson, The Financial Revolution in England: A Study in the Development of Public Credit 1688–1756 (1967), 11; James C. Riley, International Government Finance and the Amsterdam Capital Market 1740–1815 (1980), 60–62, 75. 11 Mark Freeman, Robin Pearson and James Taylor, Law, Politics and the Governance of English and Scottish Joint-Stock Companies, 1600–1850, (2013) 55 Business History 636–652.

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in the early 16th century, and the average duration of life was less than 21 years. By the early 18th century, demographic conditions seemed more propitious. The average duration of life had risen to 32 years and life expectancy at birth had increased to 27 years.12 II. Mercantilist theories of population and state power Accompanying the financial and economic developments at the end of the 17th century was a new pulse in intellectual inquiry. The expansion of life-contingent investments was closely associated with an increasing interest among mercantilist theorists and political arithmeticians in population as an economic asset in the competition between states.13 William Temple (1628–1699) declared in 1671 that ‘the riches of a nation were in its people’. Sir William Petty (1623–1687) asserted that ‘fewness of people is real poverty’. 14 A key tenet among mercantilist writers was that full employment could create effective demand, maximize production and increase wealth. Various suggestions were made for expanding the workforce, including providing state subsidies for large families, encouraging immigration and child labour, and introducing disincentives for criminals and the workshy.15 Arguments in favour of full employment also stimulated an ‘awakening of demographic curiosity’. 16 Ted McCormick has charted the ways in which English writers between 1660 and 1700 moved towards discussing population in terms of ratios and probabilities and estimating birth and mortality rates and life tables. Statistical analysis itself began to emerge as a separate category from writing on economic problems.17

___________ 12 Roger Mols, Population in Europe, 1500–1700, in: Cipolla (n. 9), 15–82, 69. For Dutch mortality calculations in the 1660s, see George Alter, Plague and the Amsterdam Annuitant: A New Look at Life Annuities as a Source for Historical Demography, (1983) 37 Population Studies 23–41. 13 Mercantilist ideas were hotly contested. Most modern scholars agree that they did not constitute a unitary system of thought. Nevertheless, various forms of ‘mercantilist’ doctrine and practice were prominent among European governments. The literature includes: Eli F. Heckscher, Mercantilism (1935); William D. Grampp, The Liberal Elements in English Mercantilism, (1952) 66 Quarterly Journal of Economics 465–501; D.C. Coleman (ed.), Revisions in Mercantilism (1969); Philip J. Stern and Carl Wennerlind (eds.), Mercantilism Reimagined: Political Economy in Early Modern Britain and its Empire (2014). 14 Temple cited by Grampp (n. 13), 468; Petty cited by Ted McCormick, Population: Modes of Seventeenth-Century Demographic Thought, in: Stern and Wennerlind (n. 13), 25–45, 25. 15 Grampp (n. 13), 474–484. 16 Mols (n. 12), 32. 17 McCormick (n. 14), 35–38.

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In England, key contributors included John Graunt (1620–1674) (Natural and Political Observations on the London Bills of Mortality, 1662) and Petty (Political Arithmetick, 1671–1676). In a letter to Secretary of State Arlington (1618– 1685) in 1671, Petty proposed that an exact census be taken of the population, with the object of furnishing a reliable basis for an efficient tax system. 18 In 1694 Edmond Halley (1656–1741/42) compiled the first mortality table using data from Breslau, Silesia. In the United Provinces Johannes Hudde (1628–1704), Johan de Witt (1625–1672), Christiaan Huygens (1629–1695), and Lodewijk Huygens (1631–1699) played leading roles in this movement towards a ‘scientific’ approach to demographic studies. The Huygens brothers estimated the life spans of different age groups using Graunt’s data from London. Hudde reconstructed the mortality experience of the life annuity loans issued by Amsterdam in 1586– 1590 in order to advise on the terms for the city’s annuity loans of 1672 and 1674. De Witt projected a mortality curve and showed how to compute the value of a single contract combining the expected life span of a nominee of a given age with a given interest rate, discounted over time to reflect the diminished present value of a future stream of payments. 19 European cameralists also regarded the volume of consumer spending, and by extension population size, as an important generator of state revenue that required quantifying. These included Johann Joachim Becher (1635–1682) (Political Discourse, 1668), Johann Heinrich Gottlob von Justi (1717–1771) (Staatswirthschaft, 1755), and Joseph von Sonnenfels (1732/34–1817) (Grundsätze der Polizey, Handlung und Finanzwissenschaft, 1765–1776). The latter argued that ‘the test of every measure adopted to further the general welfare is: is it conducive to population’, and that a large and rising population is ‘the chief and general principle of statecraft and of the sciences contained within statecraft’.20 This view of population as a source of economic and political power led not only to the science of demography, but drew the attention of enlightened state authorities to the physical well-being of their citizens. During the 18th century this manifested itself in public and private projects to improve public health, diet and sobriety, medicine, hospitals, vaccination (smallpox), in prison reform, building laws, public safety, and other welfare and environmental regulations. ___________ 18 J.R. Jones, Fiscal Policies, Liberties, and Representative Government during the Reigns of the Last Stuarts, in: Philip T. Hoffman and Kathryn Norberg (eds.), Fiscal Crises, Liberty, and Representative Government, 1450–1789 (1994), 67–95. 19 Anders Hald, A History of Probability and Statistics and their Applications before 1750 (1990), 106; Alter, (n. 12), 24; George Alter and James C. Riley, How to Bet on Lives: a Guide to Life Contingent Contracts in Early Modern Europe, (1986) 10 Research in Economic History 1–53, 5. 20 Cited by Richard Bonney, Early Modern Theories of State Finance, in: idem (ed.), Economic Systems and State Finance (1995), 163–229, 188. See also Andre Wakefield, Cameralism: A German Alternative to Mercantilism, in: Stern and Wennerlind (n. 13), 134–150.

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The increasing perception of people as abstract numbers whose aggregate characteristics and behaviour could be classified and managed, and who could be counted or estimated and averaged, and for whom growth ratios and probabilities of births, deaths and life expectancies might be calculated, was, arguably, an important condition for the expansion of life-contingent products such as tontines, annuities and life insurance from the second half of the 17th century.

C. Explaining the supply of tontines I. The rise of the fiscal-military state Aside from these general economic, social and intellectual conditions, the specific origins of public tontines lay in the rise of the ‘fiscal-military’ state, the pressures on state finance that resulted from near constant warfare and expanding bureaucracies, and the shift towards long-term borrowing to meet spending needs. Early modern Europe was characterized by political and military aggression between highly competitive states and the rising costs that this generated. Warfare was transformed. New linear battlefield formations demanded more training, sieges involved a greater use of engineering and mining technologies, navies and standing armies became larger, fortifications, dockyards and barracks were built, uniforms, weapons and supplies were required on an unprecedented scale. Before 1600 armies of 30,000 were rare. By the late 17th century the French army in wartime reached 400,000.21 When Jean-Baptiste Colbert (1619–1683) became French finance minister in 1661, the French royal fleet amounted to 30 vessels. At his death in 1683 there were 176 in operation and a further 68 planned. 22 The growing scale of warfare was the primary cause of the huge increase in expenditure by the early modern state. Between the late 16th and early 18th centuries the English Crown’s annual spending in wartime rose from 600,000 pound to 6 million pound, of which two thirds was military expenditure. 23 Preparations for war required new organizations for provisioning, billeting and collecting revenue. The cost of state bureaucracies and centralized jurisdictions grew. In 1515 some 8,000 office holders worked for the French Crown. By 1665 the number was 80,000.24 The conspicuous consumption associated with baroque courts ___________ 21 De Vries (n. 6), 204; John Brewer, The Sinews of Power: War, Money and the English State, 1688–1783 (1990), 7 f. 22 De Vries (n. 6), 205. 23 Minchinton (n. 9), 111. 24 Winfried Schulze, The Emergence and Consolidation of the ‘Tax State’. I. The Sixteenth Century’, in: Bonney (n. 20), 261–279, 268 f.

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added to costs. In 1542 the luxury expenditure of the French King amounted to three million livres. Under Louis XIV it reached 29 million livres.25 Traditional state structures faced huge difficulties in covering this new scale of expenditure. In the ideal ‘domain state’ the Prince had been expected to live by his own means, consuming the resources of his own lands and income from his rights to wilderness and waterways. The pledging of domain revenues from towns and villages as surety for royal borrowing was also common. 26 Domain sources of income, however, became inadequate as governments centralized and costs rose. In England, for example, royal estates funded about 35% of Crown expenditure during the 16th century, but just 5% by the early 1700s.27 Alternative means of finance were increasingly sought through the sale of Crown lands and state offices. The sale of domain land, however, was a finite revenue stream. The sale of offices provided some rulers with an important source of revenue – up to 39% of French royal income in the early 17th century – but it did not produce sound finance, just a ‘fiscal prison of their own making’. 28 Selling offices only increased a ruler’s liability to pay the ‘interest’ on the ‘loans’ from office holders in the form of salaries, bonds or annuities, and it created powerful vested interests. The size of Crown bureaucracies in France and Spain was directly related to the systematic sale of public offices. Everywhere, the huge rise in the cost of warfare far exceeded revenue generated from the sale of offices and tax farming. More extreme measures were either confined to emergencies or became impossible due to political change. The seizure of private assets became less frequent as rulers increasingly depended on the support of the landed and mercantile classes to secure their positions. The debasement of currencies remained an option, but only in the most desperate circumstances. It saved England, for example, from a monetary crisis in the 1690s, when the majority of bullion exported to pay for troops fighting in Europe was molten silver clipped from coins. 29 Increasingly, rulers extended their prerogative powers to tax into new fiscal areas, in the process transforming the ‘domain state’ into the centralized ‘fiscal-

___________ 25

Minchinton (n. 9), 111. Augustus J. Veenendaal Jr., Fiscal Crises and Constitutional Freedom in the Netherlands, 1450–1795, in: Hoffman and Norberg (n. 17), 96–139, 98; Körner (n. 3), 520. 27 Patrick K. O’Brien and Philip A. Hunt, England 1485–1815, in: Bonney (n. 20), 53– 100, 61. 28 Brewer (n. 21), 15 f. 29 D.W. Jones, War and Economy in the Age of William III and Marlborough (1988), 228–230, table 7.5. 26

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military’ or ‘tax’ state.30 During the 17th century the revenue of the French Crown rose tenfold to over 200 million livres.31 By the 1670s, after reforms to both customs and excise departments, Charles II of England had at his disposal 2.7 times more revenue than his father had enjoyed. The fiscal-military states of Europe were beginning to realize their latent potential for taxation.32 Despite impressive increases in revenue, taxation alone failed to meet the rising costs of war. One problem was the slow growth and changing composition of the tax base. Warfare was especially costly for those states relying heavily on indirect taxes, because such revenues were more susceptible than property taxes to trade contraction and falling population growth.33 In the absence of sufficient economic growth to increase tax revenues without imposing higher rates, European states tried to exploit credit more efficiently. Before 1700 few governments contracted long-term debts. In the domain state, loans were largely used to bridge short-term liquidity crises. In the fiscal-military state, loans became part of the state’s budget and guaranteed by regular taxation. Emergency short-term borrowing from a narrow pool of lenders was replaced by long-term credit planning and an expanded pool of lenders. Because credit could be raised across borders, the territorial limitations on taxation could be superseded. Moreover, the move to perpetual debt instruments meant a transition to methods of borrowing that shifted debt maintenance charges into the distant future while avoiding precipitous default. The Dutch led the way.34 Holland’s debt rose from five million guilders in the early 17th century to 190 million in the 1690s.35 By 1760 the debt had increased to over 400 million guilders and servicing it absorbed nearly two-thirds of total revenue from taxes.36 By means of the heaviest tax burden in Europe, the Dutch largely managed to avoid fiscal crises and keep the costs of borrowing low. 37 ___________ 30 Riley (n. 10), 1 f.; Richard Bonney, Introduction, in: idem (ed.), The Rise of the Fiscal State in Europe, c.1200–1815 (1999), 1–17. 31 De Vries (n. 6), 203. 32 O’Brien and Hunt (n. 27), 56–60; Brewer (n. 21), 91–95; Dickson (n. 10), 42–45; Ronald G. Asch, Kriegsfinanzierung, Staatsbildung und ständische Ordnung in Westeuropa im 17. und 18. Jahrhundert, (1999) 268 Historische Zeitschrift 635–671. 33 Riley (n. 10), 106. 34 Italian, German and Flemish towns pioneered long-term funded debt in the 15th century, but they did not issue tontines and so fall outside the parameters of this chapter. David Stasavage, Cities, Constitutions, and Sovereign Borrowing in Europe, 1274–1785, (2007) 61 International Organization 489–525; David Chilosi, Risky Institutions: Political Regimes and the Cost of Public Borrowing in Early Modern Italy, (2014) 74 Journal of Economic History 887–915. 35 De Vries (n. 6), 212. 36 De Vries (n. 6), 203; Veenendaal (n. 26), 129. 37 Veenendaal (n. 26), 134 f.

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Fiscal pressures and the rising cost of warfare, however, resulted in an exhausted treasury and contributed to the Dutch abandoning their leading role in international politics.38 England followed the Netherlands in moving towards perpetual funded debt, with particular taxes earmarked to pay off specific categories of debt. The move, however, remained tentative. The House of Commons stubbornly refused to acknowledge that the war against Louis XIV would be long and expensive, and therefore tried to finance it by traditional short-term borrowing, rather than spreading the cost over many years. Tory opposition to long-term loans was based on their fear of the political power wielded by the Whig ‘monied interest’ in their role as public creditors.39 As a result, long-term borrowing covered less than 10% of total government expenditure between 1688 and 1702. Concern about the solidity of its finances ensured that the state paid above market rates for long-term loans. The interest paid for the latter averaged 8.3%, compared to the legal maximum of 6%.40 The failure of the first English state tontine of 1693 to meet its funding target also suggests that long-term lending was still relatively uncomfortable for many in England. 41 A further six state tontines were launched in Britain before 1789, but only the three issued by the Irish parliament between 1773 and 1778 were fully subscribed.42 As a source of state finance the tontine was never as popular in Britain as other products such as lotteries or annuities.43 Nevertheless, most historians concur that public long-term borrowing allowed Britain to spend on mostly victorious wars out of all proportion to its tax revenue. Long-term borrowing could not be sustained, and a state’s credit worthiness maintained, without expanding the tax revenue from which debt service charges could be met. Britain succeeded in serving its rapidly growing public debt with a huge increase in the efficiency of customs and excise collection. By the 1760s 80% of tax revenues came from indirect taxes. The efficiency of tax collection, ___________ 38 Marjolein ‘t Hart, The United Provinces 1579–1806, in: Bonney (n. 30), 309–325, 313 f.; Veenendaal (n. 26), 128, 136. 39 Jones (n. 18), 70–72, 82–86; David Stasavage, States of Credit: Size, Power, and the Development of European Polities (2011), chapter 5. 40 Dickson (n. 10), 47-50. 41 Moshe A. Milevsky, Portfolio Choice and Longevity Risk in the Late Seventeenth Century: A Re-Examination of the First English Tontine, (2014) 21 Financial History Review 225–258. 42 McKeever (n. 4), 494; Dickson (n. 10), 52–56. 43 3.5 million pound was spent on lottery tickets in England between 1693 and 1699. Anne L. Murphy, Lotteries in the 1690s: Investment or Gamble?, (2005) 12 Financial History Review 227–246.

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and the funding of long-term loans as a guarantee of dividend payments to creditors, helped to reduce the cost of British government borrowing during the course of the 18th century despite the massive increase in public debt. By contrast, many European states struggled to service their long-term debt. As early as 1667 Spain’s public debt amounted to 14 times the annual tax revenue, and the Spanish Crown had acquired a reputation as a serial defaulter. 44 French royal debt rose from 300 million livres in 1600 to 2 billion livres by 1715. The inability of tax revenue to cover the charges on that debt was due to tax avoidance, inefficiencies in collection, and exemptions offered to privileged groups. As a result, France, Spain and other states such as Austria paid much higher rates on their borrowing than England and Holland, and suffered more frequent defaults.45 The French national tontines, and their successors the life annuity loans (rentes viagères), are often cited as the classic example of expensive borrowing where a hard-pressed government subsidized rates in order to attract investors. France launched ten tontines between 1689 and 1759. They were remarkably popular. In contrast to the four operational British tontines with a total of 8,781 nominees, the French tontines together covered 114,670 nominees and raised 108 million livres for the state.46 This popularity is readily explained by the higher rates of return offered at all ages compared to the British tontines. 47 By the mid18th century the French government was paying on average 10% to tontine shareholders, well above the 3–4% paid by the British government on its consolidated annuities, or the 5% charged for private life insurance policies at the standard premium rate.48 In 1763 the French finally recognised that state tontines were an expensive way of funding their debt and a royal edict prohibited them.49 Seven years later, the Comptroller General Abbé Joseph Marie Terray (1715–1778) froze payments to all remaining tontine subscribers and converted their shares to life annuities. Yet, by offering a flat 10% regardless of a nominee’s age, the annuities were as ___________ 44 Spain defaulted five times between 1607 and 1662: Juan Gelabert, Castile, 1504– 1808, in: Bonney (n. 20), 201–241, 225 f. 45 Riley (n. 10), 107–111; Kathryn Norberg, The French Fiscal Crisis of 1788 and the Financial Origins of the Revolution of 1789, in: Hoffman and Norberg (n. 18), 253–298, 272–274. 46 Weir (n. 5), 104–106. 47 Weir (n. 5), 113 f. 48 Robert M. Jennings, Donald F. Swanson and Andrew P. Trout, Alexander Hamilton’s Tontine Proposal, (1988) 45 The William and Mary Quarterly 107–115, 109; Dickson (n. 10), 229–241; Barry Supple, The Royal Exchange Assurance: A History of British Insurance, 1720–1970 (1970), 54 f. 49 Later plans for state tontines in 1790 and 1795 were abandoned, Weir (n. 4), 96 n. 5.

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expensive to the state as the tontines they replaced.50 They quickly attracted syndicates of Geneva bankers who selected and pooled healthy young lives and sold shares in the pools to speculative investors. By the 1780s investors in such schemes accounted for the great majority of subscriptions to French state annuities.51 The problem for France was that, while borrowing devices such as tontines might have succeeded in the short term by raising large amounts of cash, as argued by Georges Gallais-Hammono and Christian Rietsch in this volume, the tax revenue needed to meet the growing liability of debt service and this failed to materialize. Nevertheless, despite the doubts about their political and financial efficacy, it is clear that public tontines were the result of a confluence of factors: the formation of fiscal-military states, the rising costs of bureaucracy and warfare, the resulting increases in taxation, the shift towards long-term borrowing, and the increasing attention paid to the size, health, longevity and economic value of national populations. II. Meeting the costs of urban improvement It is unclear the extent to which public tontines issued by towns and other tontines launched by private projectors piggy-backed on the publicity given to state tontines. Given that some private and municipal schemes pre-dated the earliest state tontines, promoters’ motives were likely to have been more complex than simply opportunism or imitation. The tontines issued by states were interestonly plans. The principal of the loan was not paid back and terminated with the expiry of the tontine. From the late 17th century towns across northern Europe also resorted to this device to cover rising levels of expenditure. As an alternative to long-term bond issues, municipal authorities knew that they would have no further debt obligations from a tontine once the last participant or specified number of participants died. As Moshe Milevsky has pointed out, tontines could offer a cheaper form of borrowing than term annuities because, unlike the latter, the liabilities do not increase if the average age at death of the risk pool rises or is underestimated at the outset.52 During the 17th century, the pressure on town finances increased for several reasons. With growing numbers of unemployed migrants flowing into the larger ___________ 50 Jennings, Swanson and Trout (n. 48), 109; Riley (n. 10) 110 f. Weir argues that, largely for political reasons, the high rates were intended to mollify the urban bourgeoisie who benefited little from tax privileges: Weir (n. 4), 120 f. 51 On the Geneva plan and the controversy surrounding the cost of the annuities, see François R. Velde and David R. Weir, The Financial Market and Government Debt Policy in France, 1746–1793, (1992) 52 Journal of Economic History 1–39, 31–35; Weir (n. 4) 121 f. 52 Milevsky (n. 5), 31 f.

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towns the problem of vagrancy and begging became acute. There was a general movement, driven by religious-moral as well as economic precepts, to discipline the able-bodied poor and put them to work. This led to the building of workhouses, houses of correction, Tuchthuizen, Zuchthäuser and hôpitaux généraux.53 In addition, towns competed with each other for the custom of merchants and shippers, and the tax revenues they generated, which in turn demanded investment in better facilities and larger bureaucracies. 54 This resulted in the construction of docks, harbours, market halls, shambles, exchange houses, court houses and town halls, as well as amenities such as street lighting, paving, gutters, sewers, water pumps, cisterns and refuse services. In England, before the creation of the first improvement commissions in the 1730s, many of these investments were ad hoc measures.55 Such fixed capital liabilities, in addition to subsidising fuel and food for the poor in times of dearth, drained municipal treasuries. Taxes, rents, fines, fees and dues did not always cover such expenditure. Bath Corporation’s expenditure, for instance, consistently exceeded its revenue between 1684 and 1800.56 In Europe the demands of wartime led to severe financial distress for towns like Nördlingen.57 Consequently many urban authorities resorted to borrowing by mortgage or bond and, less commonly, by tontine. The earliest municipal tontines appear to have been those issued by Gdańsk in 1657 and by Kampen, Groningen, Middelburg, Delft and Amsterdam between 1670 and 1673.58 Altogether, between 1670 and 1800 about 45 interest-only urban and provincial tontines in the Netherlands raised a total of 6.5 million guilders. They played a growing role as institutional investors and helped to broaden the Amsterdam capital market. 59 Probably inspired by the Dutch examples, a tontine plan was published by the ___________ 53

Lis and Soly (n. 6), 116–128. It should be noted, however, that different types of towns had different experiences in this period. While many older market and county towns declined, provincial centres and spa, industrial and port towns prospered. For England, see Peter Clark and Paul Slack, English Towns in Transition, 1500–1700 (1976). 55 On local improvement acts in England, see Peter Borsay, The English Urban Renaissance: Culture and Society in the Provincial Town 1660–1770 (1989), 69–74. 56 Sylvia McIntyre, Bath: the Rise of a Resort Town, 1660–1800, in: Peter Clark (ed.), Country Towns in Pre-Industrial England (1981), 197–249, 232–235. 57 Christopher R. Friedrichs, Urban Society in an Age of War: Nördlingen, 1580–1720 (1979), 144–169. 58 On the Gdańsk tontines see Phillip Hellwege, A History of Tontines in Germany. From a multi-purpose financial product to a single-purpose pension product (2018), 38–40. 59 Dickson (n. 10), 41; Oscar Gelderblom and Joost Jonker, With a View to Hold: The Emergence of Institutional Investors on the Amsterdam Securities Market during the Seventeenth and Eighteenth Centuries, in: Jeremy Atack and Larry Neal (eds.), The Origins and Development of Financial Markets and Institutions: from the Seventeenth Century to the Present (2009), 71–98. 54

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City of London Corporation in 1674, though it is not clear whether it was ever launched.60 Tontines, and hybrid schemes combining elements of tontines, annuities and lotteries, were also issued by several German towns such as Hamburg and Nuremberg.61 Capital schemes for urban improvement were not confined to public bodies, nor was the pursuit of civic pride a monopoly of town governments. Groups of private citizens, for profit, welfare or charitable purposes, also invested in building projects to improve urban landscapes. Some raised finance by means of capital-tontines, in which ownership of the property that was the object of the tontine reverted to the surviving member(s) at its expiry. In the United States from the 1790s there were inns, hotels, coffee houses and other tontine properties to be found in Maine, New Hampshire, New Haven, Albany, New York City and Washington, D.C.62 In Britain the popularity of such schemes appears to have reached a peak between 1780 and 1820, when industrial cities were undergoing their first major building booms. In Glasgow at least four tontine societies formed between 1781 and 1816 to construct, and earn rents from, commercial buildings, coffee houses, assembly rooms, tenements, inns and other properties. Together these societies issued over 1,300 tontine shares on the lives of 961 nominees. By 1819 all of them were paying dividends above the bank rate. 63 Other tontines of the period included schemes to build hotels at Ironbridge and Peebles, inns and taverns in Stourport, Sheffield, Paisley, Alloa and Greenock, a coffee house in Cork, a library in Birmingham, theatres and assembly rooms in London and Bristol, residential terraces in Folkestone, Cirencester, Manchester, Blackburn, St. Helens, Upholland (Lancashire), Stourport, and Castleconnell (Limerick), and two bridges over the River Thames in Surrey.64 These were private enterprises, ___________ 60

Dickson (n. 10), 41. See Hellwege, 170–176. 62 McKeever (n. 4), 500 f. 63 Totals calculated from James Cleland, The Rise and Progress of the City of Glasgow (1820), 133 f. See also John R. Kellett, Property Speculators and the Building of Glasgow, 1780–1830, in: Michael Pacione (ed.), The City: Critical Concepts in the Social Sciences, vol. 1 (2002), 75–94, 85 fn. 74. 64 McKeever (n. 4), 501; Birmingham Library Tontine Society, Copy of the Birmingham Library Tontine Deed (1799); Associated Society, Copy of the Deed or Charter, Entered into by the Associated Society to Raise a Fund for Erecting a Coffee-House and other Buildings in the City of Cork, 21 January 1793 (1794); Hutcheson Street Tontine Society, Draft of a Confirmation of the Regulations for the Management of the Affairs of the Hutcheson Street Tontine Society (1797); Oxford Archaeology North/Paul Butler Associates, Blackburn Town Centre Conservation Areas, Archaeological Desk-Based Assessment (2009), figs. 17 and 18; Robert Sears, A New and Popular Pictorial Description of England, Scotland, Ireland, Wales (1847), 520; C.W. Chalklin, The Provincial Towns of Georgian England: A Study of the Building Process 1740–1820 (1974), 179. 61

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though some performed quasi-public functions in their local communities. The tontine inns in the west of Scotland, for example, were venues for political dinners, public meetings, meetings of creditors, and criminal trials before juries. 65 Later ventures included the Tontine Building in Hanley, Staffordshire (1831), the Victoria Park Company of Manchester (1837), the Pery Square Tontine in Limerick (1840), the Hornsey Freehold Estate Tontine Company (1858), and the Alexandra Palace and Muswell Hill Estate Tontine (1866).66 Thus during the 19th century tontines, in their various forms, became an alternative, albeit relatively minor, source of finance for property development and other types of commercial enterprise. Church congregations in England and the Netherlands also utilised tontines to help fund extensions or repairs. Early examples include the Reformed Church at Delfshaven in 1760 or the Evangelical Brotherhood in Zeist in 1767.67 Private tontine associations made a modest contribution to urban expansion. Together with the more numerous building societies they accounted for about 10% of new houses built in England in the 1780s and 1790s, rising to about 15% of new housing stock during the early 19th century.68 Probably more significant in terms of economic development were the private capital tontines employed not for real estate but to provide pensions and benefits. Hundreds were established in the Netherlands and Britain between the 17th and 19th centuries.69 This type of private tontine belonged to a larger species of savings and investment plans, of varying complexity and speculativeness. Some Dutch survivorship contracts, for example, were formed on a tontine basis, sometimes combined with a lottery element.70 In early 18th-century London at least 60 mutual life insurance schemes were launched, many of them supported by clergymen, philanthropists and social reformers, who regarded them as vehicles for social improvement.71 The earliest were contributionships, with fixed benefits ___________ 65 The Tradesman or Commercial Magazine 6 (January to June 1811), 343; ibid. 7 (July to December 1811), 82; (1812) 74 The Scots Magazine and Edinburgh Literary Miscellany 801; Paisley Emancipation Society, Speeches delivered at the Soiree in Honour of George Thompson in the Renfrewshire Tontine Inn, Paisley (1837). 66 On the Pery Square Tontine, see McKeever (n. 4), 499 f. The incorporating act of the Victoria Park Company is 7 Will. IV (1837) c. 30. A share certificate of the Hornsey Tontine and a prospectus of the Alexandra Palace Tontine are reproduced at https://pairault.fr/bord/index.php/archives (accessed 15 March 2017). 67 Hermann Wagenvoort, Contracten van Overleving en Andere Tontines, (1967) 37 Tijdschrift voor Rechtsgeschiedenis 584–594. See also McKeever (n. 4), 501. 68 Chalklin (n. 64), 177, 179. 69 Gelderblom and Jonker (n. 59), 91 f. 70 Wagenvoort (n. 67), 586 f. 71 The following is based on Geoffrey Clark, Betting on Lives: The Culture of Life Insurance in England, 1695–1775 (1999), 73–85.

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passing to members’ widows or other named beneficiaries and subscriptions varying according to the annual mortality of the membership. From 1705, according to Geoffrey Clark, there was a trend towards a new type of private ‘mortuary tontine’, in which members paid fixed subscriptions, and a variable sum was divided annually among the beneficiaries of those members who had died that year. Costs were relatively low because subscriptions were fixed and did not need to be calculated each year. As Kent McKeever has pointed out, however, in practice these were not really tontines since their purpose was to provide a sum to the beneficiaries of deceased members, rather than a reversion of the deceased’s share to the pool of surviving members.72 The best known ‘mortuary tontine’, the Amicable Society for a Perpetual Assurance office, chartered in 1706, is generally regarded as Britain’s first successful life insurance company. It was based on a mutual plan of 2,000 shares and annual ‘dividends’ distributed to those members who died each year. The term tontine appeared neither in the Society’s act of incorporation nor in any of its contemporary records. 73 This kind of misnomer does not seem to have been uncommon throughout the 18th and 19th centuries, when some mutual insurance and benefit schemes included the term in their title even though they included no element of a tontine. Given the reputation acquired by some tontine schemes for losing money, it is difficult to explain why the term continued to be utilized, especially where it did not reflect the product being offered.74 One example is Tate and Lyle’s Thames Refinery Annual Tontine Benefit Society, established in 1878 as a sickness and burial fund for workers at their sugar refinery in London. Despite its title, the Society’s prospectus reveals that this was a mutual subscription fund from which sickness and accident benefits were paid to members and death benefits paid to their widows, without any tontine element. 75 Equally, there were tontine schemes that did not adopt the term. One example is the Society for Annuities Encreasing [sic] to the Survivors, founded in London in 1768. Although the word tontine appears nowhere in its founding document, the plan was a classic tontine, with subscribers divided into six different age classes, annual dividends reverting back to the surviving pool of subscribers in each ___________ 72

McKeever (n. 4), 506 n. 52. Clark (n. 71), 78–80, 87 f.; Harold E. Raynes, A History of British Insurance (1964), 121–123; Supple (n. 48), 8–10; Cornelius Walford, Insurance Cyclopedia, vol. 1 (1871), 74–84. 74 For a contemporary criticism, see Minerva Universal Insurance, The First Three Parts of the Minerva Universal Insurance for Fire, Lives, Annuities, and Impartial Tontine of Great Britain (1797), 7. 75 The society was still operating in 1952. For a prospectus see https://pairault.fr/bord/index.php/archives (accessed 15 March 2017). 73

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class, and the ‘capital stock’ divided up and the scheme terminated once five of the 100 subscribers in each class remained alive.76 Although it is technically correct to distinguish tontines from other mutual finance or savings schemes, it is also contextually important to regard them not as separate phenomena, but as part of a wider genus of life-contingent investment products that emerged with modern economic development. During the 18th century the landscape of personal finance in Britain, Europe and North America became populated with a diverse medley of products, among which pure tontines figured, though not prominently. There were reversionary annuity societies founded to benefit the widows and orphans of members, including specialist funds for the widows of military officers and clergymen, as well as mutual sickness and burial societies probably numbering in the thousands. Some incorporated elements of a tontine and sometimes also a lottery as added attractions.77 In 1771 Richard Price (1723–1791) wrote that ‘all London seems now to be entering into associations of this kind’.78 Price and others criticized these as ‘bubbles’ and ‘base attempts to deceive and allure the ignorant and distressed’, with wildly inaccurate mortality projections that favoured early entrants and charged younger annuitants ‘exorbitant rates’.79 Towards the end of the 18th century an increasing number of private tontine societies appeared in England and Ireland. Several aspired to a national or regional rather than purely local membership. Examples include the English Tontine of 1780, the Yorkshire Tontine and Universal Tontine, both 1790, the Kentish Tontine Society (1792) and the New British Tontine (1793). Some, like the Minerva Universal, projected in London in 1797 with ‘agency offices established in all the principal Cities and Towns in Great Britain’, combined multi-line insurance with a variety of annuity and tontine plans. 80 Some were designed as ‘periodical tontines’ to last just a few years. The Royal Universal Tontine, for example, launched in Bristol in 1791, had a duration of seven years, at the end of which the assets and any accumulated profits were to be divided up among ___________ 76

Society for Annuities encreasing to the Survivors, Deed of Settlement (1768). For English examples, see Walford (n. 73), 108–138. On German widows funds, see Eve Rosenhaft, Secrecy and Publicity in the Emergence of Modern Business Culture: Pension Funds in Hamburg, 1760–1780, in: A. Goldgar and R.I. Frost (eds.), Institutional Culture in Early Modern Society (2004), 218–243. On Dutch mutual burial and pension insurance schemes, see Marco H.D. van Leeuwen, Mutual Insurance 1550–2015 (2016), 17–82. 78 Richard Price, Observations on Reversionary Payments (1771), cited in: Walford (n. 73), 133. 79 Francis Baily, The Doctrine of Life Annuities and Assurances, vol. 2 (1813), 464– 466, 491–493. 80 Minerva Universal Insurance (n. 74); idem., The Universal Insurance for Lives, for Annuities and against Fire (1800). The tontine was number 47 of the 50 classes of products listed in the 1800 prospectus. 77

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surviving members according to their individual shares. The Universal Tontine established in Bristol in 1790 was to expire after six years. The Rochester, Chatham, Brompton and Strood Tontine Association of 1791 was for five years.81 Should such private tontines, like their near contemporaries the annuity societies, be condemned by historians as ‘bubbles’, or were they useful additions to the growing market for financial products at the end of the 18th century? We do not know. Much more research is required before it is possible to assess the scale, scope and performance of such schemes. III. Speculation and mutual improvement as motives for private tontine promotions The 18th century was an age of speculation. Speculation in new financial products was widely equated with the contemporary craze for gambling. Clark, however, has convincingly argued that in England for most of the century there was no dichotomy between speculative and prudential motives behind life-contingent investments such as tontines.82 Promoters tried to appeal simultaneously to the risk-loving as well as the risk averse. They could be sold as a public good as well as a private speculation, protecting subscribers’ estates and incomes and in that way contributing to national wealth. Clark suggests that the paradox of tontines and other life-contingent products is that they stimulated the speculative passions as much as they helped to reduce risk taking and enhance prudential behaviour. Gambling and insurance-related aims could be seen as complementary not antithetical, which made sense in an age devoid of actuarial certainties. Apart from those objecting on religious or moral grounds, commercial wagers on lives were not generally regarded as inherently wrong in England provided gamblers did not compromise public welfare, at least until the Gambling Act of 1774 finally prohibited life insurance without insurable interest. Even the conservative Amicable Society allowed insurances to be taken out by its directors on famous lives with no connection to the Society. The highly respectable and actuarially-minded promoters of the Society for Equitable Assurances on Lives and Survivorships, commonly regarded as the pioneer of modern life insurance, included in their original

___________ 81 Royal Universal Tontine Society, Dum Vivo Spero. Rules and Orders, Contained in the Deed of Settlement, of the Royal Universal Tontine (1791); Universal Tontine, Government Security. September, 1791. Universal Tontine (1791); Rochester, Chatham, Brompton and Strood Tontine Association, Articles, Rules and Orders, to be Observed by the Rochester, Chatham, Brompton and Strood Tontine Association (1791). 82 The following summarizes the arguments made by Clark (n. 71), 4, 22 f., 90.

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plan of 1756 a provision for dividends accumulated out of premiums and entrance fees to be distributed on a tontine basis to surviving subscribers. 83 It is generally agreed, however, that 18th-century tontines lacked probabilistic preconditions. Like early mutual insurance, box clubs and friendly societies, the first tontine-type schemes were merely redistributive plans, requiring no systematic collection of statistics or actuarial calculations of average mortality. One reason why governments turned to them for long-term finance was that they did not rely on a priori pricing or risk classification, so their costs were easier to project than life annuities. The only forecasting required was to estimate how long the last survivor, or his/her nominee, in any given class of subscribers would live before his/her death extinguished the liability. 84 The same actuarial uncertainty that made tontines convenient for promoters also attracted speculative investors. The Geneva investment syndicates formed to take part in the Irish tontine of 1777 were helped by a doctor who identified as the best possible nominees young girls from families with particularly long life expectancies. The aim was to make the payouts last as long as possible. Forty years after the tontine was issued, 64% of these nominees were still living, well above the average for their age cohort. 85

D. Explaining the demand for tontines Speculation, as well as prudence, may thus be seen as motives for both private tontine promoters and investors. There were also other factors at work that help explain the demand for tontines. In age of expanding international trade, low prices and rising real incomes, the urban bourgeoisie, confronted with new commodities, raw materials and markets, generated novel patterns of consumption and investment.86 In the towns of Europe’s most advanced economies, an entre-

___________ 83 This point is made by Clark (n. 71), 23, though he wrongly attributes the tontine provision to the Society’s final plan of 1762. The quarterly tontine dividend is referred to in Public Advertiser, 8 March 1756, but it does not reappear in the Society’s founding documents of 1762 or later. Cf. Cornelius Walford, Insurance Cyclopedia, vol. 2 (1873), 570–588. 84 Milevsky (n. 5), 29–36; Weir (n. 4), 112; Alter and Riley (n. 19), 10. 85 McKeever (n. 4), 494; Velde and Weir (n. 51), 31–35. The Genevans had antecedents in terms of careful risk selection. Dutch subscribers to English Exchequer life annuities issued in 1746 mostly selected young girls as their nominees, fully aware of their probable longevity: Walford (n. 73), 128. 86 It is difficult to generalize because of varying trends across Europe. Dutch real wages peaked between the 1680s and the 1730s: Jan De Vries, The Population and Economy of the Preindustrial Netherlands, (1985) 15 Journal of Interdisciplinary History 661–682. In France and England wages also rose. In Germany they fell sharply from the 1640s then recovered after 1700. For the aggregate picture of stable or declining prices and stable or

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preneurial dynamism developed in which merchants, manufacturers, professionals, tradesmen and public officials associated in the search for new business opportunities. Profits made in core activities, for example, sugar refining in Bristol and London, the tobacco trade in Glasgow, or textile manufacturing in Lancashire and Yorkshire, were pooled and collectively reinvested in a range of other ventures that grew local and regional economies, including banking, insurance, canals, roads, bridges, docks and property development. 87 This new type of collective diversification utilized mutual and joint-stock forms, even where, as in England after 1720, there were legal impediments to such organizations. 88 These were the economic manifestations of a wider social and cultural phenomenon, the rise of voluntary and/or contractual-based bourgeois civic associations that began to replace traditional types of close-knit and less formal communal or familial groups, and together constituted what Jürgen Habermas has called the ‘public sphere’.89 This was also exemplified in the growth of recreational and business clubs, the frequenting of coffee houses by the mercantile and professional middling sort, and by the growth in philanthropic institutions such as hospitals and asylums. The wealthier members of urban social and business networks who formed such associations headed a larger number who took out life insurance policies and subscribed to building societies, mutual annuity and benefit funds and tontine societies. These included substantial artisans, craftsmen, merchants, retailers, professionals, widows and spinsters – those with personal property worth a few hundred English pounds at most. To my knowledge, no-one has yet carried out a comprehensive analysis of the social composition of investors in tontines. It may have varied between countries. There were many more holders of shares in public tontines in France – 75,000 in 1769 – than in Britain for instance.90 By contrast, Dutch private and municipal tontines tended to be small, averaging ___________ rising wages from the 1620s to 1750, see Wilhelm Abel, Agricultural Fluctuations in Europe from the Thirteenth to the Twentieth Centuries (1980), 158–193; Jan Luiten Van Zanden, The Long Road to the Industrial Revolution: The European Economy in a Global Perspective, 1000–1800 (2009), 301–305. 87 Robin Pearson, Collective Diversification: Manchester Cotton Merchants and the Insurance Business in the Early Nineteenth Century, (1991) 65 Business History Review 379–414; idem and David Richardson, Business Networking in the Industrial Revolution, (2001) 54 Economic History Review 657–679; Joel Mokyr, The Enlightened Economy: An Economic History of Britain 1700–1850 (2009), 368–388. 88 Mark Freeman, Robin Pearson and James Taylor, Shareholder Democracies? Corporate Governance in Britain and Ireland before 1850 (2012); Ron Harris, Industrializing English Law: Entrepreneurship and Business Organizations, 1720–1844 (2000). 89 Jürgen Habermas, The Structural Transformation of the Public Sphere: An Inquiry into a Category of Bourgeois Society (1989). 90 Weir (n. 4), 120 f., 123.

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around 50 members.91 One might expect, therefore, the social range of the latter to be narrower and more locally based than in the state tontines. The same may be true of most English private tontines, although, as noted above, some aspired to recruit members nationally. If, as I have argued in this chapter, private tontines should be seen as one type of an expanding species of life-contingent products, tontine investors may have not been much different from those documented for building societies, widows and benefit funds and life insurance offices, namely the ’middling sort’, tradesmen and the upper artisanate, lawyers, doctors, clergymen, blacksmiths, carpenters, victuallers, drapers, printers, bakers, chandlers – those who had some savings but did not possess great wealth, especially in land.92 As John Houghton (1640-1705) noted in 1683, tontines might generate a variety of savings, risk spreading, pension and speculative motives for deferring consumption and investing, or gambling, in a future return. 93 A further possible factor in the demand for tontines was a series of profound attitudinal changes towards risk and time that one can track in the more advanced European economies from the 17th century. As Clark has neatly put it, the future belonged to those ‘who could bank on their expectations’. 94 Risk was increasingly regarded, not as the mysterious tool of God’s Will, but as something that might be known and therefore controlled and ‘domesticated’, if the natural world was subjected to scientific analysis. 95 New attitudes to risk were also associated with shifts in time preferences, namely the degree to which the distant future is taken into account when deciding upon current utility. The patience that resulted in deferred consumption, manifested most clearly in the purchase of life-contingent products such as annuities, tontine shares or life insurance policies, might be regarded as an important driver of economic development. It may be the case that those early modern societies with a stronger ability to look into and save for the future were more prosperous in the long run. Of course, the prospect of riches must have been a powerful incentive for some investors in tontines, as it was for lottery players and investors in the stocks. State ___________ 91

Gelderblom and Jonker (n. 59), 91. Clark (n. 71), 118 f., 158–164, 171; Chalklin (n. 64), 159–161, 174–180. The founders of the Royal Universal Tontine Society included builders, drapers, stationers, accountants, ironmongers and tinplate workers: Royal Universal Tontine Society (n. 81). For a definition of the ‘middling sort’, see Henry R. French, The Middle Sort of People in Provincial England 1600–1750 (2007). 93 John Houghton’s commentary on the City of London’s tontine plan of 1674 is reproduced in: Frederick Hendricks, Notes on the Early History of Tontines, (1862) 10 Assurance Magazine 205–219. 94 Clark (n. 71), 3. 95 Lorraine J. Daston, The Domestication of Risk: Mathematical Probability and Insurance 1650–1830, in: Lorenz Krüger, Lorraine J. Daston and Michael Heidelberger (eds.), The Probabilistic Revolution, vol. 1 (1987), 237–260. 92

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tontines usually offered higher returns than other forms of financial investment, which helps explain their popularity. 96 Yet it is also true that the speculative element varied by financial product and by the degree of difficulty in estimating risk. Unlike tontines, for instance, the risk incurred in buying a lottery ticket was easily quantifiable. It was widely known how many tickets had been issued and what prizes were available. It was not difficult to find out what proportion of receipts went into the prize fund and what the odds were of winning. Indeed, the odds were often cited as a selling point for lotteries. 97 Arguably tontines provided investors with greater security than lotteries or early types of non-actuarial life insurance. Tontine subscribers had the security of knowing that their society’s obligations would, at least in theory, never outstrip assets, regardless of whether mortality was high or low. Indeed, David R. Weir has pointed out that it takes a long time to win a tontine, which was not the kind of game likely to appeal to thrill-seekers.98 In short, notwithstanding the growing belief in the scientific possibilities of measuring risk, it is difficult to discern a simple dichotomy between speculative versus prudential, rational and risk-averse versus risk-taking motives for investing in tontines.

E. American tontine insurance in the 19th century and its British cousins The final section of this chapter considers different strains of so-called ‘tontine life insurance’, pioneered by large U.S. life insurance companies and spread by them to international markets before 1914. This became the world’s first mass-consumed tontine-type product, sold on a scale that 18th-century projectors could never have imagined in their most feverish dreams. Roger L. Ransom and Richard Sutch have estimated that by 1905, in the U.S. alone, 6.2 billion dollars was insured in some nine million individual tontine policies. 99 Some historians have suggested that the forerunner to tontine insurance was the ‘with-profits’ policy, also known as the ‘reversionary bonus’ or ‘participating’ policy, widely sold in Britain during the first half of the 19th century. It originated in 1776 with a simple return of surplus profits to the policyholders of the ___________ 96

Weir (n. 4); Velde and Weir (n. 51). Murphy (n. 43). 98 Weir (n. 4), 112. 99 Roger L. Ransom and Richard Sutch, Tontine Insurance and the Armstrong Investigation: A Case of Stifled Innovation, 1868–1905, (1987) 47 Journal of Economic History 379– 390, 384–386. Ransom and Sutch derive their estimates from data reported to the New York State Senate Investigation of 1907 – the Armstrong Committee. One presumes, though it is not stated explicitly, that the figures exclude the overseas business of the companies. 97

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Equitable Life of London. William Morgan (1750–1833), the Equitable’s actuary, had discovered that his company was accumulating large amounts of cash because the premium rates charged to its members were based on life tables that overestimated their mortality. Surpluses were distributed a further five times between 1781 and 1795, and thereafter at regular ten year intervals with each member’s share of the surplus fund added as a bonus to the value of the policy and payable, like the policy itself, upon the member’s death. By 1809 an Equitable policy was worth nearly four times what it had been worth in 1770 and membership had almost doubled.100 Encouraged by this success, other offices followed suit. By the 1840s the great majority of U.K. life insurers, and many fire insurers, sold with-profits policies.101 Stock companies, in particular, found it a useful means of attracting customers away from their mutual rivals, although, unlike in the mutual offices, the profits distributed to policyholders had to be split with the dividends paid to shareholders. Historians have identified two types of with-profits policies. The first has been labelled the ‘tontine reversionary bonus’, by which a given percentage of profits was distributed as a bonus to each policy and multiplied by the total number of years it had been in force. A few offices based the ‘tontine reversionary bonus’ instead on the amount of premiums that had been paid on it. 102 On average, bonus declarations took place every five years, that is if there were surpluses to divide at all. Most companies also insisted upon a short waiting period – usually four to five years – before new policyholders became entitled to participate in the profits.103 While some offices simply added the periodic bonuses to the value of policies, others offered policyholders the options of paying reduced premiums or receiving the bonus as a cash sum. 104 The alternative to the ‘tontine reversionary bonus’ plan was the ‘equal’ plan adopted by offices such as Scottish Widows. In this scheme reversionary bonuses were distributed regardless of the number of years a policy had been in force or premiums paid. Thus at each periodic bonus declaration all extant with-profits ___________ 100 Timothy Alborn, Regulated Lives: Life Insurance and British Society, 1800–1914 (2009), 176. 101 Robin Pearson, Insuring the Industrial Revolution: Fire Insurance in Great Britain, 1700–1850 (2004), 185; Clive Trebilcock, Phoenix Assurance and the Development of British Insurance, vol. 1 (1985), 476–483, 586–589; Alborn (n. 100), 176 f.; idem, The First Fund Managers: Life Insurance Bonuses in Victorian Britain, (2002) 45 Victorian Studies 65–92, 71. 102 Roger Ryan, The Early Expansion of the Norwich Union Life Insurance Society, 1808–37, (1985) 27 Business History 166–196, 181. 103 Alborn (n. 100), 178; Ryan (n. 102), 180 f. 104 James H. Treble, The Performance of the Standard Life Assurance Company in the Ordinary Market for Life Insurance 1825–50, (1985) 5 Scottish Economic and Social History 57–77, 64; Alborn (n. 100), 178.

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policies received the same percentage share of the surplus for every year covered by that bonus period, subject to the enforcement of any waiting term for new policies. By the 1850s it was generally recognised that the ‘tontine reversionary bonus’ advantaged those with the longest running policies, usually older members, while the ‘equal’ plan benefited younger and more recent policyholders.105 Over time, as holders of ‘tontine’ policies grew older and the volume of new policies increased, the surplus was distributed over a wider population of policyholders. This in turn reduced average bonus rates and led to mounting concern among ‘tontine’ insurers about declining competitiveness. During the 1860s most of the so-called ‘tontine’ offices switched over to the equal plan. Pressed by competition from its great rival Scottish Widows, Standard Life introduced an equal plan in 1865. Norwich Union Life followed suit in 1868.106 From the 1870s withprofits policies of all types fell out of favour with U.K. life offices. They gave way to endowment insurance, which combined term-life coverage, typically for 20 years, with an annuity that commenced once the term ran out.107 By the 1890s endowment insurance had become the most popular form of ordinary life insurance in the U.K. Nearly two million new endowment policies were sold between 1890 and 1913 and their share of the ordinary life insurance market had risen to 60%.108 But what was really ‘tontine’ about British ‘tontine reversionary bonus’ insurance? Some scholars have not referred to the term at all when discussing withprofits policies in early 19th-century Britain.109 Nor does ‘tontine’ appear in some of the major contemporary surveys of the industry. 110 It may be that the term became more widely used by British insurers once American life insurance offices began selling their tontine insurance products in Europe and the U.K. after

___________ 105 Michael Moss, The Building of Europe’s Largest Mutual Company: Standard Life 1825–2000 (2000), 20; Ryan (n. 102), 186; James H. Treble, The Record of the Standard Life Assurance Company in the Life Insurance Market of the United Kingdom, 1850–64, in: Oliver M. Westall (ed.), The Historian and the Business of Insurance (1984), 95–113, 106 f. 106 Moss (n. 105), 95 f.; Ryan (n. 102), 186; Alborn (n. 101), 75. 107 Alborn (n. 101), 68; Alborn (n. 100), 213–218. 108 Supple (n. 48), 221; Alborn (n. 101), 88 n. 2: ‘Ordinary’ life insurance excludes ‘industrial assurance’ for workers. 109 Supple (n. 48),168–179; Trebilcock (n. 101), 476–483, 586–589; Harold E. Raynes, A History of British Insurance (1948), 226, 232; Robin Pearson, Thrift or Dissipation? The Business of Life Assurance in the Early Nineteenth Century, (1990) 43 Economic History Review 236–254. 110 For example, Charles Babbage, A Comparative View of the Various Institutions for the Assurance of Lives (1826); John Hutchison, A Popular View of Life Assurance (1846).

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1870.111 In any case, it seems that most of the key features of a classic tontine scheme were missing from the reversionary bonus plans sold in Britain. To be sure, there was an element of survivorship and income deferral, but only to the extent that bonuses were not added to active policies until the end of the relatively short bonus period. As far as I am aware, however, no with-profits life insurance schemes reverted the premiums of deceased policyholders back to the risk pool, except in the case of lapsed policies, nor were these schemes characterized by closed membership and termination upon the death of the last survivor(s). The picture may have been different on the continent, though we cannot say for sure without more comparative research into the structure of profit-sharing insurance in the U.K. and Europe.112 In 1868, just as the so-called ‘tontine reversionary bonus’ was in decline in the U.K., another type of ‘tontine’ insurance product, a not too distant cousin of the reversionary bonus, was launched in the U.S. by Henry Baldwin Hyde (1834– 1899), President of the Equitable Life of New York.113 Initial sales were slow, but in 1871 the product was renamed the ‘Tontine Savings Fund Assurance’ and its popularity soared. At the time the American life insurance industry was about to enter a severe recession. Poor or corrupt management, bad investments, high costs, reckless underwriting and high mortality rates undermined public confidence and drove many smaller companies into bankruptcy, especially following the financial crash of 1873. The volume of life insurance in force fell by a quarter during the 1870s.114 The industry survived by pursuing three different routes. At the upper end of the market there was a flight to quality that benefited well-managed companies insuring the best risks. In the market for workers’ savings, industrial insurance emerged, based on small policies and the weekly collection of tiny premiums in working class neighbourhoods. Dollar for dollar it was an expensive form of insurance that demanded large scale economies to keep costs ___________ 111 However, William Thomas Thomson, the manager of Standard Life, referred to his company’s ‘tontine scheme’ in a letter of 1868, cited by Treble (n. 105), 111. 112 The curious bonus scheme of the Gotha Lebensversicherungsbank (1829), widely copied by other German mutual life insurers, had a more distinct survivorship element than contemporary British schemes, with the unpaid dividends of deceased or withdrawn members reverting back to the risk pool, and with a core group of 3,000 whole-life policyholders entitled to share in profits (Stammesmitglieder) until being wound up once twothirds had died. For different accounts, see Kurt Pöhl, Die Anfänge des deutschen Lebensversicherungswesens (1913), chapter 1; Cornelius Walford, Insurance Cyclopedia, vol. 5 (1878), 290–292. 113 The Equitable Life Assurance Company of New York was founded by Hyde in 1859. It is not to be confused with the Equitable Life of London founded over a century earlier. 114 Robert E. Wright, Insuring America: Market, Intermediated and Government Risk Management since 1790, in: Leonardo Caruana (ed.), Encuentro Internacional sobre la Historia del Seguro (2010), 239–298, appendix 2.

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down, so only a few large companies made a go of it.115 The middle of the market became occupied by tontine insurance, also known as ‘deferred dividend’ insurance. At least 55 out of 128 U.S. life insurance companies went out of business between 1872 and 1878, and none of those that failed had issued tontine policies.116 The three largest life insurers led the way. New York Life soon followed the Equitable Life into tontine insurance. In 1885 the Mutual Life of New York joined them. By 1905, about 64% of all life insurance in the U.S., excluding industrial insurance, was sold on the tontine or deferred dividend plan. The latter accounted for over 80% of the business of the big three insurers.117 In American tontine insurance, the premium was divided into two parts. One part purchased insurance on the life of the policyholder, the other was deposited in an investment fund managed by the company. The contract stipulated that no dividends, return of premiums or surrender values would be paid out during a term of years – usually 20 – explicitly called the ‘tontine period’. Death benefit was always paid to the beneficiaries of the policyholder, no matter when the death occurred, but policyholders only began to receive dividends from the investment fund after the tontine period had expired. These dividends were based not just on the investment income earned from premiums, but they included a share of the premiums of anyone in the pool who had died during the tontine period, or whose payments had lapsed. The accumulation of premiums and surplus were wholly forfeitable by the individual policyholder if he or she failed to keep up payments to the end of the tontine period. American tontine insurance became popular owing to aggressive marketing, low premiums and the promise of high returns. Insurance companies liked their deferred dividend products so much that they paid their agents an additional commission if their customers bought one. 118 The Equitable Life advertised their tontine policies as showing ‘more favourable results than any other form of insurance’ and being ‘incontestable’.119 With low premiums and the promise of high returns tontine insurance was attractive to those dependent on a labour income. With life insurance also a feature, it was especially attractive to workers with families.120 Demand for this and other insurance products with an investment element, such as endowment policies, grew towards the end of the 19th century, ___________ 115 Robert E. Wright and George David Smith, Mutually Beneficial: The Guardian and Life Insurance in America (2004), 33 f.; Wright (n. 114), 249. 116 Ransom and Sutch (n. 99), 382 n. 10. 117 Ransom and Sutch (n. 99), 384, table 1. 118 Ransom and Sutch (n. 99), 388. 119 Cf., for example, the Equitable’s advertisement in the (1882–83) 2 Indiana State Gazetteer and Business Directory 373. 120 Ransom and Sutch (n. 99), 387 f.

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a sign of the increasing ability of lower middle class and upper working class households in North America and Europe to invest in deferred consumption. 121 The strength of the tontine was the accumulation of surpluses during the tontine period, but this also soon contributed to its public image problem. With no obligation for a significant period to pay dividends, only death benefits, companies could quickly accumulate cash from the premiums of active policyholders and from those that lapsed. In the U.S. reserves were not legally required to be held against liabilities until the tontine period was up, and there was no regular accounting of surpluses. Companies thus had the accumulated cash to use as they pleased, spending it for acquisitions, for expansion at home and abroad, and to help their businesses survive cyclical downturns. 122 Criticisms of tontine insurance began as early as in the 1870s and rose to a fever pitch in the 1900s. The product acquired a reputation for delivering poor value.123 Critics highlighted the high expenses, the huge disparity between projected and actual returns, and the high lapse rate. Moreover, by the 1890s, after a long period of deflation, the payouts were much lower than had been anticipated at the point of sale. During that decade the three large American offices most dependent upon tontine polices also began to run into difficulties in European markets, where local companies attacked their products and sales tactics. In Prussia, after lobbying by native insurers, the government withdrew the licenses of the New York companies, which in turn led to New York State expelling Prussian fire insurers in retaliation. The result was a series of transatlantic political and legal disputes that dragged on for years.124 In the early 1900s the industry was further hit by scandals and in-fighting in the largest companies. The lavish lifestyle of the Equitable Life’s vice-president, James Hyde (1876–1959), son of Henry Hyde, drew the attention of gossip columnists and raised questions about how this was being paid for. Hyde’s rivals on the Equitable board seized the opportunity to launch a coup against his ‘personal proprietary regime’.125 This added to the bad publicity and in 1905 led the New ___________ 121

For this trend in England, see Alborn (n. 100), 213–218. Douglass C. North, Life Insurance and Investment Banking at the Time of the Armstrong Investigation of 1905–1906, (1954) 14 Journal of Economic History 209–228. 123 Among early examples, see the attack on the ‘mortuary tontine’ scheme of the United States Beneficial Life Insurance Company of New York, in: Milwaukee Sentinel, 30 August 1871. 124 This can be followed in the newspapers of the period, for example, New York Times, 24 August 1895 and 3 December 1899. 125 Patricia Beard, After the Ball: Gilded Age Secrets, Boardroom Betrayals, and the Party that Ignited the Great Wall Street Scandal of 1905 (2003); Roscoe C. Buley, The Equitable Life Assurance Society of the United States 1859–1964 (1967). 122

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York State Legislature to appoint a joint committee to investigate, chaired by William W. Armstrong (1864–1944). The Armstrong investigation uncovered fraudulent accounting, bad investments and the gross misappropriation of company funds for personal use by managers and directors. It was revealed, for example, that an inner circle of directors had allowed the General Manager of the Mutual Life, Richard McCurdy (1835– 1916), to put his relatives on the company payroll with lavish salaries. McCurdy and his family, it was calculated, had reaped 4.6 million dollars in salaries and commissions from the Mutual Life in 20 years. Tontine insurance plans were portrayed not only as a form of gambling on lives of others, but also as providing the opportunity for extensive corruption. Lax accounting, auditing and supervisory procedures compounded the problem. In the wake of the scandal, the Mutual Life, cleansed of its corrupt directors, sued McCurdy and his cronies for 3.3 million dollars.126 A string of lawsuits drove James Hyde into exile for several years. In 1906 New York State prohibited deferred dividend policies. Investments, proxy voting, policy forms, lobbying practices and the activities of agents were subjected to new regulation. Profits not returned to either shareholders or policyholders became limited to 10% of a company’s liabilities. The use of premiums as slush funds for investment schemes was prohibited. Other U.S. states soon followed New York. It is generally agreed that these measures helped to improve the ethics of the industry and repair public confidence.127 Since then, tontines have had a bad name, some believe unjustifiably. Today, state pension funds and private insurance and annuity providers face a growing longevity problem, a very different socio-economic context from that of the 18th century. For this reason, Milevsky and others argue that now is the time to restore the tontine, this product of the scientific revolution and the age of enlightenment, to its rightful place in the Pantheon of life-contingent financial products.128 Their case may be persuasive.

___________ 126

It eventually settled for 815,000 dollars: New York Times, 5 March 1909. Wright (n. 114), 250; Wright and Smith (n. 115), 43 f. 128 Milevsky (n. 5); Ransom and Sutch (n. 99). See also Milevsky, 307 ff.; Forman and Sabin, 329 ff.; and Weinert, 317 ff., below. 127

Part 2: A Comparative Legal History of Tontines

Chapter 5: Tontines in France from the Ancien Régime to the Third Republic By Sophie Delbrel A. Introduction ............................................................................................................ 109 B. The legal discourse on tontines............................................................................... 112 C. The role of the state ................................................................................................ 115 D. Conclusion .............................................................................................................. 119

A. Introduction In the 18th century, a tontine was defined as a espéce de Société viagére, où ceux qui ont contribué à en former les fonds, se succédent dans la jouissance des rentes viagéres qui la composent, et héritent les uns des autres à mesure qu’il en meurt quelcun [sic], ensorte néanmoins qu’après la mort du dernier actionnaire, les rentes s’éteignent et retournent au profit de celui a établi la Tontine, et qui est resté garant du payment des arrérages.1 type of annuity society in which those, who have contributed creating the funds, succeed each other in the entitlement to the annuities that form it. Each member inherits from the others upon their death. After the death of the last shareholder, the annuities extinguish and return to the profit of the individual who set up the tontine and who guaranteed the payment of the annuities.

However, the history of tontines began in France several decades prior to the 18th century – with Lorenzo Tonti (1602–1684).2 In 1653, he proposed to Cardinal Mazarin (1602–1661) a new financial scheme. The state was to set up an annuity fund and invite subscriptions. The fund was to be divided into age-based classes in steps of seven years. Despite Tonti’s inspiring presentation, the plan did not have the desired success:3 it met with opposition from the parliament in Paris and it was not implemented. Tonti suggested a second plan in 1656: a royal blanque.4 The choice of this name is of significance. Since the 16th century, the ___________ 1 Jacques Savary des Bruslons, Dictionnaire universel de commerce, vol. 3 (Paris 1741), ‘Tontine’. 2 Encyclopédie méthodique. Finances, vol. 3 (Paris 1787), 705–708. 3 Henri Sauval, Histoire et recherches des antiquités de la ville de Paris (Paris 1724), 58–87. See in detail Rietsch and Gallais-Hamonno, 28–33, above. 4 Emile Dehais, L’assurance sur la vie en France et les tontines (1861), 13. The scheme should have raised funds for a bridge and a pump in front of the Tuileries.

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term blanque referred to a type of lottery coming from Italy.5 And a lottery and a tontine are both of an aleatory nature. Tonti made further proposals for the establishment of a tontine, and he was ultimately able to turn ‘his name into a generic term’.6 After Tonti’s death, a number of tontines were successfully implemented: the state repeatedly used tontines as a means to raise capital. Three tontines were launched under the reign of Louis XIV, and the design of these schemes was further developed.7 The third of these three tontines, issued in 1709, was, for example, presented as being ‘more advantageous than the previous ones’.8 The state had combined a perpetual annuity with a tontine scheme. The perpetual annuity was thought to preserve the rights of the investor’s heirs. The tontine scheme introduced an element of gambling on the death of the co-members. The aim was to make the scheme as attractive as possible to large parts of society: women and men, the young and the old, French subjects and foreigners.9 The resulting heterogeneity of subscribers demonstrates a certain democratization of investments.10 The ambition to present a tontine as an attractive investment may explain why Alain-René Lesage’s (1668–1747) comedy La Tontine,11 which he had finished in 1708, could not be staged until 1732:12 he had presented a tontine as a ‘game of chance’13 which is designed for fools. With respect to whether a tontine is a form of gambling, the public hand, indeed, acted inconsistently: the immorality of gambling on human lives was an argument supporting the prohibition of life insurance, yet tontines were allowed and they were issued by the ___________ 5 See Estienne Pasquier, Les Recherches de la France d’Estienne Pasquier conseiller et advocat general du Roy en la Chambre des Comptes de Paris (Paris 1621), 760: ‘L’invention des Italiens (gens naturellement destinez pour espuiser par subtils moyens l’or et l’argent de ceste France) a introduit … un jeu que l’on appelle la Blancque, jeu le plus propre que l’on ne sçauroit dire, pour pipper doucement une populace.’ 6 See Rietsch and Gallais-Hamonno, 30, above. 7 On the tontine loans under Louis XIV and Louis XV compare Georges Gallais-Hamonno and Jean Berthon, Les emprunts tontiniers de l’Ancien Régime – Un exemple d’ingénierie financière au XVIIIe siècle (2008); David R. Weir, Tontines, Public Finance, and Revolution in France and England, 1688-1789, (1989) 49 Journal of Economic History 95–124; and Gallais-Hamonno and Rietsch, 61–66, above. 8 Edit du Roy, portant établissement d’une nouvelle Tontine. Donné à Marly au mois de May 1709 Registré en Parlement (s.d.). 9 On the scheme of 1709 see Gallais-Hamonno and Berthon (n. 7), 78–81 and GallaisHamonno and Rietsch, 61–66, above. 10 See Gallais-Hamonno and Berthon (n. 7), 29–44. 11 Alain-René Lesage, Œuvres complètes, vol. 2 (2012), 315–367. 12 Lesage (n. 11), 315: ‘en 1708 … je la retirai pour des raisons que le public se passera bien de savoir’ (‘in 1708 … I withdrew it for reasons the public will well know’). 13 Lesage (n. 11), 297.

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state. This inconsistency seems not to have been a matter of great concern.14 The last public tontine was issued in 1759.15 Subsequently, tontines were successfully launched as private operations. One could even go so far to say that it was necessary to wait for the 18th century for tontines to encounter true success – above all as private issues. The most famous tontine designed during the Ancien Régime was that of Joachim Lafarge (1748– 1839). He had developed the plan for this tontine in 1786, but he was unable to obtain the required authorization.16 Some years later, in 1792, the Caisse Lafarge began to encounter great success. Subscribers hoped to increase their savings. However, they were seduced by incorrect calculations on mortality that had been produced by the director of the tontine. Even though the Caisse Lafarge had been established in the 18th century, its judicial and administrative dissolution reached well into the 19th century.17 Whether initiated by the state or by private individuals and private entities, tontines in the Ancien Régime and at the time of the Revolution18 were tainted by the same fraud and deception endemic to that era.19 This raises the question of the role of the state, either as issuer or in its role overseeing tontines in the interest of the general public. And how was it possible to further promote the idea of insurance in the light of the problems caused by tontines? It is of note in this context that legal scholars began to be wary of tontines due to the many problems caused by them and their repeated failure. They stressed the necessity of improving the statistical and financial mechanisms underlying tontines, and at the same time they maintained their reservations against tontines. As a consequence, the state finally felt that it had to intervene. ___________ 14

See, however, Dehais (n. 4), 34 f.: ‘Tandis que les gouvernements spéculaient sur l’appétence d’un lucre aléatoire tout personnel à l’intéressé; tandis qu’ils favorisaient ainsi les sentiments d’égoïsme, les goûts du jeu, les instincts cupides; ils condamnaient, au nom de la morale … l’assurance au décès’ (‘While the government speculates on the appetite for an aleatory profit and, thereby, encourages feelings of egoism, a taste for play, and gambling instincts, it condemns in the name of morality ... life insurance’). 15 See Gallais-Hamonno and Rietsch, 61–66, above. 16 Compare Guy Thuillier, La Caisse Lafarge (1787–1892) (1999). 17 Jacques Moulin, Des Tontines (1803), 96: 20 people reached the age of 100 years. 18 Compare Gallais-Hamonno and Berthon (n. 7), 51–72: ‘un emprunt coûteux pour l’Etat et peu rentable pour le souscripteur’ (‘a costly loan for the state and not very profitable for the subscriber’). There was also the Caisse des invalides de la marine created in 1682 under Colbert and characterized as a perpetual tontine by Georges Hamon, Histoire générale de l’assurance en France et à l’étranger (1895–1896), 248. 19 Guy Thuillier, Pour une histoire des tontines (1790–1850), (2004) 49 Bulletin d’Histoire de la Sécurité Sociale 222–235, points out the often biased nature of documents related to tontines. Furthermore, there are often differences between the dates on which authors rely, whether in the 18th, 19th, or 20th century.

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B. The legal discourse on tontines Overall, legal scholars were critical of tontines. They argued that the key to the success of tontines was simply the lure of gain, even if hopes had already been disappointed in the past.20 To subscribers, tontines seemed to be a potentially very lucrative investment. Quickly, measures against fraud were developed. In particular, payees had to produce proof-of-life certificates when collecting annuities.21 These certificates verified that the nominee on whose life the payment of the annuities was based was still alive. They had to be issued by a local notary or judge. A second point of discussion concerned the connexion of tontines with the idea of gambling, especially with lotteries.22 Tontines and lotteries both had their roots in Italy and had come from there to France – this was at least for a long time generally believed.23 The close connexion between gambling and tontines in the minds of the people also becomes obvious from the following two observations: (1) In 1658 there was a ballet de la loterie for the entertainment of the royal entourage. It was inspired by blanques, tontines, and other games in vogue during that century.24 (2) Still in the 19th century, there was a game called ‘tontine’. It was a card game. The winner was called the ‘survivor’.25 In addition, the connexion between tontines and lotteries was stressed twice by the Académie des sciences in Paris. First, a commission including Pierre-Simon Laplace (1749–1827) and Marie Jean Antoine Nicolas Caritat, Marquis de Condorcet (1743–1794), delivered its expertise on 1 December 1790.26 Secondly, Jean Baptiste Joseph Fourier (1768–1830) presented in 1821 a report on tontines: ‘les tontines sont, à proprement parler, des paris sur la vie des hommes. Ce sont des jeux de hasard dont l’issue est éloignée’ (‘tontines are, strictly speaking, bets on the lives of men. They are gambling with only a small chance to win’).27 ___________ 20 Compare Moulin (n. 17), 145, who cites Saint-Simon: ‘On a beau courir aux tontines de nouvelle création après y avoir été trompé tant de fois et toujours excité par des appâts trompeurs.’ 21 See Joseph Nicolas Guyot, Répertoire universel et raisonné de jurisprudence civile, criminelle, canonique et bénéficiale, vol. 3 (Paris 1784), ‘Certificat de vie’. 22 See Charlotte Broussy, Histoire du contrat d’assurance XVIe-XXe siècle (Thèse Droit Montpellier 2016), 234 f. 23 Sauval (n. 3), 58–87; Encyclopédie méthodique. Jurisprudence, vol. 5 (Paris 1785), ‘Jeu’; Moulin (n. 17), 6. 24 Victor Fournel, Les contemporains de Molière (1863-1865). 25 Delanoue Van Tenac, Almanach-manuel des Jeux – L’impériale (1858), 72–76. 26 Cited during the 9 April 1821 meeting of the Académie des Sciences: Procès-verbaux des séances de l’Académie (1910–1922), 172. 27 Procès-verbaux (n. 26), 170.

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Most legal scholars followed this characterization.28 Jacques Savary des Bruslons (1657–1716), for example, discussed tontines in the section on lotteries. And he believed that Tonti had brought lotteries to France.29 Philippe-Antoine Merlin (1754–1838) started his reflections on tontines by citing a very unfavourable report of 1808 in favour of banning tontines as a commercial undertaking.30 Insurance specialists, too, did not think favourably of tontines. 31 According to the 19th century author Emile Couteau: ‘The tontine preceded insurance, like astrology preceded astronomy and alchemy preceded chemistry.’ (‘La tontine est née avant l’assurance, comme l’astrologie avant l’astronomie, comme l’alchimie avant la chimie’).32 Also, Alfred de Courcy (1816–1888) did not hide his discontent: ‘Two phrases often summarize tontines: bad activity, bad deal.’ (‘Deux mots résumeraient souvent les tontines: mauvaise action, mauvaise affaire.’)33 There were, of course, legal authors who were in favour of tontines. At least until the 19th century, these authors most likely had some kind of personal interest in tontines: this is, for example, the case with Simon de Beaumont, who advised investors and annuitants on the legal framework of tontines.34 Honoré Gabriel Victor de Riqueti, Marquis de Mirabeau (1749–1791), defended the Caisse Lafarge,35 yet he was not able to overcome the reluctance which the Assemblée Nationale had against this tontine.

___________ 28 Sauval (n. 3), e.g., dedicated a chapter of his work to the ‘histoire des tontines, lotteries, et blanque royale’ (‘history of tontines, lotteries, and royal blanque’). 29 Savary des Bruslons, vol. 2 (n. 1), ‘Loterie’. 30 Philippe-Antoine Merlin, Répertoire universel et raisonné de jurisprudence (4th edn., 1825), ‘Tontine’: ‘Une Tontine ne présente ni travail, ni produit, ni concurrence; c’est une simple convention par laquelle les sociétaires s’engagent à souffrir, au détriment de leurs héritiers naturels, le partage de leur intérêt dans l’association, entre ceux de leurs co-associés qui sont destinés à leur survivre’. 31 (1837) Revue française 228–241. See also Paul Herbault, Traité des assurances sur la vie (1877), 61. 32 Alfred de Courcy, Traité des assurances sur la vie, vol. 1 (1881), n. 46. 33 Cited in (1884) Revue des sociétés, législation, 814 n. 1. Compare also Edouard Fuzier-Herman, Répertoire général alphabétique du droit français, vol. 5 (1889), ‘Assurance’, no. 66, ‘dans tous les cas, la tontine est fort dangereuse à raison de l’incertitude de l’évaluation des chances de survie qui permet d’abuser les souscripteurs’. 34 He is the author of Jurisprudence des rentes, ou Code des rentiers, par ordre alphabétique (Paris 1766), ‘Tontines’. 35 Philippe-Joseph-Benjamin Buchez and Pierre-Célestin Roux-Lavergne, Histoire parlementaire de la Révolution française, vol. 9 (1834–1838), 221, 3 March 1791. Some years later, the Minister of Finance, Dominique-Vincent Ramel-Nogaret (1760–1829), thought that the Caisse Lafarge could contribute to the servicing of the public debt, see: Ramel, Duvillard et Lafarge, (2003) 48 Bulletin d’Histoire de la Sécurité Sociale 294–296.

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There was a further legal context in which tontines were discussed: the prohibition of testamentary contracts. The ban is rooted in Roman law. During the time of the Revolution and also with the enactment of the Code civil, it had more of a political dimension than in the Roman era.36 The prohibition of such contracts confirmed the reservations which were expressed by legal scholars against tontines, even though the ban did not directly apply to tontines.37 It was only in 1903 that Jacques Moulin tried to advance a balanced assessment of tontines in his doctoral thesis.38 He reminded his readers of the abuses and malpractices in tontines, but at the same time he softened the accusations of investors acting immorally or out of egoistic motives when subscribing to a tontine.39 Moulin argued that tontines, if they were based on sound actuarial calculations and if they were managed properly, could be used for purposes which are comparable to those when taking up life insurance. Indeed, the Conseil d’Etat had already in 1818 been of the opinion that insurance at fixed premiums was based on a tontine principle.40 Moulin concluded that it would, thus, be better to improve the tontine system rather than to criticize it. Moulin did not glorify tontines, but he also did not fail to point out their potential advantages. Echoing the arguments for promoting tontines, he believed that they, just as life insurance, can be used as a means for financial provision. At the same time, he pointed out the exaggerations as to the success of a number of tontines. However, one of the most questionable arguments in the past had been to present them as a kind of savings institution. Lafarge qualified his tontine as a ‘Caisse d’épargnes [sic] et de bienfaisance’ (‘Savings and welfare fund’). This is an extreme example. Nevertheless, these kinds of names and descriptions caused confusion among the general public. Issuers of tontines deliberately exploited this confusion and compared tontines to mutual insurance institutions.41 The fact that tontines developed in the wrong direction may also have been caused by the way they had been instrumentalized by the state. The state used ___________ 36

See Georges Ripert and Jean Boulanger, Traité de droit civil, vol. 4 (1959), 486 f. Ripert and Boulanger (n. 36), stressed the non-absolute character of the prohibition; nevertheless, it was capable of posing difficulties when drafting tontine clauses, see Philippe Malaurie and Laurent Aynès, Droit des successions et des libéralités (2016), n. 693. On the history of the prohibition, see Hugues Gramont, Etude analytique et critique de la prohibition des pactes sur succession future (Thèse Droit Bordeaux I 1990). 38 Moulin (n. 17). Dehais (n. 4), 147 f., had adopted, at least in part, a similar attitude in 1861, but overall he remained hostile towards tontines. 39 Dehais (n. 4), 139–143. 40 Dehais (n. 4), 144. 41 Dehais (n. 4), 117 f.: ‘la tontine, qui s’intitule assurance mutuelle sur la vie, … se présente plus généralement sous le nom d’assurance pour les enfants’ (‘the tontine, which is called mutual life insurance ... is presented more generally under the name of insurance for children’). 37

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them as a means to raise capital in times of financial need. They were, thus, one tool in the financial policies of Louis XIV and then Louis XV. Admittedly, tontines had the advantage of avoiding tax increases and the introduction of new taxes. Still, the success of public tontines went hand in hand with the decay of royal finances. At the same time, the ban on life insurance effected by the Ordonnance de la marine of 1681 further increased the interest in tontines. Thus, the first challenge experienced by the state was to abandon the original idea of tontines as an instrument to raise capital. A second challenge, especially since the Revolution, was to supervise those tontines whose issue some authorities had encouraged at that time.42 C. The role of the state Within two centuries, the role of the state shifted from that of the issuer of tontines to a supervisory role. This shift signals a radical change in policy. The development revealed a progress which had been achieved in public management, while budgetary rules began to be articulated. The royal state was the starting point of tontines in France. However, the tontines which were proposed during the time of Mazarin met with stiff opposition from the parliament and from the clergy. 43 For that reason they were not issued. This did not prevent the state from coming back to the idea of tontines several years later. In the meantime, Louis XIV had muzzled parliament, which was no longer considered to be the sovereign. 44 In the same manner, he had reduced the clergy to strict obedience. Thus, finally royal tontines could be issued. However, the choice for tontines was not based on a rational policy: François Véron Duverger de Forbonnais (1722–1800) highlighted that ‘de tous les expédients de finances, c’est peut-être le plus onéreux pour l’Etat, puisqu’il faut presqu’un siècle pour éteindre une tontine, dont les intérêts sont pourtant d’ordinaire à un très fort denier’ (‘from all the financial tools, this is perhaps the most onerous for the state, since it has taken almost a century to extinguish a tontine, whose interests are still usually a considerable sum’).45 ___________ 42 Moulin (n. 17), 15–17, mentioned a private tontine of 1785 for the benefit of the Duke of Orléans which became a public debt during the Revolution. 43 Sauval (n. 3), 60–62, after the fruitless attempts of 1653 and 1657, Tonti tried to implement an ecclesiastical tontine; see Rietsch and Gallais-Hamonno, 28–33, above. 44 See, e.g., Jean-Pierre Royer, Histoire de la justice en France (2001), 30–34. 45 Cited by Désiré and Armand Dalloz, Répertoire méthodique et alphabétique de législation, de doctrine et de jurisprudence en matière de droit civil, commercial, criminel, administratif, de droit des gens et de droit public: jurisprudence générale, vol. 42/1 (1861), ‘Tontine’.

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Abbé Joseph Marie Terray (1715–1778) was appointed Contrôleur général des finances in 1769. He took action to overcome the financial crisis which France was experiencing. As one step, he brought the operative tontines to a halt. Already in 1763, under his pre-predecessor, Clément Charles François de Laverdy (1723–1793), a royal decree had been passed that prohibited future tontines.46 Terray had all existing tontines turned into standard life annuities. 47 But in doing so, Terray weakened the royal credit: ‘Terray enleva la Foi; Lafarge enleva la Foi et l’Espérance’ (‘Terray removes faith; Lafarge removes faith and hope’).48 In 1786, Louis XVI lifted the ban on life insurance with his authorization of a proposal for a life insurance scheme. This again stimulated the discourse on tontines and strengthened the position of those who argued in favour of tontines. Simultaneously, Lafarge started to work on his plan to issue a tontine, a plan that was implemented during the Revolution. 49 Moreover, tontines were used, among other means, to raise capital for the revolutionary state,50 and they were, thus, utilized in order to react to the growth of public spending.51 Subsequent to the reign of Napoléon Bonaparte, the state engaged in a strict supervision of tontines.52 This development marked a change in policies: the state was now hostile towards issuing further public tontines and suspicious of private tontines. In 1809, the Conseil d’Etat provided guidelines.53 Taking into account the singular character of tontines compared to other financial schemes and the abuses observed until then in tontine schemes, the Conseil d’Etat introduced the ___________ 46 Dalloz (n. 45), n. 3; it was dated 21 November 1763; the last royal tontine was created in February of the same year, qualified as a ‘tontine des gens de mer’ (‘tontine for people of the sea’): Moulin (n. 17), 13, qualifies it as a retirement fund rather than a tontine. 47 On the details compare Gallais-Hamonno and Berthon (n. 7), 101–103. 48 Louis Sallentin, L’improvisateur français (1806), ‘Tontine’, 149. 49 From 1784–1787 a plan for a military tontine was worked out, see (1995) 32 Bulletin d’Histoire de la Sécurité Sociale 171–180. 50 Dalloz (n. 45) stresses the lack of documentation on revolutionary tontines. However, some were addressed in recent publications: (1993) 28 Bulletin d’Histoire de la Sécurité Sociale 207–250 (tontine plan of 1793); (1995) 31 Bulletin d’Histoire de la Sécurité Sociale 141–150 (real estate tontines); (2002) 46 Bulletin d’Histoire de la Sécurité Sociale 111–115 (charity gymnasium in 1795/1796). 51 The ‘Tontine du pacte social’ is an example, see: Avis aux républicains français, tontine des sans-culottes: extrait du règlement de cette Tontine, établie à Paris, sous la surveillance des Autorités constituées, place des Victoires nationales (Paris 1792); see also Corps législatif, Conseil des Cinq-cents, Opinion de Gibert-Desmolières, Sur un emprunt en tontine, tendant à retirer vingt-quatre milliards d’assignats de la circulation (Paris 1795/1796). 52 See (1993) 27 Bulletin d’Histoire de la Sécurité Sociale 89–92. 53 See the Journal des audiences de la Cour de cassation; (1809) Recueil des arrêts de cette cour, en matière civile et mixte 41; Avis du Conseil d’Etat relatif à l’établissement des Tontines du 25 mars 1809, approuvé par l’Empereur le 1 er avril suivant.

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requirement of a concession in order to issue a private tontine. The aim was to make tontines more reliable for subscribers. The Conseil d’Etat further demanded a reinforced monitoring of tontines by public authorities. The decree of 1 April 1809 followed the guidelines published by the Conseil d’Etat. Consequently, three tontines were subjected to public supervision: the Caisse Lafarge,54 the Pacte social, and the Caisse des Employés et Artisans.55 Given the large number of subscribers concerned, it seemed impossible to let these tontines operate according to their original articles of agreement.56 In 1810, the administration of the Napoleonic Empire undertook investigations to identify all existing tontines in France. Some local curiosities were brought to light in the ‘historical’ territories of France,57 particularly a military tontine58 and real estate tontines.59 This investigation suggests that the administration took its new task seriously.60 Nevertheless, the decree of 1809 was not strictly enforced: a number of tontines were established without observing the decree’s guidelines. And the proximity of tontines with the Société Anonyme resulted in some tontines being established in form of the latter,61 e.g. the Tontine perpétuelle d’Amortissement62 and the Caisse de Survivance et d’Accroissement,63 both founded in 1819. Even though the rules to be followed in esta-

___________ 54 A series of documents concerning it was published, see: A propos de la Caisse Lafarge (1791–1806), (1996) 34 Bulletin d’Histoire de la Sécurité Sociale 117–120. 55 Anne Lefebvre-Teillard, La société anonyme au XIXe siècle (1985), 75. Concerning projects that preceded these tontines, see: Un projet de tontine en 1793, (1993) Bulletin d’Histoire de la Sécurité Sociale 223–240; Un projet de tontine départementale dans les Vosges (an X), ibid., 249–254. 56 See Un rapport de Fouché sur les tontines (1809), (2004) 49 Bulletin d’Histoire de la Sécurité Sociale 283–285. 57 Moulin (n. 17), 105–110, indicates the existence of tontines in Anvers, Breda, and Berg-op-Zoom; on the developments in the Netherlands see Sirks, 121 ff., below. 58 See Un projet de Tontine Militaire 1784–1787, (1995) 32 Bulletin d’Histoire de la Sécurité Sociale 171–180; furthermore, prior to the implementation of mandatory personal military service in 1872 and 1889, tontines were often used to exonerate sons from military service, see Moulin (n. 17), 117. 59 Moulin (n. 17), 104 f. See also Tontines et maison de retraite: la Caisse d’Humanité (an XIII), (1994) 30 Bulletin d’Histoire de la Sécurité Sociale 243–250. 60 Compare Dalloz (n. 45), n. 7 and 8. 61 Lefebvre-Teillard (n. 55), 75 f. 62 Moulin (n. 17), 114, characterizes this tontine as a lottery. 63 Lefebvre-Teillard (n. 55), 75.

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blishing a tontine or a Société Anonyme were similar, this choice of form is surprising. Commentators were divided on the legal nature of tontines.64 Some characterized them as a unique form of association rather than a society.65 During the French Restoration, new tontines were initiated. Three of them were open to anyone regardless of age or sex. Apart from traditional tontines, new schemes were developed which served different purposes, but which were nevertheless named tontines.66 There were, for example, dowry tontines. Other schemes shared a close proximity to life insurance and introduced in advance a term for the liquidation of the fund. All sorts of combinations became possible: the Caisse mutuelle d’épargne of 1839 combined a traditional tontine with a dowry tontine.67 It seems that these combinations made possible (1) the growth of revenue with or without alienation of the capital, (2) the growth of capital with or without the alienation of revenue, or (3) the creation of capital by the accumulation of revenue without the alienation of the capital of the investments.68 As a reaction to the high number of newly founded tontines, new standards for their supervision and regulation were introduced by the decrees of 12 June and 5 July 1842.69 The government installed a new committee to closely monitor tontines. The commissioners received extensive powers in order to properly conduct their task, which included powers to examine all documents relevant to the management of tontines.70 These powers were even extended in response to a press campaign regarding tontine associations: from 1847 tontines had to submit all documents to the committee prior to their publication. Until the turn of the century, the establishment of private tontines was a dynamic process.71 However, there was also a last initiative for a public tontine in ___________ 64

Compare Dalloz (n. 45), n. 14. This concerns a specific society under Art. 1841 f. Code civil, see Philippe Antoine Merlin, Répertoire universel et raisonné de jurisprudence, vol. 17 (4th edn., 1825), 662 f. 66 See Auguis et la défense des tontines de fonctionnaires, (1992) 26 Bulletin d’Histoire de la Sécurité Sociale 109 f.; before the Restoration a double tontine hypothécaire was created: (1996) 34 Bulletin d’Histoire de la Sécurité Sociale 141–148; concerning tontines and retirement homes in 1804/1805 see the document published in (1994) 30 Bulletin d’Histoire de la Sécurité Sociale 243–250. 67 Moulin (n. 17), 114 f. 68 These distinctions that, in fact, result in five types of tontines were developed by Alfred Legoyt in his dictionary on political economics, cited by Dalloz (n. 45), n. 12. 69 As for their content, see Dalloz (n. 45), n. 9–11; beginning in 1854, tontine societies and agencies were subjected to the monitoring of finance inspectors possessing investigative power in terms of management and accounting. 70 Dalloz (n. 45), n. 9, for a complete presentation of the committee that was composed initially of five members and that grew to nine members in 1849. 71 According to Moulin (n. 17), 116, between 1841 and 1848, no fewer than 22 tontines were authorized by the public authorities. 65

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1848. The proposal was made to form a national mutual life insurance scheme out of about 20 private tontines. The plan was welcomed by the provisional government of the Second Republic. However, the newly elected National Assembly did not approve of the plan, and it was, thus, not implemented.72 During the Second Empire, legislation on the Société Anonyme preserved the rigorous approach towards tontines as adopted by the Conseil d’Etat in 1809 and the decree of 1842. A law of 1867 specified that ‘les associations de la nature des tontines et les sociétés d’assurances sur la vie … restent soumises à l’autorisation et à la surveillance du gouvernement’ (‘tontine associations and life insurance companies … remain subject to government authorization and surveillance’). To be sure, this approach did not please promoters of life insurance.73 Starting in 1875, the government of the Third Republic intended to reinforce the existing supervision of tontines and life insurance companies.74 However, in 1877 it had to moderate its plans following a controversial decision issued by the Conseil d’Etat.75 D. Conclusion According to Guy Thuillier, tontines form a ‘historical crossroads’ par excellence: the histories of different institutions come together, such as that of the nation, of social law, of social rights, of the press, and even of the army.76 Furthermore, tontines were part of a paradoxical narrative. On the one hand, they helped to familiarize the general public with insurance techniques and demonstrated the usefulness of life insurance.77 On the other hand, they harmed the development of life insurance until the 19th century by causing the legislature and administration officials to be suspicious of them. The overlap first between tontines and public loans and then between tontines and insurance was not helpful when it came to addressing the many problems caused by tontines. Finally, it is striking that tontines played an important role in the official discourse on insurance until the beginning of the Third Republic, when the number of tontines had ___________ 72

Moulin (n. 17), 21–27. See for example Hamon (n. 18), 67. 74 On the topic of the measures taken and the dissatisfaction of insurance companies, see Albert Chaufton, Les assurances, leur passé, leur présent, leur avenir, au point de vue rationnel, technique et pratique, moral, économique et social, financier et administratif, légal, législatif et contractuel, en France et à l’étranger (1884), 681–705. 75 Chaufton (n. 74); see also Moulin (n. 17), 198–216, concerning planned subsequent laws that were aimed at strengthening the control of the state, in particular a proposed law of 1902. 76 See n. 19, above. 77 In this sense, see Moulin (n. 17), 146–150. 73

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already significantly decreased.78 A small number of tontines subsisted even though they were considered to be of speculative nature. Yet, they were not considered as being morally questionable because during the Third Republic lawmakers themselves were not as moral as they should have been.79

___________ 78 (1884) Impressions. Sénat 137: at the start of the 1880s, only one mutual company, the Conservateur, was operating ‘comme les anciennes tontines’ (‘as the old tontines’). 79 See Jean Garrigues, Les scandales de la République – De Panama à l’affaire Clearstream (2010), 7–144.

Chapter 6: Tontines in the Dutch Republic and the Early Kingdom (1670–1869) By Boudewijn Sirks A. Introduction ............................................................................................................ 121 B. Classifying tontines ................................................................................................ 122 C. The Kampen tontine of 1670 .................................................................................. 124 D. The origins of tontines in the Netherlands .............................................................. 125 E. Spreading the idea of tontines................................................................................. 126 F. The Amsterdam and the Middelburg tontines of 1671 ........................................... 129 G. The Harderwijk tontine of 1763 ............................................................................. 130 H. The profitability of tontines .................................................................................... 131 I. 18th-century case law on tontines ............................................................................ 132 J. The obscure transfer of the share of a deceased nominee ....................................... 134 K. A late revival of tontines ........................................................................................ 138 L. Legislation on tontines and their decline ................................................................ 140

A. Introduction The literature on tontines in the Netherlands is quite rich. It was basically due to Marius van Haaften’s (1880–1957) research on tontines that other authors such as W.W.J. Maassen and J. Schuurbecque Boeijen developed an interest in this kind of life insurance. Van Haaften was a mathematician who specialized in insurance mathematics and who was from 1930 to 1950 professor for insurance mathematics at the Vrije Universiteit in Amsterdam. He published a number of articles on tontines, particularly in 1943 and 1944.1 ___________ 1 Van Haaften studied mathematics at Leiden University. In 1912 he submitted his PhDthesis on insurance mathematics. After that he entered the Hollandsche Sociëteit van Levensverzekeringen NV, Anno 1807, as mathematical advisor. Amongst his many publications, his Leerboek der intrestrekening (Textbook of Interest Calculation) became a standard work. In 1927 he became director of the Sociëteit and in 1930 extraordinary professor for insurance mathematics at the Vrije Universiteit in Amsterdam. In 1950 he retired from his post at the Sociëteit and shortly after that from his professorate. Van Haaften was a man of many talents and great energy, with also historical interests. See J.P. van Rooijen, Marius van Haaften, (1971) 48 Het Verzekerings-archief 95–106; idem, M. van Haaften, (1955– 1957) 27 Economisch-Historisch Jaarboek 180–183. See further A. van den Brandhof, Marius van Haaften (1880–1957), in: Biografisch Woordenboek van Nederlandse wiskundigen (BWNW): http://bwnw.cwi-incubator.nl/cgi-bin/uncgi/toon?nr=28&ftnr=1 (last accessed 4 September 2017). In the last footnote of this paper I will add a list of further

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In addition, Herman Wagenvoort published in 1961 a dissertation which presents a thorough archival research into tontines as well as a complete survey of the literature up to 1960 and which provides a framework for the articles which have been published since.2 In a 1967 article he identified 10 further tontines and gave some additional information on already reported ones. 3 Despite this rich literature, there may still be work to be done. For example, it might be interesting to investigate how many people and who precisely participated in tontines, taking into consideration social backgrounds and financial means. Perhaps one might even find still more tontines. Notwithstanding these remarks, it is beyond doubt that Van Haaften’s and Wagenvoort’s contributions provide a thorough picture of the period from 1670 to 1869, and the present chapter will rely on their work to a great extent, providing the reader, since all is written in Dutch, with the core of their work in English.

B. Classifying tontines Insurance was not a novelty for the Dutch Republic and particularly the province of Holland when the tontine made its appearance. Marine insurance (on which Van Niekerk has written extensively)4 and life annuities, known as lijfrenten and losrenten, were already practised. Losrenten were life annuities which ___________ publications from his hand and from others, since Wagenvoort’s book does not have a bibliography and often mentions only the barest bibliographic data. 2 Herman Wagenvoort, Tontines, Een onderzoek naar de geschiedenis van de lijfrenten bij wijze van tontine in de contracten van overleving in de Republiek der Verenigde Nederlanden (1961). Wagenvoort studied at Utrecht University and had as mentor J.Ph. De Monté ver Loren. His book consists of the following chapters, with the corresponding page numbers provided: Introduction 1–9, Life annuities by way of tontine and contracts of survival 10–23, Legal problems 24–29, ‘Frugtbringende Selskab’ 1653 30–45, Lorenzo Tonti 46–55, Paul Klingenberg 56–58, Gerard Heusch 59–63, Jacob van Dael 64–74, Survey of life annuities by way of tontine 75–93, Survey of contracts of survival 94–110, Public measures until the introduction of a national codification 111–113, Annexes I to VIII 114 ff. Annex I (114–153 and see also 75–93) contains lists of all the tontine life annuities and contracts of survival that were known of in 1961, with respective totals of 50 and 314. 3 Herman Wagenvoort, Contracten van overleving en andere tontines, (1967) 35 Tijdschrift voor Rechtsgeschiedenis 584–594. 4 Johan P. van Niekerk, An introduction to and some perspectives on the sources and development of Roman-Dutch insurance law with appendices containing the more important Roman-Dutch insurance legislation (1988); and for a voluminous and complete study idem, The development of the principles of insurance law in the Netherlands from 1500 to 1800 (1998). See further Fred Stevens, The contribution of Antwerp to the development of marine insurance in the 16th century, in: Marc Huybrechts (ed.), Marine insurance at the turn of the Millennium, vol. 2 (2000), 15–20.

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the debtor could redeem early by paying a sum, usually several times the annuity; with lijfrenten the debtor did not have a right to redeem. The insurer had to estimate the life expectancy, the capital to be raised, and the interest he could pay on the raised capital. Of course he had to think of a profit for himself, too. To calculate the annuity one should use life expectancy tables, but the ones used were not reliable, as the one proposed by Jacob van Dael in 1670 proves.5 Often an annuity was miscalculated and at a loss to the issuer. As regards the yearly payments, life annuities resembled the yearly interest of a state bond or a private loan of money. But the difference was that the sum paid to purchase it was not returned after death or the end of the annuity: legally and financially the question was, what had happened to this sum? Was it included in the annuities and thus paid out in installments? Then it was comparable to a bond. But if not, what then was its exact legal nature? Was it a purchase? An emptio spei, as Cornelis van Bijnkershoek (1673–1743) would later say? Or a special kind of bond? Jurisprudence had no answer. In 1623 a case came before the Supreme Court of Holland and Zeeland, in which a testator had bequeathed the usufruct of, amongst other things, life annuities (evidently on the lives of third parties) to his sisters. The executor refused to pay these out, making various arguments. The main assertion was that there was no sors (capital) out of which the annuities flowed, meaning the sum used to purchase it was irretrievably gone. Furthermore, the executor argued that also in the event that an annuity was given as dowry, the spouse had to return the capital in addition to the revenues. The counterargument was that a usufruct consisted of everything that accrued to the capital, whether it came out of the capital or from elsewhere. The court decided in favour of the sisters. Usufructs could be vested in something incorporeal, and it was no obstacle that the source of the usufruct was in the end lost as long as it was the result of normal use. With life annuities this was the case. As for the dowry argument, a husband had to return the dowry, but not the revenues. 6 The judgment did not solve the question of the annuity’s nature. Fundamentally a tontine is a life annuity, but its basis on life expectancy and the distribution of the revenues make it differ from a standard life annuity. If a tontinarius wanted to issue a tontine, he first had to publish a call for subscriptions together with a prospectus containing the details of the scheme. A tontine comprises a closed group of participants, subscribers, investors, or contributors (the geïnteresseerden). They invest on a closed pool of ‘lives’ or nominees (the tontinists), and they name beneficiaries or payees (the begunstigden – the payee ___________ 5

See n. 11, below. J. Cooren, Observationes Rerum Iudicatarum Et Eiusdem Consilia quaedam, Apud Johannem à Ravestein (Amsterdam 1661), nr. vii. 6

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can be the contributor himself, the nominee, or somebody else). The capital is invested and yields interest or dividends. The dividends are distributed to those beneficiaries. It is possible to specify that the capital will be returned to the last beneficiaries; then Wagenvoort speaks of a capital tontine. With an annuity tontine, the capital is lost to the issuer, and the beneficiaries receive only dividends as annuities.7 Once a nominee dies, the connected beneficiary loses his or her entitlement. Thus, the annuities of the other beneficiaries will increase. The tontines stops after a fixed number of years or when there is a fixed minimum of nominees left or when the last nominee has died.

C. The Kampen tontine of 1670 It was in this setting that the first8 tontine in the Netherlands made its appearance on 27 October 1670. It was commissioned by the town of Kampen for the amount of 100,000 Caroli guilders and issued by an Amsterdam broker, Jacob van Dael.9 It had 400 shares and the interest was set at 4%. There was no division into age groups, and people underwrote on young children as nominees who could be expected to live long. In order to stir interest for this new kind of annuity, Van Dael wrote and published a brochure, ‘Vertoogh, en Calculatie’ (‘Representation and Calculation’).10 He propagated the advantages of tontines over regular life annuities. For beneficiaries the advantage was increasing annuities, and in the case of the Kampen tontine the advantage for the issuers was that the same interest was paid as otherwise with a bond but without an obligation to repay the capital. In the brochure Van Dael also made a prognosis as to life expectancy, but this was very imprecise as was later proved.11

___________ 7 Wagenvoort (n. 2), 12 f.: ‘rente tontine’ (annuity tontine) and ‘kapitaal tontine’ (capital tontine). 8 Wagenvoort (n. 2), 8 f., mentions the possibility of a tontine which was issued even before this one on 1 April 1670. Notwithstanding his archival research, he could not find any positive proof, and he therefore concluded the reference to it insufficient to be accepted as proof. 9 On van Dael see Wagenvoort (n. 2), 64–74. 10 Jacob van Dael, Vertoogh, en Calculatie (Amsterdam 1670); discussed in Marius van Haaften, Tonti en zijn kassen voor lijfrenten bij overleving, 1943 De Verzekeringsbode 170. 11 Wagenvoort (n. 2), 15–18, the tables on 16 f. The administrator, Van Akerlaken, noted over the years 1694–1735 the real figures for the tontine on the bond issued in 1670. The difference was large.

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It so happened that just around this time two excellent mathematicians, Johan de Witt (1625–1672)12 and Johannes Hudde (1628–1704),13 devised the first reliable life expectancy tables for life annuities, although not for the purpose of private issues.14 Both were intended for the States-General, who was issuing a kind of life annuities at too high an interest rate, and the authors wanted to save the state money. Hudde’s work resulted in the publication of two life annuity tables by the town of Amsterdam in 1672 and 1673. De Witt published in 1672 his work in his ‘Waerdye van lyf-rente naer proportie van los-renten’ (‘Valuation of life annuities in relation to interest bonds’).15 Both works signified a great advance in insurance mathematics and may have stimulated the great subsequent interest in life annuities, including tontines, since one could now calculate future revenues much more precisely.

D. The origins of tontines in the Netherlands Thus, the way for life annuities and tontines was cleared. But from where did Van Dael get the idea for the Kampen tontine? He merely referred in his brochure to ‘the intelligent Italians’ who had invented the tontine. Wagenvoort has explored intensively the question of how the tontine came to the Netherlands. Its creator was of course Lorenzo Tonti (1602–1684) who, according to Wagenvoort, may have been inspired by the montes pietatis. Maassen has suggested, however, that Tonti may have been inspired by a particular kind of mons, the ___________ 12 See on him ‘Witt, Johan de’, in: Petrus J. Blok and Philip C. Molhuysen (eds.), Nieuw Nederlandsch Biografisch Woordenboek, vol. 3 (1914), 1459–1468. 13 Johannes (Joan, Joannes) Hudde was a Dutch mathematician, politician and jurist. From 1663 onwards he fulfilled administrative functions in Amsterdam, in 1667 he became member of the town council (vroedschap), and he was between 1672 and 1703 19 times burgomaster of Amsterdam; next to other functions. He organized Amsterdam’s water management and was known as a selfless and honest man. In a letter of 16 August 1671 to Christiaen Huygens, Hudde writes that he has researched in the archives of Amsterdam for the years 1586 till 1590 the ages of those who subscribed to life annuities for the moment they subscribed and the moment of their death. On this basis he calculated that the contract was worth 17 guilders, whereas the States paid 1 guilder a year for every 14 invested guilders. Hence they lost money. Similar calculations were done at the same time by Johan de Witt. See Wim Klever, Mannen rond Spinoza (1997), chapter 3: Johannes Hudde en de reductionistische wetenschapspraktijk. See also: ‘Johannes Hudde’, in: Bouwstoffen voor de geschiedenis van de levensverzekeringen en lijfrenten in Nederland (1897), 85–105 (with Hudde’s life expectancy table); ‘Hudde, Johannes’, in: Blok and Molhuysen (n. 12), vol. 1 (1911), 1172–1176. 14 Johan de Witt, Waerdye van lyf-rente naer proportie van los-renten, in: Feest-gave van het Wiskundig Genootschap te Amsterdam onder de zinspreuk: ‘Een onvermoeide arbeid komt alles te boven’ ter gelegenheid der viering van zijn honderdjarig bestaan (facsimile reprint, 1879). 15 Johan de Witt, Waerdije van lijfrente Naer proportie van los-renten (’s Gravenhage 1671).

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mons Neapolitanus, reported already in 1636 by De Lugo (1583–1660) as ‘noviter, ut audio, invento Neapoli’.16 In this mons a fixed number of people invested a fixed sum on which they received a life annuity. If one died, the interest due to him was distributed amongst the remaining investors until the last one died. Tonti would then later on have separated the functions of investor, nominee, and payee. Maassen considered this a tontinary mons.17 But who communicated Tonti’s invention in the Republic? Wagenvoort concludes that the Dane Poul Klingenberg (1615–1690), who had already planned a tontine in 1653, had been sojourning in the Republic in the years 1665–1667 and that on that occasion he propagated and discussed the idea of the tontine amongst several wealthy Amsterdam people, including the four directors of the Kampen tontine. 18 These individuals then commissioned the Amsterdam broker Jacob van Dael to issue the Kampen tontine in 1670 (in which they invested) for the amount of 100,000 guilders.19 Van Dael was no more than their broker. For the next tontines, of 1670 and 1671 for the town of Groningen, Van Dael was again broker, but then he could copy the first tontine.20 It appears that after that the market for tontines was dominated by a few brokers who also served as the administrators .21 I shall subsequently return to one of them, Van der Perre, who defrauded his clients.

E. Spreading the idea of tontines The Kampen tontine prompted a series of tontines, by both (semi-)public corporations and private persons. As to the number of tontines issued since 1670, Wagenvoort found, as a result of his undoubtedly intensive archival research, 50 ___________ 16

Juan De Lugo, Disputationes scholasticae et morales (Lyon 1636), disputatio XXV, 201. In 1656, De Lugo was cited by Josephus Gibalinus, De usuris, commerciis, déque aequitate et usu foro Lugdunensi, vol. 2 (Lyon 1656), 293. De Lugo characterized the mons Neapolitanus as a sale and purchase, which again would correspond with Bijnkershoek looking upon a tontine as an emptio spei (see n. 86). Gibalinus (1592–1671) and De Lugo, two Jesuits, discussed the scheme in the context of usury (which they considered it not to be). Perhaps this aspect of usury caused a problem in France? 17 On Tonti see Wagenvoort (n. 2), 46–55. On this possible link between tontines and montes, see W.W.J. Maassen, De montes en de tontine, (1947) De Verzekeringsbode 41– 42. Whether Tonti was involved in this mons, Maassen did not dare to say. Maassen (1915–2002) was amongst other things director of the Spaarkas voor Belegging in R.K. Leeningen and director of the N.V. Maatschappij voor sparen beleggen en verzekeren ‘Spaarbeleg’ in Utrecht. 18 Wagenvoort (n. 2), 30–45, with summaries and transcripts of relevant letters; 56–58 on Klingenberg. 19 Wagenvoort (n. 2), 1–8. 20 Wagenvoort (n. 2), 1–9. For Van Dael’s genealogical data, see 154–164. 21 Wagenvoort (n. 2), 20–23.

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tontines issued by public corporations, the last being issued in 1869,22 to which he could later add on another 10 tontines. 23 Public corporations used tontines to attract capital for public works and similar purposes. Semi-public entities like churches made use of them too. They usually merely paid out interest, the capital being used for a building or the like. A famous example of a tontine was issued in 1671 by the Lutheran Community for the purpose of raising capital for the construction of a new church in Amsterdam. The church can still be seen in all its glory on the Singel, near the Central Station. It is called the New or Round Lutheran Church. This tontine was later described by the mathematician Nicolaas Struyck (1686–1769).24 The last beneficiary of the last semi-public tontine, issued in 1869 by the Reformed Church of Rotterdam, died in 1963.25 The issue of public and semi-public tontines was interrupted between 1681 and 1733 and between 1804 and 1836.26 Public tontines can be found in most provinces.27 A special tontine was that issued in 1768 to furnish the Maatschappij, Opgeregt tot redding van Drenkelingen (Society, established to rescue drowning people).28 Private tontines (‘contracten van overlevinge’, ‘contracts of survival’) were mostly capital tontines, and they appealed considerably to private subscribers, Wagenvoort traced in the archives, beginning with 1670, a total of 314 tontines, with the last one issued in 1850.29 To this he could later add another 13 tontines.30 Private investors used tontines as a provision for old age, thus as a life insurance combined with an increasing annuity and for the last survivors a capital pay out. The enthusiasm for this kind of tontines was great, but it waned for some 20 years after a scandal in 1703 (the Van der Perre fraud, see below) and again after 1774: ___________ 22

Wagenvoort (n. 2), 75–93, with short descriptions. Wagenvoort (n. 3), 588–592, with short descriptions. 24 See Marius van Haaften, De tontineleening voor de Nieuwe of Ronde Lutherse Kerk te Amsterdam uit 1671, (1943) 24 Het Verzekerings-Archief 245–254; idem, Nogmaals Nicolaas Struyck en de tontine voor de Ronde Lutherse Kerk te Amsterdam uit 1671, (1944) De Verzekeringsbode 85 f., 89 f.; Wagenvoort (n. 2), 77, 83–84 on Batavia. 25 See Wagenvoort (n. 3), 594. She was both nominee and beneficiary and enjoyed an interest of 3% over half of the total amount of 65,000 guilders as well as a return upon death of 50 guilders on the original investment of 100 guilders. 26 Wagenvoort (n. 2), 75–93 lists the 50 tontines, including short descriptions with further details on 116–125. 27 Based on the data in Wagenvoort: Holland 25, Zeeland 6, Utrecht 3, Overijssel (Kampen) 2, Friesland 3, Groningen 5, Guelre 2, Brabant 3 (Breda, Bergen op Zoom, and ’s Hertogenbosch; the first two not subjected to the States-General, the third a military enterprise); and Batavia. 28 See Ht., Een oud Tontine-project, (1919) De Verzekeringsbode 91 f.; not in Wagenvoort’s lists. 29 Wagenvoort (n. 2), 126–153, with details. 30 Wagenvoort (n. 3), 585–587. 23

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only seven were issued in the following 75 years.31 The private tontines which Wagenvoort found were almost all established in the province of Holland. 32 The enthusiasm for tontines in general was generated by the difference with the usual life annuity: in the former surviving beneficiaries received the annuities which were due to deceased beneficiaries. In exchange the interest rate was lower than otherwise would have been the case. This made them attractive for issuers. In order to make their tontine of 1671 more attractive, the town of Groningen attached a privilege to it. Once the contribution had been made, the beneficiary could enjoy his entitlement without fear that it would be seized by his creditors. 33 The fact that the annuities (and in the case of a capital tontine also the right to the capital at the termination of the tontine) of deceased beneficiaries effectively accrued34 to the remaining beneficiaries raised the fear that this acquisition might be seen as an inheritance and thus susceptible to succession tax. This concern was quickly dispelled in 1671 by the States of Holland.35 Nevertheless later contracts included the possibility of dissolving the tontine if a succession tax were to be levied (e.g, in other provinces). 36 For private tontines, brokers were regularly used in the 18 th century; these even advertised tontines in newspapers.37 The tontine capital was invested in bonds or shares, which made it easy to turn over the capital at the end of the tontine. On the other hand, particularly shares might see a loss in value, which would mean a corresponding decrease in the value of the tontine. Often the capital was invested in shares in the East or West India Company,38 but it was also ___________ 31

Wagenvoort (n. 2), 152 f. Of the 231 private capital tontines mentioned by Wagenvoort for the period 1670– 1746, 225 were established in Amsterdam, the rest in the province of Holland; for the period 1745–1850, 69 were in Holland and 12 in the province of Utrecht. 33 See Marius van Haaften, De oudste Nederlandsche lijfrenten vrij van beslag in 1671, (1943) De Verzekeringsbode 203 f., 206 f. Similarly the Magistrate of Harderwijk, see 130–131, below. 34 The term often used was ‘accresseren’ (accrue), Wagenvoort (n. 2), 95. See on this the text corresponding to and following n. 59, below. 35 The States decided on 13 May 1671 that the succession tax of 5% would not be levied on revenues from tontines. See Wagenvoort (n. 2), 25 f. 36 See W.A.H.C. Boellaard, Een Utrechtse Kapitaal Tontine uit 1770, (1954) De Verzekeringsbode 90–93, 99–100, 91; see also Marius van Haaften, Een Haarlemsche tontine uit 1767, (1944) De Verzekeringsbode 23 f. After all, the States of Holland could only legislate for the province of Holland. 37 Wagenvoort (n. 2), 20 f. on their use, 22 f. on the advertising, 107 f. with the names of some brokers. 38 Wagenvoort (n. 2), 19 f., 102–104 on this preference in general. See further D.S. van Zuiden, Maandblad Zonneschijn 1916 nr. 5 en 6.; Marius van Haaften, Tontines uit 1671 op aandeelen van de Oost-Indische Compagnie, (1943) 24 Het Verzekeringsarchief 314– 326; idem, Een Amsterdamsche tontine uit 1757 op West-Indische obligatiën, (1944) De 32

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invested in provincial39 or city bonds40 and sometimes in bonds of either private companies41 or a foreign sovereign.42 Here it might occur that the relation between the company and an issuer was close. 43

F. The Amsterdam and the Middelburg tontines of 1671 The earliest tontine of this kind was the one set up on 8 April 1671 in Amsterdam by 21 people (geinteresseerden) who invested in the lives of children, the oldest being 9 years old, with the capital being used to buy a share of 3,000 guilders in the East India Company. Each share in the tontine, nominally 100 guilders, cost 420 guilders, which means that the Company share was quoted at the stock-market at a rate of 420%. Some people invested in several children as nominees. Once only five children survived, the tontine could be dissolved. The share was registered with the East India Company office in the name of five persons, one of whom was Van Akerlaeken, the broker, who also administered the finances and received a remuneration of 1% of the revenues for this effort. If the succession tax (of 5%) became applicable, the tontine could be dissolved. As pointed out above, this precaution was not necessary. The share bought was one in the Chamber of Middelburg. Regarding its revenues there were no differences with shares of other chambers (1670: 40%, 1671: 60%, 1672: 15%, 1673: 33.33% dividend), but the price of a share in this chamber was much lower than that of the Chamber of Amsterdam, which was quoted at 430% in the same year. A similar tontine of 23 April 1671 – also for a Middelburg share and again with Van Akerlaeken as broker – was purchased at a rate of 430%. The quotation had gone up quickly.44 Due to this success, which made investment in the annuity ___________ Verzekeringsbode 30 f.; W.W.J. Maassen, De Zeventiende-eeuwsche tontines op aandelen van de Oost-Indische Compagnie, (1950) De Verzekeringsbode 52; Wagenvoort (n. 2), 126 No. 2, 136 No. 113, 138 No. 15. 39 Wagenvoort (n. 2), 130 Nos. 65 and 67, 132 Nos. 67 and 76, 138 No. 151. 40 Wagenvoort (n. 2), 132 No. 75. 41 Wagenvoort (n. 2), 20 mentions bonds on Surinam plantations: 144 Nos. 239, 242, and one of August 1767, which is not found in his list. See further Van Haaften (n. 36), 23 f. (Surinam plantation bonds); Boellaard (n. 33), 91: ‘Tien Obligatien ieder ter somme van een Duizend Gulden ten lasten van sommige planters van Rio Esequebo en Demmerary’ (in Surinam); Marius van Haaften, Een tontine op een Amsterdamsch logement uit 1772, (1944) De Verzekeringsbode 34 f. (to purchase and further to invest in Surinam plantations). 42 Wagenvoort (n. 2), 140 No. 182 (King of Prussia), 144 No. 232 (Emperor Charles VI), 144 No. 245 (Saxische Steuer Fonds). 43 Wagenvoort (n. 2), 20. 44 Van Haaften, Tontines uit 1671 (n. 38), 314–326. Wagenvoort (n. 2), 103 f., details the differences in the prices of the shares of the five chambers of the East India Company and also the dividends for the period 1654–1678.

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tontines of towns less attractive, Van Dael issued in 1671 a new brochure, ‘Vertoogh ende Uytrekeningh’; in this brochure he both praised the tontines for public bodies and argued against private tontines where, contrary to public tontines, the capital returned to the investors. An argument he used was that the shares shifted considerably in value and that the average interest rate would be 3% even if one received back his or her initial investment; accordingly, the 4% interest on a public tontine was more favourable. Additionally, he argued that it was only the revenues from a public tontine that could not be seized for the investor’s debts (but that was not always the case, and some private tontines were privileged in the same way).45

G. The Harderwijk tontine of 1763 An example of a tontine issued by private persons for financing an enterprise was the Harderwijk tontine of 1763. Four contractors had contracted with the town of Harderwijk, which lies at the border of the Zuiderzee, to construct a sea harbour. The town expected high revenues from this. The sum needed was 200,000 guilders. Since the tontinarii, i.e. the issuers, had to pay interest, on 22 November 1762 the town had granted them for 40 years the harbour exploitation rights, which implies that they would charge and collect harbour duties, which they expected to amount to at least 3% per annum of the invested sum. The tontine was divided into four classes: 400 shares of 200 guilders in the 1st class for individuals 1–14 years old, 200 shares in the 2nd class for those 15–29 years old, 200 shares in the 3rd class for those 30–44 years old, and 100 shares in the 4th class for those 45–60 years old, equaling respective amounts of 80,000, 60,000, 40,000, and 20,000 guilders. Since the harbour would be taken over by the town in exchange for the payment of 200,000 guilders at the termination of the scheme, there was alongside the annuities a capital which would be paid out to survivors: the last 50 in the 1st class, the last 30 in the 2nd class, the last 20 in the 3rd class, and the last 10 survivors in the 4th class would all share in this capital. The promised interest was 3%, and more would be paid if the harbour yielded higher returns. The brochure states ___________ 45 J. van Dael, Vertoogh ende Uytrekeningh, waarmede klaer en duydelijck wordt betoont en aengewesen, dat de Lijf-renten bij overlevingh, invoegen als onlanghs voor de Stadt Campen, ende nu nog teegenwoordigh voor de Stadt Groningen, ende andere steden zijn en werden genegotieert; voor de contribuanten ofte inleggers, beter ende voordeeliger zijn, als ordinaris Lijf-renten tegens 8, ja selfs tegen 10 ten hondert. Als mede, Dat die te prefereeren zijn voor de Collegien, die hare Capitalen aanleggen in Actie op de OostIndische Compagnie (Amsterdam 1671). The Groningen tontine and later the Harderwijk tontine were indeed privileged against seizure.

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that if a person in a class dies, his share will vererven (succeed) to the others.46 This, again, explains why there was a fear that succession tax (the collateraal) might be levied. The beneficiaries could do with their entitlement share (called obligatie, bond) what they wanted. The brochure has, as do other brochures as well, a complete calculation of what an investor might expect in revenues. The capital was to be paid out after 40 years when the town of Harderwijk would take over the harbour for 200,000 guilders (section 17). To stimulate interest in the scheme the town guaranteed that neither the shares nor the annuities on them could ever be seized by the magistrate of Harderwijk (section 20), and the harbour was pledged as guarantee for the tontine (section 22). How the town expected to pay the 200,000 guilders we do not know. It is doubtful that this plan was ever implemented.47

H. The profitability of tontines Were tontines profitable? Maassen has considered this question for ten private capital tontines in Utrecht from the period of 1754 to 1767. He found that five tontines were indeed a success for the participants, while the other five tontines would have been profitable had the French Revolution (and the subsequent political and economic disorders) not intervened.48 But everything could go wrong also without such major disruptions. Liefrinck-Teupken detailed a tontine of 1745 where the directors exchanged the original bonds for bonds with lower interest; also the costs were not fixed but varied. Here the amount of interest received declined.49 Also Wagenvoort describes tontines that produced a revenue lower than was expected.50 Subsequently, bonds could be redeemed and the capital would have to be re-invested, yet it might not be possible to receive the same interest. Additionally, mistakes in the choice of companies were possible, and dividends could fluctuate (certainly with the East and West India Companies).

___________ 46 On this imprecise term, which caused confusion, see the text corresponding to and following n. 59, below. 47 Wagenvoort (n. 2), 86, did not find any other details than in this brochure. See J.W. Hommes, De bibliotheek van de Utrecht en haar voornaamste stukken betreffende tontines, (1943) De Verzekeringsbode 130–132, 135–137. 48 W.W.J. Maassen, Tien Utrechtse particuliere tontines van 1754–1767, (1944) De Verzekeringsbode 97–98, 103–104, 107–108. 49 W.F.H. Liefrinck-Teupken, Een merkwaardig lijfrentecontract uit de eerste helft van de 18e eeuw, (1920) 1 Het Verzekeringsarchief 153–169; Wagenvoort (n. 2), 231. 50 Wagenvoort (n. 2), 195: in 1702 bonds issued by the town of Dordrecht were valued at 60%.

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And mismanagement (or fraud) was always possible, as was seen with a tontine in 1789.51

I. 18th-century case law on tontines Above, the scandal surrounding Nicolaas van der Perre was already mentioned. It shook the Dutch Republic and also came before the Supreme Court of Holland and Zeeland in 1719.52 Nicolaas van der Perre had in 1679 been appointed successor to the broker Akerlaeken as administrator in 51 tontines. 76 contracts followed, concluded after Akerlaeken’s death.53 Van der Perre died in 1703. His successor, Blom, soon found out that Van der Perre had withheld several thousand guilders and had committed other irregularities. Participants demanded their money, and so Blom had to sue Van der Perre’s widow for over 24,712 guilders, with interest adding up to over 30,000 guilders, an enormous sum. The case was decided in 1719 by the Supreme Court. The number of interested people was considerable, totaling some 3,000 (with a total number of 127 contracts entered under Van der Perre’s administration, this number seems plausible, although not all contracts may have been involved). The Dutch Republic numbered slightly under 2 million people at that time; however, tontines were predominantly established in Holland, its having 815,000 people circa 1675 and 783,000 people circa 1700, predominantly living in the cities. The fact that the poorer classes did not participate reduces the number of potential participants considerably, as does the fact that somebody could participate in more than one tontine. Even in the Supreme Court four out of the nine judges had to be excused since they were too closely connected with the case either by being related to a participant in the scheme or by having themselves participated. The Supreme Court was, thus, supplemented with two judges of the Provincial Court, which

___________ 51 ‘Het Contract van overleving “Uit Voorzorg” te ’s Gravenhage’, in: Bouwstoffen (n. 13), 343–348: established in 1778, it appeared in 1789 that there had been severe mismanagement of the tontine: a former administrator had left in 1785; shares and bonds bought before 1783 had come into his possession; redeemed sums had not been collected (it is easy to imagine fraudulent behaviour being behind these euphemisms); there was no list of shares and bonds; the interest for 1790 had to be reduced by a quarter (in order to pay out capital); and in the years after that no interest was paid at all. The issuing society was prepared to repurchase entitlements at 50%, and in the following two years it thus bought 60% of all entitlements. Evidently confidence was low. 52 C. van Bijnkershoek, Observationes Tumultuariae 1564, 24 October 1719. On this scandal see Wagenvoort (n. 2), 26, 107–110. 53 According to Wagenvoort, by 1703 199 contracts had been concluded in total, all in the provinces of Holland. Hence the figure of 127 is certainly reliable.

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had sat in appeal, and these judges voted in the same way as that Court had done.54 The first problem was this: who was authorized to file a complaint for the participants? A number of them were still of minor age. Van der Perre’s widow therefore raised an exception of non-qualification. The plaintiffs asked as many participants as possible to approve of the complaint: more than 400 (out of 3000) did so. The Amsterdam Bench admitted the claims of the plaintiffs and the 400 or so who had indicated their approval, and also those who were out of the country; the rest it rejected. The Supreme Court had to decide on the same point and ruled in the same manner. In the proceedings it became evident that Van der Perre had misappropriated money, for example in allowing himself 15 guilders as a fee with every new contract, although his contract did not allow for that. But his widow replied that the yearly accounts had always been checked and approved. Since it was not errores calculi but items at issue, the Supreme Court accepted this argument. Consequently only those plaintiffs who had never approved the yearly accounts were granted damages. The Supreme Court doubtlessly reduced the amount the widow had to pay.55 Two further cases of 1767 and 1776 decided by the Provincial Court of Holland concerned the question of who was entitled to the final pay-out of the capital.56 In 1785 there was a case, deferred to the Supreme Court, about who was entitled to life annuities and tontines. 57 In that case, Maria van Cloon had in her testament of 1760 bequeathed to her granddaughters Johanna and Adriana all the life annuities and tontines which had been established on their lives, with Maria van Cloon as beneficiary, under the terms that the revenues be divided equally, that they could use the revenues as they wished (as pocket money), and that their spouses could not alienate the annuities and tontines (a prohibition which should be attached to the certificates). When Johanna died, the guardians of her children ___________ 54 Bijnkershoek reported on the case, and three out of the four remaining judges followed his judgment. It is not clear from the Resolution Book who voted differently. See on the way the court operated A.J.B. Sirks, The Supreme Court of Holland and Zeeland judging cases in the early 18th century, in: Paul Brand and Joshua Getzler (eds.), Judges and Judging in the History of the Common and Civil Law: From Antiquity to Modern Times (2012), 234–256. 55 Since only some 400 out of roughly 3,000 beneficiaries had approved of the complaint, the total amount claim would have already been reduced. This reduction may have been greater even since we must remember that somebody could have had more than one share in a tontine and participated in more than one tontine. The additional condition of not having approved the balance would have reduced this number again. 56 Wagenvoort (n. 2), 27–29. 57 W. Pauw, Observationes Tumultuariae Novae, 1730 (10 March 1785; not recorded in the Resolution Book).

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claimed half of the revenues, but Adriana argued that Johanna’s part had accrued to her. The Supreme Court made its decision according to the presumed will of the testator. Maria had desired that the revenues be shared between her two granddaughters, not between one granddaughter and the children of the other, as the latter, being minor, might die and have their assets inherited by their father: the person Maria had expressly ruled out. 58

J. The obscure transfer of the share of a deceased nominee There exists no contemporary legal discussion of tontines,59 not even a section in Johannes Voet’s (1647–1713) commentary on the Digest. Nevertheless, the rather clumsy definition of the Algemeen Kunstwoordenboek (‘een zoort van geld op Lijfrenten te nemen’, ‘a kind of financial investment in life annuities’),60 Eduard van Zurck’s remark (a ‘societeit’)61, Thymon Boey’s comment (‘een soort van compagnie of maatschappij van Lijfrenten’, ‘a kind of company or society of life annuities’),62 and the remaining brochures as well as some court cases give us some idea of how contemporaries saw the nature of tontines. Notwithstanding the use of the word ‘societeit’ (society), a tontine was not a true partnership. Normally a partnership would dissolve at the death of a partner, ___________ 58 A majority followed this reasoning, except for two judges, one of them ‘balbutiente ut solet’, ‘babbling as usual’, so Pauw. 59 In the section which Wagenvoort (n. 2), 24–29 dedicates to legal problems with tontines, he merely remarks that tontines were treated as normal life annuities; on 94–97, he describes the structure of the tontines in the 17th and 18th century. He assumes that the legal character of the tontine did not raise a problem. Neither did Van Haaften expound on this aspect. 60 Arnoldus H. Westerhovius, Algemeen Kunstwoordenboek der Wetenschappen, vol. 2 (Leiden 1734), 818 (cited by Wagenvoort (n. 2), 15): ‘Tontine is een zoort van geld op Lijfrenten te nemen, waarbij de Inleggers naar hun ouderdom in zekere Classen worden gedeelt, en zij, die in ieder Classe overleven, de volle renten genieten, tot op den laatsten, met wien eindelijk de renten en het capitaal sterven. Deze gewoonte is van Laurentio Tonti uitgevonden.’ (‘Tontine is a kind of investing money in life annuities, where the investors are distributed according to their age in classes and they who survive in every class, enjoy the full interest, up till the last one, with whom finally interest and capital die’). 61 Eduard van Zurck, Codex Batavus (Delft 1711), 639 sub XVI: ‘Over ‘t accrois of renten aan Compagnons, die lijfrenten in een societeit gekogt hebben, is geen 20sten penning verschuldigd.’ With ‘gekogt’ (bought) Zurck must have meant: invested. 62 Thymon Boey, Woorden-Tolk Of Verklaring Der Voornaamste Onduitsche En Andere Woorden, vol. 2 (’s-Gravenhage 1773), 721 (cited by Wagenvoort (n. 2), 15): ‘Tontine, met die naam noemt men jegenswoordig een soort van compagnie of maatschappij van Lijfrenten, waarin de ene portie op de andere versterft, en niet als met de doot van allen die daarin deel hebben, ophoud.’ (‘Tontine, with that name one nowadays calls a kind of company or society of life annuities, in which the part of one goes over by death to the other, and not until the death of all who participate in it, ends.’).

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but, as Voet says, one could agree that it would continue with the remaining partners.63 But this was never stated in the advertisements and brochures for tontines. A draft contract would be drawn up by a notary and underwriting would then be open for a period of time, after which the final contract was made and signed with the participation of a notary.64 In the archives Wagenvoort found that these notaries, usually from amongst the same group of persons, numbered these contracts and that these contracts were often quite identical in set up. However, he found references to tontines also in private correspondence. 65 A tontine always consisted of a fixed number of participants who each had to contribute a fixed sum on a ‘life’.66 A participant could, once having entered, never withdraw from the tontine, but it was possible to change the contract if done unanimously and even to dissolve it before expiration.67 A participant could name himself or another person as beneficiary; it was possible to enjoy more than one entitlement. 68 The contributions being invested and set on ‘lives’, the interest or dividend would be divided pro rata amongst the beneficiaries.69 In the event a ‘life’ went abroad (for example, to the Indies), the revenues resting on his life would be reserved until certainty about his fate was had. The falling away of a beneficiary (due to the death of his ‘life’) made the shares of the others increase, hence the use of the word ‘accresseren’ (accrue) or ‘vererven’ or ‘inerven’ (succeed).70 It is interesting that there was fear that this might be considered as succession. If a tontine had been a real societas, there could have been accretion between partners in a community of goods, as with heirs. But since entitlements, as in the case of a stock or bond, could be sold or bequeathed, this would be incompatible with a societas (had there been a simple community of goods, it would be different). Once the number of nominees had dwindled to a certain point, the capital would be paid out pro rata, either wholly or as to a part of it.71 A tontine could also be set up in which participants (who could nominate themselves or another person) did not have to invest a sum at once, but could instead contribute over a

___________ 63 Johannes Voet, Commentarius ad Pandectas (Hagae Comitum 1698), 1704, ad D. 17,2 n. 23: Inst. 4,3,10; D. 17,2,59 pr. 64 Wagenvoort (n. 2), 100. 65 Wagenvoort (n. 2), 105–107. 66 E.g., Contract der Generale Prebende- en Tontine-Sociëteit; opgerigt binnen Amsteldam primo July 1761: onder de zinspreuke Magnos et Parvos Mord truculenta rapit (Amsterdam 1761), Art. 26 B. 67 Wagenvoort (n. 2), 98 f. 68 E.g., Generale Sociëteit of 1761 (n. 66), Art. 26 A (called ‘prebenden’). 69 E.g., Generale Sociëteit of 1761(n. 66), Art. 36 A. 70 Wagenvoort (n. 2), 95. 71 E.g., Generale Sociëteit of 1761 (n. 66), Art. 37.

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number of years.72 The moment of distribution of the capital could be set at a certain number of surviving beneficiaries73 or after a fixed number of years. 74 There was even a plan for a lottery, where the prizes consisted of shares in a tontine.75 Possible as well was a division of the yearly interest into portions of different size and a distribution of these by way of a lottery amongst the beneficiaries.76 In a Zeeland tontine of 1755 the beneficiaries in a class were fixed in a sequence and if a beneficiary died, his share fell to the next in line. 77 A tontine intended to fund the purchase of a military exercise field combined interest with a modest capital payment (‘douceur’) for the last survivor. 78 After some time tontines were divided into age groups of ‘lives’ in order to better regulate the financial liabilities: the Utrechtse Provinciale Tontine of 1745 is probably the earliest specimen of such a class-tontine. It is likely that the statistician Willem

___________ 72 E.g., Plan van een Nederlandsche Tontine Societeit, bij jaarlijkse contributie, verdeeld in zes klassen, ... onder de zinspreuk Concordia, (’s Gravenhage 1767), Art. II, IV, VI and XIV. In another projected tontine, participants had to invest 25 guilders per year for 10 years. After that they had to nominate their beneficiaries. If they died beforehand, their heirs had to continue investing (Project contract van overleving, Onder den Titel: Uit Voorzorg, 1778). 73 As, for example, in the Haarlem tontine of 1767, see Van Haaften (n. 36), 23. 74 As, for example, in the Utrecht tontine of 1762, see Maassen (n. 48), 98. 75 Utrechtse Provinciale Negotiatie van 500,000 guldens, by Loterye van Lyfrenten, Met het Faveur van Tontine of Over-Ervinge van alle de Eerst stervende op de Langst leevende, met dat Effect, dat de langst leevende alleen de geheele Rente trekt van die Societeyt, waartoe dezelve is behoorende, [Utrecht] Gearresteert den 12. October 1745. 76 Boellaard (n. 33), 91. 77 J.H.P.V. Haitma Mulier, Een afwijkende Zeeuwsche tontine uit 1755, (1946) De Verzekeringsbode 22–24. 78 Described in Wagenvoort (n. 2), 88–90. The name of the tontine was ‘Contract van overlevinge, onder de zinspreuk Mavortis ergo, opgeregt binnen de stad ’s Hertogenbosch’; a copy is at the Economisch-Historisch Archief at Amsterdam. As follows from the advertisement for a tontine of 100 shares of 100 guilders each in Den Bosch in 1776 to fund the purchase of a military exercise field (Art. ix), a tontine was called a societas (Van Dael in his brochure speaks of a ‘compagnie’ or ‘collegie’, but leaves it at that). Each socius had to contribute to the common capital (Art. i, viii). His partnership ended with his death (Art. vi). He could appoint himself or somebody else as beneficiary (Art. ii). A beneficiary could also dispose of his entitlement by testament or sale (Art. vii). This seems to have been a general feature of these contracts. This is, strictly taken, contrary to the nature of a societas. In the present contract it was regulated that if a participant died within the first six months of the new year, the interest over the current year was paid to his heirs (Art. vi). Every year interest would be paid to the beneficiary (Art. iv). When only one person remained (either a socius as beneficiary or a third party beneficiary), 1,000 guilders would be paid out to him as a douceur (Art. xviii). This tontine was thus a mixed capital-annuity tontine, the capital being and remaining invested for the primary part in the exercising field which was leased out to the regiments.

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Kersseboom (1691–1771) was involved in the necessary calculations for this. 79 Investors could appoint beneficiaries, and beneficiaries could freely dispose of their entitlement by sale or testament (the entitlement being dependent on the nominees’ life, which could coincide with their own). Given that the participant could at liberty institute a beneficiary and that a beneficiary could at liberty dispose of his entitlement, 80 it follows that such an entitlement was seen as property and as being owned.81 This indeed is the way we find it treated in practice. In the Supreme Court case of 1785, Maria van Cloon had disposed of all the life annuities and tontines which she enjoyed. 82 That she could do this was beyond discussion. Apparently it was part of her property. This would correspond with how the bonds of provinces and the Republic were seen. Though formally claims on the issuer, their bills of exchange were freely traded, the purchasers registering themselves with the authorities. With tontines we see the same: new beneficiaries had to register with the administration in order to enjoy the interest. The administration would provide a certificate of registration.83 An auction of the tontine was possible.84 Entitlement to a tontine was also considered as property in a 1763 consultation given by Joost Schomaker, a practitioner in Guelre, in a case of inheritance involving a community of property held between spouses.85 Schomaker argued that an investment in a tontine made by parents for their children with the latter as

___________ 79

See for this tontine: W.W.J. Maassen, De Stedelijke Utrechtse Tontine van 1745, (1949) De Verzekeringsbode 99 f; see for Willem Kersseboom: ‘Willem Kersseboom’, in: Bouwstoffen (n. 13), 117–148. 80 Wagenvoort (n. 2), 102, merely mentions this, without analysing the legal possibility of this. 81 Wagenvoort (n. 2), 102. 82 See the text corresponding to n. 57, above. 83 Usually in the form of an authentic copy of the deed, e.g. in the Leiden tontine of 1683, see Marius van Haaften, Een Leidsche tontine van 1683, (1944) De Verzekeringsbode 120. 84 J.W. Hommes, Een openbare verkooping van lijfrenten in de 18e eeuw, (1943) De Verzekeringsbode 101 f. 85 Joost Schomaker, Consilia et Responsa Juris, Pars sexta (Zutphen 1782), No. XXI, Advys Instructoir, 295 sub VI: ‘Ook of eene portie, in een contract van overleving, staande huwelijk, ten lyve eener Dogter genomen, en op haar naam staande, een effect van den boedel is?’; 302: ‘Wat eindelyk de tontine, ofte het contract van overlevinge betreft, dien aangaande niet genoegzaam onderrigt zynde, zou ik in het algemeen het daar voor houden, dat, gelyk Ouders wel gewoon zyn, ten lyve en naame van deze of geene hunner Kinderen, penningen te constitueren, alzo de portie in een contract van overlevinge, ten lyve eener Dogter staande houwelijk genomen, en op haren naam staande, is en blyft een effect van den ouderlyken boedel, zo niet ten contrarie daar omtrent anders by dispositie of donatie voorzien is.’

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beneficiaries (this was often done with daughters – a clever marriage and property strategy) should be considered as part of the parents’ wealth. These cases did not quite solve the question of the exact legal nature of tontines. One could consider the investment in an annuity as an emptio spei. One bought something and there was uncertainty as to whether the purchased item would materialize in the sense that one would see one’s money back, i.e. it was the purchase of a chance. This was possible in Roman law, and that would explain why, once invested, one could not claim one’s investment back, contrary to the situation with a bond or loan.86 The best we can say is that it was for the 17th and 18th centuries a new kind of contract, one which applied a life annuity with the possibility of return of the invested capital. Hence, it was an insurance contract, bundled with a fixed number of identical contracts. This bundle, in turn, was called a societas because the participants convened and brought in their investment voluntarily, similarly to what happened in a societas unius negotii.

K. A late revival of tontines The period after the Batavian revolution of 1795 was not favourable for tontines.87 In the period 1795–1815, only a total of six are known, four by religious communities and two by private persons.88 Owing to the great financial difficulties of the Batavian Republic, state bonds did not regularly yield interest, and after the tiërcering (reduction by two-thirds) bonds were of course even less attractive. This state of affairs led to an interesting business suggestion. ___________ 86 Thus corresponding to how Bijnkershoek, a judge in the Supreme Court from 1704 to 1743, saw the issue in the case reported as Observationes Tumultuariae nr. 1986, decided in 1723. According to him a life annuity was the restitution of capital, without interest, but with the chance that one gets more or less returned than paid. Thus it was an emptio spei. Civil law had no problem with this view: D. 18,1,8. A sale must have an object, but there is an exception: the purchase of a chance. ‘This is the case with the purchase of a catch of birds or fish or of largesses showered down. The contract is valid even if nothing results, because it is the purchase of an expectancy’, so says Pomponius. In Bijnkershoek’s view the entire sum of annuities was the equivalent of the purchase sum and could as such be claimed. The interest on the purchase sum – which the beneficiaries did not enjoy, but which the insurer did – served as the premium for the insurance of the risk. It was, thus, not correct to speak of interest. Annuity was the correct term. 87 See on the economic and financial state of the Netherlands in this period A.J.B. Sirks, De gevolgen van de inlijving van Nederland bij het Franse Keizerrrijk in 1810 voor handel en nijverheid, in: A.M.J.V. Berkvens et al. (eds.), Het Franse Nederland: de inlijving 1810–1813. De juridische en bestuurlijke gevolgen van de ‘Réunion’ met Frankrijk (2012), 297–314. 88 See on the tontine of 1795, Leiden: Van Haaften, Nogmaals (n. 24), 90.

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A tontine was proposed in 1819 with the objective of purchasing shares in the Uitgestelde Nationale Schuld en de Kansbiljetten van dezelve Schuld (Deferred National Debt and Chance Bills of this Debt).89 The idea was to buy these shares and, with the expectation of acquiring a sizeable lot, to profit regularly from a drawing (there was a regularly drawing of chance bills next to a redemption of deferred debt bills) and distribute the proceeds amongst the partners, or more precisely to one out of each class of twenty individuals. Tontines combined with a lottery had not been unusual,90 but this was a lottery of a different dimension. The national debt was enormous after the revolutionary and Napoleonic years – 1,726.5 million guilders in 1814 – and the interest was higher than the tax revenues. In order to avoid bankruptcy, the debt was in that year split into two parts: the so-called real debt, which was to earn an interest of 2.5%, and the remaining two thirds as deferred debt without interest. This kind of ‘tiercering’ had already been practised by Napoleon in 1810 in order to avoid a state bankruptcy. The deferred debt would in the course of time be converted into a real debt. That was done by converting 4 million per year into real debt, while at the same time the government would redeem 4 million of the real debt. In this way it hoped to amortize the entire debt. In addition a bill of chance (kansbiljet) was issued for every 1,000 guilders deferred debt. Each year some of these would be eliminated by a drawing, and the lucky possessor could convert 1,000 deferred debt into 1,000 real debt by paying 1,000 guilders. Both bills (kansbiljet and deferred debt) were negotiable. It would take a long time: expected were 120 years. In 1814 the interest was 14.7 million; in 1850 the debt was 1,230 million and the interest about 35 million.91 It was the revenues from the East Indies which in the end would solve this problem. A commentator said that it would be more advantageous to buy with the revenues of the tontine a share in the real debt than to buy a chance and distribute the potential revenues, since in the end more interest would come out of it. Also the tontine association would have a buffer in case the government could not

___________ 89 On this proposal see Marius van Haaften, De Amsterdamsche tontine van Oyens en de Waal uit 1819, (1948) De Verzekeringsbode 241–243. 90 See n. 75 and 76, above; further Wagenvoort (n. 2), 23, 81, 84, 85, 91, 111, 118, 145; idem (n. 3), 586, 587. 91 J.Th. de Smidt (ed.), Van tresorier tot thesaurier-generaal: zes eeuwen financieel beleid in handen van een hoge Nederlandse ambtenaar (1996), 264. The construction is more of the nature of an investment trust and recalls the Belindo company after the independence of Indonesia, which bundled indemnification claims for a number of nationalized companies.

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convert deferred debt. Apparently the interest in this tontine proved insufficient as we do not read anything of it.92

L. Legislation on tontines and their decline Meanwhile, legislation regarding tontines had been issued in France. 93 The Avis du Conseil d’État sur les associations de la nature des Tontins of 25 March 1809 led to the Décret Impérial rélatif aux associations de la nature des Tontins qui ont existé à Paris et dans les autres villes de l’Empire of 18 November 1810. As a result of the annexation of the Kingdom of Holland in 1810, on 1 January and 1 March 1811 all French legislation became valid in the Netherlands, including the Décret. The latter ordered that all tontines had to be registered and checked. This was indeed done but apparently not exhaustively. 94 Later on a Royal Decree of 16 July 1830, referring to the above French regulations, stated that no new life insurance companies, tontines etc. could be set up unless done by a public notarial deed which subsequently should receive royal approval. Existing companies had to register themselves. This, according to Wagenvoort, made a continuation of private tontines impossible (he found only two private tontines that were subsequently set up), unless a company was established. That indeed happened, albeit in the modernized form of a spaarkasonderneming (thrift club enterprise), an institution previously called survivances. Here, groups were formed for certain periods of time (like, 10, 20, and 30 years), and the investment

___________ 92 Bedenkingen over het uitgekomen plan van een kontrakt van overleving of tontine, gevestigd op nationale uitgestelde schuld en kansbilletten van dezelve uitgestelde schuld; opgerigt te Amsterdam, ... (Amsterdam 1819). 93 See Wagenvoort (n. 2), 111 f. on this. 94 Maassen, (n. 79), 100.

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was the same for all participants. Upon conclusion of the term, the capital and accrued interest were distributed amongst the surviving members.95

___________ 95

Wagenvoort (n. 2), 111–113. See van Haaften, Amsterdamsche tontine (n. 38), 31 n. 5 on the earliest ‘spaarkassen’, previously called survivances; idem, De achttiende-eeuwsche encyclopaedie van Krünitz over Nederlandsche tontines en lijfrenten, (1944) De Verzekeringsbode 10–11 and 14–15, on 14 on Krünitz’ definition of survivances; idem, De Nederl. Algem. Levensverz.-Compagnie (1823–1847) en haar tontines, I–II, (1949) De Verzekeringsbode 2–3, 6–7 (the company went into administration in 1847); J. van de Weg, Spaarkassen van Nederlandsche levensverzekeringsmaatschappijen in de tweede helft van de 19e eeuw, (1944) De Verzekeringsbode 5 f. Further reading: Marius van Haaften, Tontines voor lijfrenten en tontines voor kapitalen, (1943) De Verzekeringsbode 152 f.; idem, De stedelijke tontineleeningen uit de jaren 1670–1673, (1943) De Verzekeringsbode 169–171, 174–176 (tontines of Kampen 1670, Groningen 1670–1671, Kampen and Groningen 1670–1671, Middelburg 1671, Goes 1673); idem, Gegevens omtrent tontines in Nederland tot 1750, (1943) De Verzekeringsbode 229 f., 234 f.; idem, De Spaansche lijfrente-tontine uit 1775 geen tontine, (1944) 25 Het Verzekerings-Archief 47–52; idem, Een tontine voor uitgestelde lijfrenten uit 1739, (1948) De Verzekeringsbode 189 f.; idem, Een Amsterdamsche doopsgezinde tontine uit 1804, (1952) De Verzekeringsbode 355 f.; idem, Een Remonstrantse tontine te Boskoop in 1799, (1953) De Verzekeringsbode 161 f.; W.W.J. Maassen, De Utrechtse Provinciale Tontine van 1745, (1949) De Verzekeringsbode 330– 332; idem, De Zeventiende-eeuwsche tontines op aandelen van de Oost-Indische Compagnie, (1950) De Verzekeringsbode 52; C. Meertens, Een Leidsche tontine van 1683, (1944) De Verzekeringsbode 119 f.; A.G. Ploeg, Een Rotterdamsche kerkelijke tontinelening uit 1869, (1944) De Verzekeringsbode 37 f., 42 f.; J. Schuurbeque Boeye, De Zierikseese tontine van 1733, (1950) De Verzekeringsbode 408–410; idem, De Tontine voor het ‘Arme Kinderhuys’ te Zierikzee van 1785, (1951) De Verzekeringsbode 99 f.; idem, De tontine van de Zierikzeese Schutterij van 1784, (1951) De Verzekeringsbode 267 f.; idem, De Rotterdamsche tontine van 1826, (1952) De Verzekeringsbode 362–364; W. Baron Snoekaert van Schauburg, Een onderlinge verzekering de A° 1683, (1910) 27 De Nederlandsche Leeuw 182–184 (not in Wagenvoort); A.J. Versnel, De tontinelening van de St. Laurentiuskerk aan de Houttuin te Rotterdam, (1953) De Verzekeringsbode 177; D.S. Van Zuiden, Lijfrenten van de stad Utrecht, (1940) De Verzekeringsbode 117 f.

Chapter 7: Tontines in England and Scotland By John MacLeod A. A problem of reputation ......................................................................................... 143 B. What the law made of tontines ............................................................................... 144 I. Conceptual work that had already been done .................................................. 144 II. The effect of the 1774 Act............................................................................... 146 1. The terms of the 1774 Act .......................................................................... 146 2. The post-1774 case law .............................................................................. 147 C. The dog that didn’t bark (much) ............................................................................. 150

A. A problem of reputation The tontine has perhaps a wider penetration into popular culture than any other device associated with life insurance. This is largely because the idea has played a key role in the plots of a number of popular novels. 1 As might be imagined, their plots tend to involve murder and other related criminal activity motivated by the schemes. This perhaps reflects the general suspicion with which they are held. As the narrator in Robert Louis Stevenson (1850–1894) and Lloyd Osbourne’s (1868–1947) novel announces in the first paragraph: ‘Tonti is dead, and I never saw anyone who even pretended to regret him’. 2 An article on ‘Tontines’ in Chambers’s Journal (a popular 19th century periodical) described them as ‘a species of lotteries, now generally exploded.’3 This poor reputation may explain the persistent view that they were prohibited by the Life Assurance Act 1774. Thus Lord Walker observed: ‘The Life Assurance Act 1774 addressed the problem of insurable interest and curbed the scandal of tontines, then fashionable in some wealthy circles.’ 4 Doubts as to the ___________ 1 Robert Louis Stevenson and Lloyd Osbourne, The Wrong Box (1889); Agatha Christie, 4.50 from Paddington (1957, reprint 2016); and P.G. Wodehouse, Something Fishy (1957) are the best known. 2 Stevenson and Osbourne (n. 1), 2. 3 ‘Tontines’ in: William Chambers and John Payn (eds.), (1880) Chambers’s Journal of Popular Literature, Sciences and Art 166–167, 166. 4 Scottish Widows plc. v. Commissioners for H.M.R.C. [2011] U.K.S.C. 32, 2012 S.C. (U.K.S.C.) 19 para. 41. Similarly, ‘Tontines in their purest form had already been banned in Britain under the Life Assurance Act of 1774, primarily because of the perverse incentives inherent in a product that offers benefits when others die’, Death pools can bring

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validity of tontines on the basis that they might violate late 17th-century legislation prohibiting lotteries have also been expressed, but they are less widespread.5 As will be discussed below, perceptions of illegality appear to be inaccurate, but it remains the case that tontines did not play the major role in the development of life insurance in Britain that has been observed elsewhere.6

B. What the law made of tontines Tontines were by no means absent from Britain. The background, design, and ultimate failure of the state tontines which were attempted in the 17 th and 18th centuries are discussed in this volume by Georges Gallais-Hamonno and Christian Rietsch.7 Their place in the broader scheme of public debt in Britain and the rise of the private tontine, initially within the broader context of life contingent investment options in the later 17th and early 18th centuries and later as a means of funding urban development, has been discussed by Robin Pearson. 8 What remains is to say a little about how these devices were treated by the courts and to consider what, if anything, was done to tontines by parliament. The tontine seems not to have attracted the attention of the early treatise writers on insurance, which is not surprising given that they were largely focussed on marine insurance. I. Conceptual work that had already been done Perhaps the most striking thing about tontines is how little material there is on them in the legal sources, particularly in the early period. I have not been able to discover any litigation concerning tontines prior to the passage of the Life Assurance Act in 1774. Even in the context of a sphere of business where arbitration was a popular option, this is remarkable for a novel legal concept, particularly one which is giving rise to a ‘scandal’. How was the tontine able to arrive so quietly? ___________ financial security for the long-lived, The Economist, 17 June 2017; Answer to an age-old concern, The Daily Telegraphy, 31 March 2007. 5 ‘Tontine’, in: J.M. Lely (ed.), Wharton’s Law-Lexicon (9th edn., 1892), reproduced verbatim in George Watson (ed.), Bell’s Dictionary and Digest of the Law of Scotland (7th edn., 1890 reprint 2012). 6 They do not merit even an entry in the index to Harold E. Raynes, A History of British Insurance (1948); or Dermot Morrah, A History of Industrial Life Assurance (1955). 7 See Gallais-Hamonno and Rietsch, 56 ff., above. See further Moshe A. Milevsky, King William’s Tontine: Why the Retirement Annuity of the Future Should Resemble its Past (2015). 8 See Pearson, 89–95, above.

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The idea of life insurance was already well established. Having developed as an adjunct of marine insurance, it was already being regulated and offered on a reasonable scale around a 100 years before tontines started to be offered. 9 When the tontine was offered in England, it was bundled together with an option to convert the tontine share into an annuity. 10 Other schemes, such as contributorships, box clubs, and reversionary annuities, are evident in the same period. 11 The tontine, therefore, did not establish the idea of life contingent investment in Britain. Rather, it was one of a number of investment opportunities. The other major concept at the heart of the tontine was survivorship: the idea that on death, a beneficiary or member’s interest would not pass to his or her heirs but rather to the other beneficiaries or members. This too was present in both English and Scots law before the advent of the tontine. Moshe A. Milevsky has identified the will of Alexander Houghton, who died in 1581, as bearing this characteristic.12 The will provided that an annuity was to be payable to various servants but that, on the death of any of them, the deceased’s share was to accrue to the survivors. Milevsky sees this as pre-figuring the tontine because of this aspect. However, considering tontines in the context of life insurance provision, the key element of a decision to invest is missing. From a legal point of view, one could as easily look at Houghton’s arrangement and see a trust, an institution which became established in England in the course of the 16th century and in Scotland in the course of the 17th.13 Trusts allow assets to be held for the purpose of providing an income until a particular event, such as attaining the age of majority or marriage. There is no reason why death should not be a resolutive condition for the beneficiary’s interest. When the tontine was introduced in Britain, two of the key conceptual developments to which it might otherwise have been able to contribute were already established or on the way to being so. That is likely to have made tontines less contentious, and thus less liable to give rise to litigation, but it also meant that the tontine was perhaps less ground-breaking than elsewhere. ___________ 9 Raynes (n. 6), 117; Guido Rossi, Insurance in Elizabethan England: The London Code (2016), ch. 14. 10 Milevsky (n. 7), 59 f. 11 Geoffrey Wilson Clark, Betting on Lives: The Culture of Life Insurance in England, 1695–1775 (1999), 72. 12 Milevsky (n. 7), 37. 13 For the history of trusts in Scotland, see George Gretton, Trusts, in: Reinhard Zimmermann and Kennth Reid (eds.), A History of Private Law in Scotland, vol. 1 (2000), 480–517. For England, see W.S. Holdworth, A History of English Law, vol. 4 (1924), 476–780, vol. 5 (1924), 278–309; John Baker, The Oxford History of the Laws of England, vol. 6 (2003), 683 f.

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II. The effect of the 1774 Act 1. The terms of the 1774 Act The Life Assurance Act 1774 famously prohibited an insurance to be taken out on the life of another without insurable interest. The relevant provisions are sections 1 and 3: From and after the passing of this Act no insurance shall be made by any person or persons, bodies politick or corporate, on the life or lives of any person, or persons, or on any other event or events whatsoever, wherein the person or persons for whose use, benefit, or on whose account such policy or policies shall be made, shall have no interest, or by way of gaming or wagering; and every assurance made contrary to the true intent and meaning hereof shall be null and void to all intents and purposes whatsoever. And in all cases where the insured hath interest in such life or lives, event or events, no greater sum shall be recovered or received from the insurer or insurers than the amount of value of the interest of the insured in such life or lives, or other event or events.

Why should these provisions be considered to prohibit tontines? The provisions of the act and the concept of insurable interest which it invokes clearly presuppose an arrangement whereby a payment is triggered by a death. This is quite different to a classical tontine. In a classical tontine, the payments are happening anyway. The death of one of the members merely increases the size of the payment to the survivors because there are fewer people drawing from the pot. The arrangement does not purport to cover the financial risks associated with the deaths of the other members. The answer seems to lie in the preamble, which reads, Whereas it hath been found by experience that the making insurances on lives or other events wherein the assured shall have no interest hath introduced a mischievous kind of gaming …

The assumption is therefore that, because the members of the scheme pay for a stake whose value increases as a result of others’ deaths, it constitutes gambling on their lives and is therefore caught by the act. This, however, neglects both the title of the act and section 1, which make it clear that what is being attacked is gambling on a life dressed up as an insurance policy. The act does not prohibit gambling on lives in general, and it is not clear that this was otherwise prohibited, provided that there was no likelihood that one of the parties would be motivated to commit an illegal act by the wager.14 What the act attacks is the misuse of insurance for the purpose of gambling. Therefore, it ___________ 14 Hugh Beale et al. (eds.), Chitty on Contracts (32nd edn., 2016), para. 41-010; John Birds, Ben Lynch and Simon Milnes, Macgillivray on Insurance Law (11th edn., 2015), para. 1-021.

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is not enough to consider that a tontine might be considered a wager, but it must also cloak that wager as insurance. Given the significant differences between tontines and classical insurance policies, even as that term was understood in the late 18th century, this seems a bit of a stretch. That view is confirmed by consideration of the way that tontines were treated in the cases. 2. The post-1774 case law Had the 1774 Act been understood as prohibiting tontines, we would expect to see two things: attempts by those who were using tontine schemes to conceal the nature of the scheme and allegations that a scheme was a tontine being used by those seeking to attack it. We would not expect to see the courts either passing by tontines without comment or doing their best to give effect to them. In fact, consideration of the cases shows neither of the first two phenomena, quite a lot of the third and a little of the last. Thus, in Whitchurch v. Whiting,15 the plaintiff sought to sue the plaintiff for money had and received, ‘as secretary to the Tontine Society’. The case failed because the affidavit did not show the character in which the plaintiff sued, essentially an objection about the way it was drafted. For present purposes, however, the significant point is that no objection was raised regarding the presence of a tontine by either the defendant or the court. The courts in England and Scotland cheerfully decided cases concerning dealings with shares in tontines without objection to their character.16 An example is Nockels v. Crosby, where the members of a tontine sought to recover their money because the scheme had been abandoned before it was carried into effect.17 There is no hint of criticism of the fact that the scheme was a tontine: In the present case a very small sum was collected, and that was not invested in Government or other securities, which, by the prospectus, were to be the only source of profit. No tontine could exist until the money was laid out. All the steps taken were therefore only preparatory to carrying the project into effect, and as it was never carried

___________ 15

(1796) 3 Anst. 797, 145 E.R. 1042. E.g. Logan v. Mitchell (1797) Mor. 11379; Hemming v. Gurrey (1825) 2 Sim. & St. 311, 57 E.R. 365; Alexander v. Cana (1847) 1 De G. & Sm. 415, 63 E.R. 1129; and In the goods of John Allnutt (deceased) (1863) 13 C.B. N.S. 500, 143 E.R. 880. Cases such as Hinchcliffe v. Hinchcliffe (1797) 3 Ves. Jr. 516, 30 E.R. 1134; Thellusson v. Woodford (1799) 4 Ves. Jr., 31 E.R. 117; and Dashwood v. Lord Bulkeley (1804) 10 Ves. Jr. 230, 32 E.R. 832 concerned shares in Irish tontines. It might plausibly be argued that, since the Life Assurance Act was only extended to Ireland by the Life Assurance (Ireland) Act 1866, these tontines would have been legitimate even if the 1774 Act had prohibited them in Britain. 17 (1825) 3 B. & C. 814, 107 E.R. 935. 16

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into effect, I think the plaintiff is entitled to have back the whole money that he advanced.18

The implication is clear: the problem is the lack of action not the nature of the undertaking. The court did examine the scheme closely to ensure that it did not fall foul of the Bubble Act, but the 1774 Act is not mentioned. In Kempson v. Saunders, Nockels was cited in argument and contrasted with a case concerning an illegal wager, where return of money had and received was refused. 19 This argument would make no sense if the tontine were itself a species of illegal wager. The other interesting aspect of Nockels is that it shows that the tontine was not an independent legal institution. The tontine in Nockels was established as an (unincorporated) company (thus the concern about the Bubble Act). Hence, the tontine appears to be an economic rather than a legal concept: describing how the money was to be distributed rather than what the scheme was.20 In Thomson v. Incorporation of Candlemakers of Edinburgh, Lord Curriehill did ask, ‘[w]hether the individual members [of the Corporation of Candlemakers] at any particular time can wind up the affairs of the Corporation, or make a tontine of it’.21 However, the point at issue here was not the lawfulness of a tontine scheme as such, but whether the attempt to wind up the corporation’s affairs in such a manner was within the relevant powers. Again, it is worthy of note that the alleged tontine scheme was effected using another institution; in this case a trust. In 1860, the subscribers to the Doncaster Universal Tontine presented a petition to the Court of Chancery. This tontine, which was founded in 1788, had a scheme of arrangement which deviated from a classic tontine only in that that distributions were made to subscribers whose nominees had died in the course of a given year as well as to those whose nominees were still living and that it provided for final division of the assets when the capital amounted to 1,000 pounds for each survivor. The petition, which was for recognition that the final division did not trigger liability for death duties, was successful. Turner L.J. took the view that while the arrangement looked a lot like a disposition and settlement (a classic succession device) because the funds were held by trustee, the ‘substance of the transaction’ was very different.22 In reality, he considered, although increases in payment ___________ 18

Nockels (n. 17), 818 per Holroyd J. (1826) 4 Bing. 5, 130 E.R. 669, 6. 20 See similarly, Foss v. Harbottle (1843) 2 Hare 461, 67 E.R. 189. 21 (1855) 17 D. 765, 771. 22 Oldfield v. Preston (1862) 3 De G. F. & J. 398, 45 E.R. 932, 414. 19

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were triggered by death, they were payments under a contract between the members of the tontine. As such, they were caught by an exception in the Succession Duty Act for payments under a contract bona fide for valuable consideration (in this case, the fee paid by subscribers).23 This argument would have been clearly ineffective had the tontine been a pactum illicitum. Courts cheerfully considered whether an arrangement (be it an investment scheme or succession provision) was intended to operate as a tontine and indicated willingness to give effect to it if it was.24 This approach has persisted right up to the present day.25 There is evidence in some cases of scepticism about whether the parties can really have wanted a tontine, but that is not the same thing as treating such an arrangement as invalid where the intention is clear. 26 Such concerns as were expressed were reserved for very marginal cases, such as whether a group with a tontine style arrangement could share the status of tenant under the Rent Acts, so that the protected status was first shared and then accrued to the longest living of them. 27 These objections have more to do with the design of the regime of protected tenancies than they do with any inherent vice in a tontine arrangement. There is some evidence of litigation regarding the so-called tontine life insurance policies sold by American insurers. 28 As might be expected, effect was given to the policy. For present purposes, the most interesting thing about them is the evidence that these policies were not understood as true tontines. Thus, in the report of In re Suse and Sibeth, scare quotation marks are used around the word ‘tontine’, indicating that the reporter did not consider this to be a normal use of the term.29 It must be acknowledged that the term is sometimes used somewhat loosely to refer to any arrangement where those who leave a scheme (not necessarily ___________ 23

Oldfield (n. 22), 418 f. Ansell v. Esdaile, cited in argument in Good v. Blewitt (1807) 13 Ves. Jr. 397, 33 E.R. 343, 400. Ansell does not appear to be otherwise reported, and it is therefore impossible to be certain that it post-dates the 1774 Act. Mitchell v. Burness (1878) 5 R. 954, 958 per Lord President Inglis; Cunnack v. Edwards [1895] 1 Ch. 489 (reversed on another point: [1896] 2 Ch. 679); Fleming v. Reuther’s Exrs. 1921 S.C. 593 at 598 per Lord Skerrington; Re Forder [1927] 2 Ch. 291. 25 McConnell v. McConnell [2002] EWHC 2774 (Ch.) para. 28 per Neuberger J. (as he then was). 26 E.g. Stack v. Dowden [2007] 2 A.C. 432, para. 57 per Baroness Hale. 27 Dealex Properties Ltd. v. Brooks [1966] 1 Q.B. 542, 551 per Harman L.J. 28 E.g. In re Suse and Sibeth (1887) 18 Q.B.D. 660; Colonial Mutual Life Assurance Society Ltd. v. Brown 1911 1 S.L.T. 158. On these, see McKeever, 246–252, below. 29 In re Suse and Sibeth (n. 28), 660 f. 24

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through death) forgo their stake in it to those who remain. 30 Other cases concern succession arrangements like Houghton’s.31 What counts for a tontine is the scheme of distribution rather than whether the members are investors or beneficiaries under a will. The body of case law shows first, without shadow of doubt, that tontines were not and never have been rendered illegal by statute. If someone wanted to set up a tontine investment scheme today, it would be lawful. The delay before the first cases came to court may say something about a preference for arbitration, but it also suggests that they were not generally regarded as particularly controversial. Further, while the case law is not multitudinous, it does illustrate that tontines were relatively widely used and certainly widely known. It also shows, however, that the tontine was primarily an economic concept which was embedded in other devices such as trusts and companies.

C. The dog that didn’t bark (much) Tontines, therefore, were not unknown and not prohibited, so why are they not accorded a more significant place in thinking about the development of life insurance in Britain? Part of the reason may well be survivorship bias in producing historical accounts. Life insurance in Britain came to be dominated by commercial insurers like the Royal Exchange and the London Assurance, by large scale mutuals like the Amicable Society, and later on by industrial life insurance providers with intellectual roots in the friendly society movement. None of these bodies saw their origins as lying in the tontine, or for that matter in other similar models such as the reversionary annuity or the contributorship. 32 However, it also appears to be the case that the tontine had less significance than elsewhere. As far as legal technology is concerned, it was a scheme of distribution effected through other institutions. Considered in terms of business history, it was one investment design amongst others which arrived well after the idea of life insurance was established, and it never came to dominate the market.33 Like other schemes which were popular in the 17th and 18th centuries, tontines did have the advantage of not requiring actuarial knowledge to operate them. That presented the concomitant opportunity to gather data for actuarial work in ___________ 30

E.g. Attrill v. Dresdener Kleinwort Ltd. [2011] EWCA Civ. 229 at para. 30. Fleming (n. 24). 32 See Clark (n. 11), 72. 33 See Clark (n. 11), 76–80; Pearson, 89–95, above. 31

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a low risk context. While mortality tables based on some French tontines were published in 1746, they seem to have been less influential in Britain than other actuarial sources.34 The tontine idea was not restricted to life insurance and related investments. The 18th- and 19th-century tontine schemes which funded building projects in a number of British towns and cities look more like project finance than life insurance schemes.35 As has been noted, the idea was also used to describe the design of succession provisions. These features contribute to a perception of the tontine as a free-floating concept which was relevant in some life insurance schemes, rather than a part of life insurance history. A priori, tontines might be expected to play any or all of three roles in the development of life insurance: promoting the idea of life-insurance style investment (particularly in the period before accurate actuarial techniques made pricing of risk possible); providing data on mortality which facilitated the growth of these techniques; and forming a significant part of the life insurance market on an ongoing basis. In Britain, evidence that tontines could do any of these things is sparse. They played a role in the history of life insurance here, but it was a minor one.

___________ 34 A. Fingland Jack, An Introduction to the History of Life Assurance (1912), 220; David J.P. Hare and William F. Scott, The Scottish Ministers’ Widows’ Fund of 1744, in: A. Ian Dunlop (ed.), The Scottish Ministers’ Widows’ Fund 1743–1993 (1992), 56–76; Clark (n. 11), 115 ff. 35 See Pearson, 89–95, above.

Chapter 8: Tontines in Scandinavia By Martin Sunnqvist A. Introduction ............................................................................................................ 153 B. Lorenzo Tonti and Poul Klingenberg ..................................................................... 154 I. Poul Klingenberg ............................................................................................ 154 II. The letters in the archives at Jarlsberg ............................................................ 155 III. Did Tonti and Klingenberg meet? ................................................................... 158 C. Tontines in Denmark-Norway ................................................................................ 160 I. The attempted tontine of 1653: Det Frugtbringende Selskab.......................... 160 II. The successful tontines of 1747–1800 ............................................................ 161 III. Norwegian participation in the tontines .......................................................... 162 D. Why were no tontines established in Sweden? ....................................................... 163 E. Concluding comments ............................................................................................ 164

A. Introduction The Scandinavian history of tontines begins with the transfer of the idea of tontines from Lorenzo Tonti (1602–1684) to Poul Klingenberg (1615–1690) in 1652–1653. Klingenberg prepared a Danish tontine, which was approved by King Frederick III and launched in May 1653 under the name Det Frugtbringende Selskab. This was before the French tontine, which was approved by Louis XIV in November 1653 but was not launched since the statute relating to it was not registered by the Parlement de Paris. Before I describe Det Frugtbringende Selskab and other Scandinavian tontines in detail, I will discuss how the idea came to Scandinavia. Correspondence which throws light on the development and transfer of the concept of tontines remains in the archives at Jarlsberg hovedgård near Tønsberg in Norway. This correspondence was analysed in detail in a dissertation by the Dutch scholar Herman Wagenvoort in 1961.1 The letters were subsequently consulted by the Danish researcher C. Rise Hansen for his work on an article2 and on a commented ___________ 1 Herman Wagenvoort, Tontines. Een onderzoek naar de geschiedenis van de lijfrenten bij wijze van tontine en de contracten van overleving in de Republiek der Verenigde Nederlanden (1961). I thank Professor Boudewijn Sirks, who has made this book available to me. 2 C. Rise Hansen, Det tidligeste danske tilløb til livsforsikring. En dødfødt tontine 1653, (1971) 18 Fund og Forskning 71–82.

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collection of historical documents relating to the Danish government. 3 Finally, they have now been reviewed by me.4 My analysis is to a great extent based on the findings of Wagenvoort and Rise Hansen, supplemented by my own research in the original documents.

B. Lorenzo Tonti and Poul Klingenberg I. Poul Klingenberg Klingenberg was a son of a merchant in Hamburg and was in 1653 appointed director general of the Danish Royal Mail, which he was allowed to run as his private business. He was one of the most important merchants in Denmark in the 17th century. He was appointed councillor of admiralty (admiralitetsråd) in 1654, and he was Danish envoy to the United Provinces (the Dutch Republic) in 1665 as well as ambassador to Breda for the peace treaty signed with England, France, and the United Provinces in 1667. He was ennobled in 1669, and after that his name was Poul von Klingenberg. Since Klingenberg proposed the tontine to the Danish king towards the end of 1652 and had it approved in the spring of 1653, it has been suggested that there was a link between his work on the tontine and his appointment as director general of the Danish Royal Mail later in 1653. He had shown his administrative skills and his capacity to launch new ideas. 5 Klingenberg is an interesting personality in Danish history for more reasons than bringing tontines to Denmark. He gathered enormous wealth as a merchant and built a palace in Copenhagen, but in 1679 he acquired some estates from his brother-in-law which were in pawn for debts to the crown. The crown then investigated some salt business that Klingenberg’s father-in-law had had with the crown in 1642, and Klingenberg could not prove that the salt had been paid for. Klingenberg was sentenced to pay back a large sum of money, and he sold many of his estates and gave back his rights to the Danish Mail to the crown. More debts came to the surface, however, and Klingenberg lost his fortunes. During his last months, he was working in the garden at the Højris estate, which his son had taken over. Gardening was not a new interest for Klingenberg, however; he

___________ 3 C. Rise Hansen, Aktstykker og Oplysninger til Rigsrådets og Stændermødernes Historie i Frederik III’s tid, vol. 2:2 (1975), 590–600, 605–611, 617–622, 653–711, 724–735. 4 I thank archivist Birthe Østergaard Kristiansen for her preparations and assistance in connection with my research visit at Jarlsberg. 5 Rise Hansen (n. 2), 80.

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is also remembered because he collected during his lifetime unusual plants which he wrote about in a garden diary. 6 II. The letters in the archives at Jarlsberg The correspondence in the archives at Jarlsberg begins with a letter from Gerard Heusch in Paris, dated 9 November 1652 and addressed to Klingenberg.7 Heusch was a Dutch merchant in Paris and was in 1653 in Rouen married to Sara Vandale, probably a relative to Jacob van Dael, who in 1670 introduced a tontine in Kampen in the Netherlands.8 Another involved person is the Baron de Limay, Honoré de Coriolis.9 In his letter, Heusch referred to a now lost letter of 2 November 1652. It appears from the letter that Heusch and Klingenberg had discussed a secret business proposal that Klingenberg should put forward to the King of Denmark and that Klingenberg wanted to know more about the secret idea so as to be able to explain it to the King. Heusch answered that his friend (‘mijn vriend’) did not at the moment want to disclose more details about the plan. It was considered better that Klingenberg put forward the proposal rather than Baron de Limay. At this time, all Klingenberg could say was that the King should be able to raise 1,600,000 rigsdaler in three months, and the King should not be told about the details of the project until he had made an agreement with the initiators. Of the profit, half should go to the ‘Haulteur’ (author), and of the other half, after deduction of the costs, Heusch and his friend should have one third each and Klingenberg one third.10 According to a letter of 16 November 1652 from Heusch, now in Rouen, to Klingenberg, Heusch’s friend had asked him to send Klingenberg a key to a simple cipher (8=a, 7=b, 6=c, 5=d, 4=e, 3=f, 2=g, 9=h). 11 In a letter dated 30 ___________ 6 G.L. Wad, v. Klingenberg, Poul, in: Dansk Biografisk Leksikon, vol. 9 (1895), 229– 231; John T. Lauridsen, Poul Klingenbergs selvbiografiske optegnelser, (1992) Personalhistorisk Tidsskrift 213–228; idem, Klingenbergs ’havedagbog’ – forsvundet og genkommet, (1998) Historie/Jyske Samlinger 147–157; idem, Fra ’spekulation’ til konkurs. En studie i Poul Klingenbergs økonomiske kollaps, (1999) Historie/Jyske Samlinger 1–31. 7 Wagenvoort (n. 1), 35. 8 Wagenvoort (n. 1), 1, 5, 59–63. 9 Wagenvoort (n. 1), 32. 10 Letter from G. Heusch to P. Klingenberg, 9 November 1652, Jarlsberg Archives; Wagenvoort (n. 1), 35–36; Rise Hansen (n. 2), 74; idem (n. 3), 590. 11 Letter from G. Heusch to P. Klingenberg, 16 November 1652, Jarlsberg Archives; Wagenvoort (n. 1), 36.

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November 1652 from de Limay in Paris to Klingenberg, the secret plan was attached in cipher, which must have been rather easy to solve. The first words in the document are ‘Si S8 M824st4 a 82r487l4 …’ = ‘Si Sa Mageste a agreable …’. Klingenberg was asked to arrange the best possible advantages for ‘l’haulteur’; the baron should have half the profit and Klingenberg a sixth.12 Wagenvoort has discussed the facts that de Limay claimed to be the author of the secret project, that he should have half the profit, and that Heusch, Heusch’s friend,13 and Klingenberg should have one sixth each. He has concluded that Tonti at least for the moment wanted to stay in the background and that the half of the profit which was going to the author was for Tonti, that one sixth was for Klingenberg, one sixth was for Heusch, and one sixth for de Limay. 14 In a letter dated 7 December 1652 from Heusch to Klingenberg, Heusch wrote that he was going to ask de Limay whether Klingenberg could have a larger part of the profit, since Klingenberg had complained that he had only a small part of the profit but all the costs.15 According to a draft letter from Klingenberg to Heusch, dated 25 December 1652, Klingenberg confirmed that he had received the secret proposal and reported that he had presented the idea to the King, who had promised to keep the secret. The King could not, however, promise such large contributions in a short period of time – 25,000 Dutch guilders would be reasonable. The King wanted to have the exclusive right to use the idea, but Klingenberg could not make such a promise.16 Rather, in March 1653, he wrote to a Danish ambassador and suggested that he should put forward the idea to the German Emperor.17 On 25 January 1653, de Limay wrote to Klingenberg and expressed his annoyance with the limited enthusiasm from Klingenberg and the Royal Court. He asked why they had made things complicated. The proposal of 25,000 Dutch guilders was ridiculous; an amount of 250,000 Dutch guilders was necessary. In

___________ 12 Letter from H. de Limay to P. Klingenberg, 30 November 1652, Jarlsberg Archives; Wagenvoort (n. 1), 36. 13 Here, Wagenvoort actually writes ‘vriend van de Limay’: Wagenvoort (n. 1), 32, but in the letter of 9 November 1652 Heusch wrote, as Wagenvoort also mentions, ‘mijn vriend’: at 35 f. 14 Wagenvoort (n. 1), 32. 15 Letter from G. Heusch to P. Klingenberg, 7 December 1652, Jarlsberg Archives; Wagenvoort (n. 1), 37. 16 Wagenvoort (n. 1), 37; Rise Hansen (n. 3), 591. I could not find this draft in the dossier in the archives. 17 Rise Hansen (n. 3), 594 f.

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an accompanying letter the same day, Heusch wrote to Klingenberg that the proposal was still secret and not published in Paris.18 On 26 February 1653, Klingenberg told Heusch that the issue was to be put forward to the Danish Council on 15 April 1653.19 In a letter of 11 March 1653 from the Danish diplomat Willem Lange (1624– 1684), whom Klingenberg had asked for help, to Klingenberg the name Nutzbringende Gesellschaft was mentioned for the first time. 20 At this time, in the beginning of April, the project was discussed in Council. There was another similar project proposed by a Portuguese-Jewish merchant, Duarte de Lima, who wanted to combine a life-annuity company with a lottery. His project was, however, less detailed and was not a realistic alternative. 21 According to a draft letter from Klingenberg to Heusch dated 23 April 1653, the matter had been before Council.22 The tontine, under the name Det Frugtbringende Selskab, was established through a royal ordinance of 1 May 1653. Information about the tontine was printed and was distributed in the country on 12 May 1653.23 On 12 and 19 December 1653, Lorenzo Tonti wrote two letters in French to his brother-in-law,24 Agostino de Lieto, in Copenhagen. The letters are signed ‘Lorenzo Suopte’, ‘your own Lorenzo’.25 The heraldry in the seal on one of the letters indicates that the writer is Lorenzo Tonti.26 On the letter of 19 December 1653, there is a seal with a shield with two swords in saltire below a star of five points. This coat-of-arms resembles, albeit with small differences, the coat-ofarms of Cardinal Michelangelo Tonti (1566–1622)27 in such a way that it is ___________ 18 Letter from H. de Limay to P. Klingenberg, 25 January 1653, Jarlsberg Archives; Wagenvoort (n. 1), 37. 19 Draft letter from P. Klingenberg to G. Heusch, 26 February 1653, Jarlsberg Archives; Wagenvoort (n. 1), 39. 20 Letter from W. Lange to P. Klingenberg, 11 March 1653, Jarlsberg Archives; Wagenvoort (n. 1), 39. 21 Rise Hansen (n. 3), 609–611, 617–620. 22 Draft letter from P. Klingenberg to G. Heusch, 30 November 1652, Jarlsberg Archives; Wagenvoort (n. 1), 40. 23 Rise Hansen (n. 3), 621. 24 Wagenvoort (n. 1), 47–55. 25 Wagenvoort has interpreted ‘suopte’ as ‘suo parente’, see Wagenvoort (n. 1), 44 f., 53. The syllable -pte can, however, mean ‘own’, as in for example ‘tuopte’ ‘your own’. In combination with suo-, it can mean ‘his own’, but in the present context it rather means ‘your own’; cf. the modern Italian use of ‘Suo’ as a formal ‘your’. 26 Wagenvoort (n. 1), 53. 27 Per fess azure and or, two swords in saltire proper below a star of six points argent. See Michael Francis McCarthy, Heraldica collegium cardinalum, vol. 1 (2002), 348; Michel Popoff, Armorial des Papes et des Cardinaux (2016), 699.

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highly probable that it is the same coat-of-arms. It can, thus, be concluded that the author of the letters was Lorenzo Tonti. In these letters, Tonti mentioned Klingenberg (‘Clemgenberg’, ‘Clingenberg’) and Heusch (‘Huche’) and wanted to know the results of the business proposal. 28 It is thus clear that Tonti was working in the background and kept an eye on the work of de Limay, Heusch, and Klingenberg. That the letters ended up in Klingenberg’s archives indicates that Klingenberg got them from de Lieto and that Klingenberg was, at least at that time, well aware of the fact that Tonti was the author of the project. III. Did Tonti and Klingenberg meet? According to some authors, Poul Klingenberg met Lorenzo Tonti in Amsterdam in 1652 and learnt about the idea for the tontine.29 This information cannot, it seems, be traced to any primary source but comes only from various secondary sources. In Danish literature, the meeting between Klingenberg and Tonti was mentioned for the first time in the Festschrift of 1892 dedicated to the Life Insurance Company by S. Hertzsprung, who did not refer to a source.30 He referred generally to an article by himself from 1879, in which he did not mention such a meeting but rather indicated that Klingenberg got his idea independent of Tonti.31 In German-language literature, a meeting occurring between Tonti and Klingenberg in Amsterdam was mentioned for the first time in 1910 by L. Gustav Du Pasquier, who did not refer to a source.32 Wagenvoort claimed,33 with a reference to M. van Haaften, who also noted the meeting,34 that Du Pasquier referred to the 1899 dissertation Die öffentlichen Glücksspiele by Rudolf Sieghart. However, neither van Haaften nor Du Pasquier referred to Sieghart in this context, and ___________ 28 Letters from L. Tonti to A. de Lieto, 12 and 19 December 1653, Jarlsberg Archives; Wagenvoort (n. 1), 43–45. 29 E.g. J. O. Bro Jørgensen, Forsikringsvæsenets historie i Danmark indtil det 19. aarhundrede (1935), 390; Anders Hald, A History of Probability and Statistics and Their Applications before 1750 (1990), 120 f. 30 S. Hertzsprung, De statsgaranterede Danske Livsforsikrings-Anstalter. Festskrift ved Halvhundredeaarsdagen for Anstalterne af 1842 (1892), 3. 31 S. Hertzsprung, Om Livsforsikringsvæsenet særlig med Hensyn til dets nuværende Udvikling i de nordiske Riger, (1879) Nordisk Tidskrift (Letterstedtske Tidsskrift) 102. 32 L. Gustav Du Pasquier, Die Entwickelung der Tontinen bis auf die Gegenwart; Geschichte und Theorie, (1910) 5 Mitteilungen der Vereinigung Schweizerischer Versicherungsmathematiker 174. 33 Wagenvoort (n. 1), 2. 34 M. van Haaften, De stedelijke tontineleeningen uit de jaren 1670–1673, (1943) Verzekeringsbode 175.

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Sieghart only mentioned that Tonti proposed tontines in France. 35 Earlier literature on Det Frugtbringende Selskab did not allude to a meeting between Tonti and Klingenberg.36 Wagenvoort discussed the meeting and concluded that it might well have taken place. It is known that Klingenberg undertook a journey to Germany, Italy, France, England, and the Netherlands in 1651–52.37 At the same time, Wagenvoort admitted that there is no primary evidence proving that the meeting took place38 and that ‘Du Pasquier’s statement that Tonti and Klingenberg had met in Amsterdam in 1652 … could not be confirmed’.39 He also mentioned that the letters show that Tonti and Klingenberg were in contact with each other at least indirectly.40 There are no letters from Tonti to Klingenberg, but letters from Tonti to de Lieto were obviously handed over to Klingenberg. 41 In the first letters, the ‘haulteur’, i.e. author, Tonti, was secret. In the letters by Tonti, he does not seem to be personally acquainted with Klingenberg. The facts that de Limay played the role as the author of the project and that Tonti’s name was not mentioned in the letters indicate, as Wagenvoort also mentions, 42 that Tonti and Klingenberg had not met. On the other hand, Heusch and Klingenberg might, as merchants, have been previously acquainted, and that can explain why Tonti’s representative de Limay, in turn, used Heusch as his representative.43 Whether Heusch and Klingenberg had met or were acquainted in other ways through business, if at all, is not known. In any case, unless more source material comes to the surface I think it can be doubted whether Tonti and Klingenberg ever met. There is reason to believe that such a meeting, if first mentioned by Hertzsprung and Du Pasquier at roughly the turn of the 20th century, was a way for them – not knowing of the correspondence – to try to explain how the idea of tontines was transmitted from France to Denmark. ___________ 35 Rudolf Sieghart, Die öffentlichen Glücksspiele (1899), 11 f. Wagenvoort (n. 1), 7, wrote that Sieghart did not provide a source referring to the meeting, but Wagenvoort himself failed to state where Sieghart mentioned the meeting, and I have not been able to find that Sieghart mentioned the meeting at all. 36 Ludvig Holberg, Dannemarks Riges Historie, vol. 3 (Kiøbenhavn 1735), 148–152. 37 Wagenvoort (n. 1), 6 f., 56. See also Lauridsen, Selvbiografiske (n. 5), 233, where Klingenberg’s autobiographical notes are published. 38 Wagenvoort (n. 1), 7. 39 Wagenvoort (n. 1), 165 (his summary in English). 40 Wagenvoort (n. 1), 4, 165. 41 Wagenvoort (n. 1), 33. 42 Wagenvoort (n. 1), 32. 43 Cf. Wagenvoort (n. 1), 34, who argues that de Limay was represented by Heusch because the correspondence of a merchant brought less attention than the correspondence of a nobleman.

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C. Tontines in Denmark-Norway I. The attempted tontine of 1653: Det Frugtbringende Selskab The tontine that Klingenberg arranged and received approval for was organized under the name Det Frugtbringende Selskab (The Advantageous – literally: The Fruit-bearing – Company; in German it was called Die Nutzbringende Gesellschaft). The information relating to the tontine was printed in Danish and German. This was the first tontine in Europe, as the royal ordinance was dated 1 May 1653. The possibility to participate was open until 1 September 1653.44 The ordinance and other documents relating to the tontine were published in 1654 45 in a version that is also digitally available. 46 The ambition of Det Frugtbringende Selskab was that 16,000 shares à 100 rigsdaler should be sold and that the participants should be divided into eight classes depending on age. The invested money should earn 5% interest and 10,000 rigsdaler should be divided among the participants in each class. The remaining capital should be the property of the state. In Table 1 below, there is an example of the – not very well-founded – calculations of the increases in interest paid to the remaining participants. The King and the Council gave a guarantee to the participants, and Klingenberg should administer the tontine and receive a salary for that effort. The attempt failed, however, because of too few participants. Only 5% of the shares were subscribed; there was too little money circulating in society and the state was not considered economically trustworthy. 47 The occurrence of the First Anglo-Dutch War (1652–1654), in which Denmark was an ally of the Dutch Republic, also reduced the possibilities for success. 48

___________ 44

Rise Hansen (n. 2), 75, 78. Jens Lauritsøn Wolf, Encomion Regni Daniæ (Kiøbenhaffn 1654), 391–439. See also the edition of some of the original documents in Rise Hansen (n. 3). 46 http://www.digitale-bibliothek-mv.de/viewer/metadata/PPN826508618/414/-/ (last accessed 12 August 2017). 47 Hertzsprung (n. 30), 1–9; Jørgensen (n. 29), 390; Rise Hansen (n. 2), 76; K. Lorange, Forsikringsvesenets historie i Norge inntil 1814 (1935), 275–278. 48 Wagenvoort (n. 1), 4. 45

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Table 1: Extract from the calculation of the remaining participants in Class 1, participants of the age of eight years or below49 year 1654 1664 1674 1684 1694 1704 1714 1724

surviving participants 1,940 1,350 860 470 235 106 29 1

amount disbursed per participant 5 rigsdaler, 7 shilling lybsk and 5 pennies 7 rigsdaler, 19 shilling lybsk and 6 pennies 11 rigsdaler, 30 shilling lybsk and 1 penny 21 rigsdaler, 13 shilling lybsk and 3 pennies 42 rigsdaler, 26 shilling lybsk and 6 pennies50 94 rigsdaler, 16 shilling lybsk and 3 pennies 344 rigsdaler, 39 shilling lybsk and 8 pennies 10,000 rigsdaler

In 1694, a new attempt was made, with 700 shares à 100 rigsdaler. The participants should be divided into seven classes depending on age. Also this tontine failed, because too few shares were subscribed.51 In the meantime, however, the business of various forms of life insurance had developed in the Netherlands. In 1670–1671, Johan de Witt (1625–1672) had developed mortality tables and a theory of life annuities.52 Tontines had also become a success in Holland in the 1670s; the first one was organized by Jacob van Dael in Kampen in 1670.53 II. The successful tontines of 1747–1800 In the middle of the 18th century, different pension schemes as well as lotteries became more popular. In 1747, time was ripe for a new try. The Danish state needed to borrow 100,000 rigsdaler and set up a tontine, called Livrentesocietetet af 13/2 1747 (The Life Annuity Society of 13 February 1747). There were 1,000 shares à 100 rigsdaler, and the participants were divided into five classes depending on age. There were different interest rates in the different classes. The participants could insure their own lives or the lives of someone else. If the participant predeceased the insured person, the heirs received the interest. This tontine was a success, and noblemen, civil servants, merchants, and some craftsmen were among the participants. Since there were not enough shares to satisfy all persons that wanted to participate, another similar tontine was set up in 1757. It ___________ 49

Wolf (n. 45), 415 f. This amount is wrongly given as 40 rigsdaler in Wolf (n. 45), 416, because the amount for 1697 (52 rigsdaler, 30 shilling lybsk and 3 pennies) was printed for 1689, which caused the amounts for 1689–1697 to be displaced. The correct numbers, used here, are in the draft in the Jarlsberg archives. 51 Jørgensen (n. 29), 390; Hertzsprung (n. 30), 9. 52 Wagenvoort (n. 1), 15–18; Herman Wagenvoort, Contracten van overleving en andere tontines, (1967) 35 Tijdschrift voor Rechtsgeschiedenis 584 f; Tom Söderberg, Försäkringsväsendets historia i Sverige intill Karl Johanstiden (1935), 441. 53 Wagenvoort (n. 1), 64–93. 50

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had 2,400 shares à 100 rigsdaler, and the participants were divided into 21 classes depending on age. There were also 2,400 quarter-shares. Thus, the state wanted to borrow 300,000 rigsdaler. However, shares amounting to only 190,750 rigsdaler were subscribed, and the rest of the shares were distributed among the shareholders.54 In 1773 a private tontine was set up, Det Høegholmske Participantskab. There were 12,000 shares à 10 rigsdaler, and the participants were to be divided into four classes depending on age. The longest living participant was to receive the manor of Høegholm (16 km southwest of Grenå, Jutland). There were not enough participants, but the state guaranteed the tontine, and in 1775 it was re-established as Det Private Livrenteselskab (The Private Life Annuity Company). There were 30,000 shares à 10 rigsdaler, and the participants were divided into four classes depending on age. Even though all shares were not subscribed, the tontine was set up in 1780, and the last shareholder died in 1866. Because of the state guarantee, the capital was the property of the state, and the connection to the manor of Høegholm was lost.55 In 1792, two new tontines were set up. One of them was set up by the merchants Duntzfeld, Meyer & Co. and the other by Det Private Livrenteselskab. The latter tontine was fully subscribed in 1799, and in 1880 the money was shared among the remaining twelve participants. Finally, the last tontine was set up in 1800. There were 6,000 shares à 100 rigsdaler, and the tontine was fully subscribed in 1806. The state was to receive the remaining money and guaranteed the interest. Several foreigners bought shares because Denmark was neutral in the wars and considered safe. The tontine of 1800 still existed in 1892.56 III. Norwegian participation in the tontines The tontines set up in Denmark also had participants from the Norwegian part of the kingdom. Norwegians participated reluctantly in the tontine of 1653 that failed.57 In the later tontines, a certain portion of the shares were signed by Norwegians, for example, 0.7% of the sum of the Det Private Livrenteselskab of 1775 and 8% of the sum of the tontine of 1800.58

___________ 54

Jørgensen (n. 29), 391 f.; Hertzsprung (n. 30), 25 f. Jørgensen (n. 29), 393 f.; Hertzsprung (n. 30), 51 f. 56 Jørgensen (n. 29), 394 f.; Hertzsprung (n. 30), 52-54. 57 Lorange (n. 47), 275–278. 58 Lorange (n. 47), 332 f. 55

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D. Why were no tontines established in Sweden? In Sweden (of which Finland was part until 1809), the idea occurred in the mid-18th century that the tables compiling the size and composition of the people, which were based on the population register, could be used to calculate tontines and annuities. Tontines were at this time a type of insurance ‘yet unknown in Sweden’.59 This does not mean that tontines were literally unknown, but that no tontine – despite attempts made at the earliest in the 1660s and lastly in the 1820s – had ever been arranged in Sweden.60 From Tonti’s letter to de Lieto of 12 December 1653, it appears that de Lieto had recently visited Sweden. According to Wagenvoort, de Lieto had probably investigated whether a tontine could be arranged there. De Lieto’s answer to Tonti is not known, and there is no evidence showing what de Lieto did in Sweden.61 From 1660 to 1672, during the regency of Charles XI, the Swedish state had financial problems, and different possibilities to borrow money were discussed in Council of the Realm. On 14 December 1660, the councillor baron Seved Bååt (1615–1669) suggested at a Council of the Realm meeting that money could be raised in a way similar to the Danish Det Frugtbringende Selskab. The councillor count Clas Tott (1630–1674) replied that the idea had been tried but had failed both in France and Denmark precisely because it had been obvious that the reason for initiating the tontine was that the state needed money. The councillor and treasurer baron Gustav Bonde (1620–1667) suggested that the tontine could be guaranteed by Parliament.62 In 1661, Bonde supported the idea again, this time put forward by the civil servant Johan von Weidenhaijn (1604–1666, of German origin, called Weidenheim before being ennobled). Weidenhaijn referred to the way Klingenberg had planned the Danish tontine but changed the plan so that claims on the state could be exchanged for shares in the tontine.63 This manner of dealing with state debts was also the reason why the treasurer Bonde supported the idea.64 The idea of a ___________ 59 August Hjelt, Det svenska tabellverkets uppkomst, organisation och tidigare verksamhet (1900), 39. 60 Söderberg (n. 52), 441–446, 500 f. 61 Wagenvoort (n. 1), 33, 43. 62 The Swedish National Archives, Riksarkivet. Det odelade kansliet, Rådsprotokoll (Protocols of the Council of the Realm), vol. AI:33b, fol. 408v and vol. AI:32d, fol. 708. 63 Söderberg (n. 52), 442 f.; Wilhelm Tham, Bidrag till svenska riksdagarnes och regeringsformernas historia, vol. 1/2 (1847), 280 f. 64 Riksskattmästaren Gustaf Bondes förslag till rikets styrelse 26 juni 1661, (1913) 33 Historisk tidskrift 52. Here, it also appears that the text discussed by Tham (n. 63) was written by Weidenhaijn in 1660 or 1661.

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tontine was finally discussed in Council on 27 February 1665 but still without result, other than the conclusion that a tontine was not a reasonable alternative. The treasurer Bonde concluded that credit was difficult to receive, as a large part of the last credit had not been repaid; Bååt’s final words were Dominus providebit, God will provide.65 The Swedish discussions about setting up a tontine never came close to realization. The failure of the Danish attempt of 1653 was known, and the Dutch tontines were not a success until 1670.66 Therefore, it is not very surprising that the idea came to nothing in Sweden. Söderberg has explained this also with the fact that the state was neither strong enough nor financially independent.67 The discussions in Council reveal that the financial situation was so bad that all possible alternatives were brought up, but very few of them were realistic. In 1823, in the context of arranging retirement pensions for civil servants, the idea of a tontine was put forward again. The aim of this tontine was to secure a pension for civil servants’ widows and children. In 1826, when the proposal for pensions for civil servants was made public, a tontine was not proposed, but the committee suggested that the idea should be reconsidered later on. However, once again it came to nothing.68

E. Concluding comments The attempts to establish tontines in the Nordic countries are mentioned in the literature in the context of other types of life insurance. However, in contrast to conclusions drawn in some other jurisdictions, 69 there seem to be no examples in Nordic legal history of the claim that tontines contributed to the development of other forms of life insurance. Most of the Scandinavian attempts to arrange tontines were connected to the state and its finances. The approval of the state was considered necessary to arrange a tontine, and a state guarantee was required – but not sufficient – to make the tontine trustworthy. The Scandinavian states in the 17th century did not have the economic stability and credibility that was needed. It is only from the mid18th century that some successful tontines can be identified in Denmark and in the late 18th century even some private tontines. The concept of tontines, and the result of the attempts in Denmark and France, was known in Sweden in 1660, ___________ 65

The Swedish National Archives, Riksarkivet. Det odelade kansliet, Rådsprotokoll (Protocols of the Council of the Realm), vol. AI:43, fol. 69v. 66 Söderberg (n. 52), 441. 67 Söderberg (n. 52), 446. 68 Söderberg (n. 52), 500 f. 69 See Hellwege, 11 f., above.

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but the concept was not applied there. It cannot fairly be said that the few successful tontines in Denmark form a significant part of the Scandinavian history of life insurance. Recently, there have been discussions about different ways of understanding the reception, transplant, transfer, or translation of foreign legal concepts into a legal system. Each metaphor highlights different aspects of the transfer. 70 What we can learn from the transfer of tontines is the importance of individual actors in the development of law. Through Tonti’s representatives, Klingenberg launched the idea of tontines in Denmark. Tonti, the representatives de Limay and Heusch, and Klingenberg were to receive their portions of the revenue. This indicates that in their minds the construction of the tontines was not yet a legal concept, a type of contract among others, but a trade secret to which they had an intellectual property right. They had, or thought that they had, an informational advantage that could be turned into money.71 Tonti, de Limay, Heusch, and Klingenberg did not act as legislators, judges or law professors, but as individuals and merchants – or perhaps, in Tonti’s case, as a swindler.72 But these actors needed the assistance of a legislative body, and when they succeeded in securing the approval of King Frederick III, their trade secret was transformed into a legal concept which could be applied in other jurisdictions as well. This is not a matter of reception of an entire legal system but of a single type of contract which needed legislative approval, thus a sort of micro-history which provides interesting insight into the development of business methods and legal development in mid-17th century Europe. As regards the importance of translation, it can be observed that Dutch and French were used in the correspondence in 1652 and 1653 and that the information about Det Frugtbringende Selskab was printed in Danish and German. The metaphor of translation indicates that a transferred legal concept will be applied more or less differently in different legal cultures, and it would have been interesting to see whether a Swedish tontine would have been different from the Danish ones in some aspect. The importance of language, however, indicates who Tonti, de Limay, Heusch, and Klingenberg were: they acted as ‘bridgeheads of transfer processes’,73 to use Lena Foljanty’s expression; this means that they were parts of an elite class, spoke foreign languages, and travelled and acted ‘as negotiators of the foreign in their own country’. 74 As regards at least Tonti, ___________ 70 Lena Foljanty, Legal Transfers as Processes of Cultural Translation: On the Consequences of a Metaphor, (2015) Max Planck Institute for European Legal History Research Paper Series. 71 See Hellwege, 385 f., below. 72 See Hellwege, 385 f., below. 73 Foljanty (n. 70), 15. 74 Foljanty (n. 70), 15.

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Heusch, and Klingenberg, they also acted as negotiators of the foreign in countries other than their own, which gave them an excellent opportunity to try to use an informational advantage and to launch a new concept of business and law.

Chapter 9: Tontines in German-Speaking Territories By Phillip Hellwege1 A. Introduction ............................................................................................................ 167 B. Tontines in German-speaking territories ................................................................ 169 I. The origins of tontines .................................................................................... 169 II. Self-contained tontines in the 17th and 18th centuries ...................................... 170 III. Foreign tontines in the 17th and 18th centuries ................................................. 176 IV. Tontines issued by pension funds in the 19th century ...................................... 176 V. The tontine life insurance products of U.S. life insurers ................................. 178 VI. From a multi-purpose to a single-purpose financial product ........................... 179 VII. Conclusion ...................................................................................................... 179 C. Tontines and the development of life insurance law ............................................... 180 I. Classifying tontines: life annuity, insurance, or gambling?............................. 180 II. Financial soundness, solvency, securities, and transparency........................... 185 III. Preventing fraud on the side of the investor .................................................... 187 IV. Preventing fraud on the side of the payees ...................................................... 189 D. Conclusion .............................................................................................................. 190

A. Introduction According to modern literature, Germany saw its first tontine in 1698 and tontines had their climax in the 18th century. Nevertheless, even for that century only a small number of tontines are mentioned: 2 Prussia (1698), Schweinfurt (1735), Bolzano (1737), Gotha (1752), Austria (1760), Hamburg (1762, 1776), Mainz (1769), Oldenburg (1782), and Potsdam (1788). Two Nuremberg tontines of 1777 and 1783 have gained prominence as Johann Wolfgang von Goethe (1749– 1832) showed interest in them, and two Hamburg tontines of 1708 and 1709 are referred to as curious examples of tontines showing elements of a lottery. In the ___________ 1 The present chapter is a short version of Phillip Hellwege, A History of Tontines in Germany. From a multi-purpose financial product to a single-purpose pension product (2018). 2 On this paragraph: Peter Koch, Beiträge zur Geschichte des deutschen Versicherungswesens, vol. 2 (2005), 27–30, 78–82, 80; Gerald Schöpfer, Sozialer Schutz im 16.– 18. Jahrhundert (1976), 132–143; Walter Fiedler, Die Geschichte des Versicherungswesens der Reichsstadt Nürnberg (1958), 45–75; Clemens von Zedtwitz, Die rechtsgeschichtliche Entwicklung der Versicherung (1999), 141 f.; Hans Schmitt-Lermann, Der Versicherungsgedanke im deutschen Geistesleben des Barock und der Aufklärung (1954), 65; Heinrich Braun, Geschichte der Lebensversicherung und der Lebensversicherungstechnik (2nd edn., 1963), 162.

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beginning of the 19th century tontines came to be replaced by life insurance products. Towards the end of that century they made a reappearance as tontine life insurance products offered by U.S. insurance companies. These products were controversial. By the end of that century the view was predominant that tontines were not insurance, but a form of gambling, and life insurance companies were prohibited from issuing tontines. With the implementation of the Second European Life Insurance Directive of 1990,3 the Versicherungsaufsichtsgesetz (Insurance Regulation Act – VAG) of 1901 was adapted in 1994, and life insurance companies were again allowed to offer tontines. Nevertheless, tontines have not again gained prominence in Germany. Thus, it seems as if the immediate practical importance of tontines was limited to the 18th century, and the small number of tontines mentioned seems to suggest that tontines were, even then, only of marginal practical importance. 4 This sharply contrasts with the important role which tontines are thought to have played for the development of insurance. With respect to the legal development Hans-Martin Oberholzer, for example, claims:5 Dadurch, dass den Tontinen … ein so grosser Erfolg beschieden war, sahen sich die Staaten schon früh gezwungen, gesetzgebungsmässig gegen die gröbsten Auswüchse vorzugehen und so das Fundament für unser heutiges Versicherungsrecht zu legen. Eine Folge dieser Versicherungsgesetzgebungen war die Herausbildung von vertrauenswürdigen Versicherungsanstalten. Due to the fact that tontines … were such a great success, early on national legislators felt impelled to intervene with respect to their greatest defects. Thereby they laid the basis for today’s insurance law. A consequence of this insurance legislation was the creation of trustworthy insurance companies.

And according to L. Gustav Du Pasquier, ‘tontines played an extraordinarily important role for the development of insurance’ (‘Die Tontinen haben in der Entwicklung des Versicherungswesens eine ausserordentlich wichtige Rolle gespielt’).6 Yet even though the extraordinary importance of tontines for the development of insurance is stressed, there is little literature covering the history of tontines. And this literature asserts rather than proves their importance. An analysis of their impact on the history of insurance (law) is missing. ___________ 3 Council Directive 90/619/EEC of 8 November 1990 on the coordination of laws, regulations and administrative provisions relating to direct life assurance, 29 Nov. 1990, 50–61. 4 Werner Ogris, Der mittelalterliche Leibrentenvertrag. Ein Beitrag zur Geschichte des deutschen Privatrechts (1961), 131 f.; idem, Tonti, Tontine, in: Adalbert Erler et al. (eds.), Handwörterbuch zur Deutschen Rechtsgeschichte, vol. 5 (1998), 276 f. 5 Hans-Martin Oberholzer, Zur Rechts- und Gründungsgeschichte der Privatversicherung (1992), 91. 6 L. Gustav Du Pasquier, Die Entwicklung der Tontinen bis auf die Gegenwart, (1910) 46 Zeitschrift für Schweizerische Statistik 484–513, 484.

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B. Tontines in German-speaking territories Before it is possible to present such an analysis, it is necessary to develop an understanding of the factual importance of tontines, their designs, and the different purposes they served. I. The origins of tontines Modern literature does not offer a coherent explanation of how tontines came to Germany. It is claimed that Huguenots brought the idea of tontines with them from France when they settled in Prussia in 1685.7 At first sight this assertion seems plausible. After all, the preamble to the regulations of the Prussian tontine of 1698 refers to ‘subjects both of the German and of the French nation, and especially those who were displaced due to religious reasons and who have been received in our state’ and have lost their foreign investments (‘Unterthanen so wol Teutscher als Frantzösischer Nation, und insonderheit denenjenigen, so der Religion halber anderwärtig vertrieben und in Unsern Ländern aufgenommen worden’).8 However, the chronology of events does not fit this narrative. It was in 1685 that 20,000 Huguenots settled in Brandenburg. 9 Yet it was in 1689 that the first tontine was issued in France. The purpose of the French tontine was to finance the Nine Years War (1688–1697). This war was fought between France and the League of Augsburg; Prussia-Brandenburg had joined the League in 1688. Furthermore, as George Gallais-Hamonno and Christian Rietsch point out, the French tontine of 1689 was open only to French people having residence in France.10 Finally, the idea of tontines may have been imported from countries other than France, too: there had been a number of Dutch tontines since 1670, an English tontine in 1692, a proposal for a tontine in Denmark in 1653, and, as Rietsch and Gallais-Hamonno point out, a proposal in Hamburg dating from the same year.11 Furthermore, in his study on life annuity contracts, Werner Ogris briefly mentions Gdańsk tontines of 1657 and 1688.12 Gdańsk was at the time an autonomous city under the Polish crown with a German speaking population.13 ___________ 7

Koch (n. 2), 29; von Zedtwitz (n. 2), 141; Schmitt-Lermann (n. 2), 64 f. Patent wegen der einzurichtenden Leib-Renten d.d. den 30. Decembr. 1698, (1736) 6/1 Corpus Constitutionum Marchicarum 653–658. 9 Hans-Joachim Schoeps, Preußen. Geschichte eines Staates (1995), 37. 10 See Gallais-Hamonno and Rietsch, 61 f., above. 11 See Rietsch and Gallais-Hamonno, 37, above. 12 Ogris, Leibrentenvertrag (n. 4), 132. 13 Compare Peter Oliver Loew, Danzig. Biographie einer Stadt (2011), 112. 8

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In addition, tontines had predecessors in Germany. Since the Middle Ages life annuity contracts could have more than one annuitant and the annuity of a deceased annuitant could accrue to the surviving annuitants. 14 Furthermore, already in 1651, and thus two years before Tonti proposed his idea to Mazarin, the German poet Georg Philipp Harsdörffer (1607–1658) discussed a Venetian tontine-type transaction.15 He also observed that the Venetians had already added a lottery element to these transactions.16 In conclusion, the mono-causal explanation which links the Prussian tontine of 1698 to the arrival of the Huguenots in Brandenburg in 1685 is not sound. It is, however, clear that the Prussian tontine was associated with Tonti as the preamble of the regulation expressly uses the word tontine. 17 Still, which tontines did the Prussian authorities take into consideration when designing the tontine of 1698? This question finds an answer in an undated document in the Brandenburgisches Landeshauptarchiv (Brandenburg Main State Archive):18 it discusses a tontine in Venice as well as the French tontine of 1689, the English tontine of 1692, and a French tontine of 1698. The numbers of the Venetian tontine reported by Harsdörffer (100,000 as raised capital, 1,00(0) shares at a cost of 100 each, and an interest rate of 5%) correspond to those of the Prussian tontine. II. Self-contained tontines in the 17th and 18th centuries In the 17th and 18th centuries tontines were self-contained investments mostly issued by the public hand. It is, however, difficult to fully assess their number. There is the problem of finding the relevant archival materials. One problem when searching for tontines in the contemporary literature and in archives is that tontines appeared under different names: the first Prussian tontine, for example, was simply titled a life annuity. And for some tontines we find the publication of plans but no hints whether they received enough subscriptions in order to be issued. The following financial schemes and plans are referred to as tontines in the modern literature or in the literature of the 17 th and 18th centuries, or I was able to find materials on them in the various German archives. The designs of these tontines differed greatly. ___________ 14

See Otto Stobbe, Beiträge zur Geschichte des deutschen Rechts (1865), 33. Georg Philipp Harsdörffer, Der Grosse Schau-Platz Lust- und Lehrreicher Geschichte, vol. 2 (Hamburg 1651), 279 f. 16 Harsdörffer (n. 15), 280. 17 Patent (n. 8), 654. 18 Brandenburgisches Landeshauptarchiv, No. 23A C.2720: Forderung Kurfürst Friedrichs III. zur Aufbringung von 200 000 Reichstalern als eine sogenannte Tontine oder Leibrente und Genehmigung zur Errichtung einer Tontine von 30 000 Talern Kapital zum Wiederaufbau der Schloß-, Oberpfarr- und Domkirche, 1698–1747, fol. 10r. 15

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Most of them were class tontines, with the classes based on the nominees’ ages: the Gdańsk tontines of 1657 and 1688,19 a Wied tontine of 1749,20 a HesseKassel tontine of 1750,21 an East Frisian tontine plan of 1755,22 a Mecklenburg tontine plan of 1758,23 a Cleves tontine plan of 1763,24 Bremen tontines of 1767 and 1772,25 a Wolfenbüttel tontine plan of 1768,26 an Osnabrück tontine plan of 1768,27 Gdańsk tontines of 1775 and 1792,28 a Mecklenburg-Strelitz tontine plan of 1776,29 a Stade tontine of 1777,30 an Upper Lusatian tontine plan of 1777,31

___________ 19 The regulations for the tontine of 1657 are reproduced in: Max Foltz, Geschichte des Danziger Stadthaushalts (1912), 459–461. 20 Anschreiben Von Errichtung einer Tontine oder Classen-Leib-Renten-Cassa (Neuwied am Rhein 1749). 21 Hessisches Staatsarchiv (Marburg), 40 Rubr. 24 No. 462: Projekt einer Tontine oder Leibrentenkasse für das Hofhospital St. Elisabeth zu Kassel. 22 Niedersächsisches Landesarchiv (Aurich), Dep. I, No. 3071: Die Ausschreibung einer Tontine zum Verkauf des künftig zu besiedelnden Neuen Bunder Polders (Landschaftspolders), fol. 9r–12r. 23 Landeshauptarchiv Schwerin, 3.1-1 (Mecklenburgische Landstände mit Engeren Ausschuß der Ritter- und Landschaft zu Rostock), No. 20 Anhang 27: Von dem Herrn Hofmeister von Vieregge in Vorschlag gebrachte Tontine oder Leibrenten-Sozietät, 1758, fol. 14–24. 24 Plan zu einer Geld-Negotiation, in Form einer Tontine, zum Besten des Herzogthums Cleve und der Graffschaft Marck; vertheilet in vier Classen, ausmachen eine Summe von 300,000 Reichsthalern (Cleve 1763). 25 Staatsarchiv Bremen, No. 2-R.1.A.10.c.4.II.b.1.b: Errichtung der ersten Tontine, 1767; Staatsarchiv Bremen, No. 2-R.1.A.10.c.4.II.c.1.b: Verzeichnis der an der Tontine von 1772 beteiligten Personen und der unter ihnen eingetretenen Todesfälle, 1772–1843. 26 Niedersächsisches Landesarchiv (Wolfenbüttel), 4 Alt 1, No. 2668: Errichtung einer Tontine. 27 Niedersächsisches Landesarchiv (Osnabrück), Depositum 3 b IV, No. 5759: Acten die Constituirung einer Tontine betreffend. 28 Plan d’une Tontine à etablir ou d’un fond à negocier sur rentes viagères sous la garantie des Ordres de la ville. Publié à Danzig le 13. du Mois de Mars 1775 (Danzig 1775); Plan einer aus Schluß sämmtl. Löbl. OOgen dieser Stadt dem Publico zum Besten zu errichtende Tontine oder Negocirung auf Leibrenten, publicirt in Danzig den 27. Jan. 1792 (Danzig 1792). 29 Landeshauptarchiv Schwerin, 3.1-1 (Mecklenburgische Landstände mit Engeren Ausschuß der Ritter- und Landschaft zu Rostock), No. 20 Anhang 29: Errichtung einer Tontine oder Leibrenten-Sozietät, 1763, fol. 691–705. 30 Stadtarchiv Stade, St.H. 51–52 No. 18: Acta die Anleihe eines Kapitals von 10,000 Reichstalern und Errichtung einer Leibrenten-Societät (Tontine) betreffend, 1775–1851. 31 Sächsisches Staatsarchiv (Staatsfilialarchiv Bautzen), 50009 Oberamt des Markgraftums Oberlausitz No. 109: Errichtung eines Fonds d' amortissement (Abschreibungsfonds, Tilgungsfonds) für eine Tontine (Leibrente) durch die Oberlausitzer Landstände, 1777.

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the Prussian tontine of 1788,32 a Bremen tontine of 1805,33 a Hamburg tontine plan of 1807,34 and a Lübeck tontine of 1809.35 There is at least one class tontine in which the classes were not age based: a Hamburg tontine of 1776.36 Modern literature refers to the Prussian tontine of 1698 as an example of a simple tontine.37 However, the tontine did not combine nominees of all ages. Rather, Art. 3 of the tontine regulations made clear that only children were admitted as nominees.38 Thus, it is more exact to refer to the Prussian tontine as a class tontine with one class only. The same holds true for a Lübeck tontine plan of 1708.39 The only true simple tontines without any classes and which were not limited to nominees of a certain age seem to have been the Schweinfurt tontine of 173540 and a Berlin tontine of 1747.41 The Bolzano tontine of 1737,42 the two Nuremberg tontines of 1777 and of 1783,43 and a Mecklenburg tontine plan of 178744 were compound tontines. ___________ 32 Patent wegen Errichtung einer wachsenden Leibrenten-Anstalt zum Betrieb des Chaussee-Baues im Magdeburgischen und Halberstädtschen, (1788) 8 Novum Corpus Constitutionum Prussico-Brandenburgensium Praecipue Marchicarum 2257–2268. 33 Staatsarchiv Bremen, No. 2-R.1.A.10.c.4.II.d.2, vol. 1: Verzeichnis der an der Tontine von 1805 beteiligten Personen; Staatsarchiv Bremen, No. 2-R.1.a.10.c.4.I: Tontinen und Leibrenten im allgemeinen, 1692–1810. 34 (1807) 7/3 Sammlung Hamburgischer Verordnungen 157–164. 35 Archiv der Hansestadt Lübeck, 05.4-4 Tontine-078, No. 01, 1809–1896; Archiv der Hansestadt Lübeck, 05.4-4 Tontine-078, No. 04, 1896. 36 Sammlung Hamburgischer Verordnungen, vol. 1 (Hamburg 1783), 125–136. 37 von Zedtwitz (n. 2), 140; Du Pasquier (n. 6), 490. 38 Patent (n. 8), 655. 39 Archiv der Hansestadt Lübeck, 3.4-2 Stadt-Cassa, No. 483: Plan einer Tontine, 1708. 40 The plan can be found in: Staatsarchiv Nürnberg, Reichsstadt Nürnberg D No. 4814. 41 Brandenburgisches Landeshauptarchiv, No. 23A C.2720: Forderung Kurfürst Friedrichs III. zur Aufbringung von 200 000 Reichstalern als eine sogenannte Tontine oder Leibrente und Genehmigung zur Errichtung einer Tontine von 30 000 Talern Kapital zum Wiederaufbau der Schloß-, Oberpfarr- und Domkirche, 1698–1747, fol. 79r–80v. 42 Österreichisches Staatsarchiv, AT-OeStA/FHKA SUS Patente 70.5: Errichtung einer Tontine in Bozen; Südtiroler Landesarchiv (Bozen), No. 3.23.2: Merkantilmagistrat Bozen. Akten und Verordnung über Tontinen, 1737–1740. 43 Gründliche Nachricht von einer neuen sehr vorzüglichen und vortheilhaften ReichsStadt Nürnbergischen Leib-Renten Gesellschaft (Nürnberg 1777), 1–32; Gründliche Nachricht und Statuten von der sehr vorzüglichen und gemeinnützlichen Reichs-Stadt Nürnbergischen zweiten Leibrenten-Gesellschaft (Nürnberg 1783), 3–50; Stadtarchiv Nürnberg, A 6 No. 2538; Stadtarchiv Nürnberg, A 6 No. 2611; Staatsarchiv Nürnberg, Reichsstadt Nürnberg Druckschriften No. 713. 44 The tontine plan is discussed and reproduced in: (1788) Monatsschrift von und für Mecklenburg 181–192. The plan was later modified: (1788) Monatsschrift von und für Mecklenburg 373–384. See also Landeshauptarchiv Schwerin, 3.1-1 (Mecklenburgische Landstände mit Engeren Ausschuß der Ritter- und Landschaft zu Rostock), No. 20 Anhang 30: Errichtung einer Tontine oder Leibrenten-Sozietät, 1785.

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Furthermore, German-speaking territories saw a number of hybrid schemes. The Hamburg tontine of 1708/0945 was a tontine lottery, as were a planned Upper Lusatian tontine lottery of 176646 and a planned Hamburg tontine lottery of 1776.47 A Hesse-Kassel tontine plan of 174348 and a Saxon tontine of 174849 were class tontines with lottery elements, and the Gotha tontine of 1752 was a compound tontine with a lottery element. 50 Finally, the term tontine was used very loosely. A Lübeck financial scheme of 1715 was probably called a tontine because the capital was lost to the issuer, meaning that the issuer was under no obligation to repay the capital to investors, after the scheme’s 33 years of duration. Under that plan the issuer had to pay interest on the capital; however, the annuities of deceased investors were not shared by surviving investors and, thus, the annuities did not increase. 51 A Breslau/Hamburg tontine of 170652 and a Regensburg tontine lottery of 176853 were simple life annuity lotteries. A Saxon tontine of 172354 and a Swedish-Pomeranian tontine of 177255 were simple lotteries. A Lippe tontine of 1805 was a simple ___________ 45

The regulations are reproduced in: Paul Jacob Marperger, Montes Pietatis (Leipzig 1715), 362–393. 46 Sächsisches Staatsarchiv (Staatsfilialarchiv Bautzen), 50001 Landstände der sächsischen Oberlausitz, No. 1166: Landeslotterie. Enthält u. a.: Lotterievorschläge, 1724, 1725; Errichtung einer oberlausitzischen Landeslotterie zur Tilgung der Landesschulden, 1765–1771; Avertissement über die Genehmigung der Lotterie, 1770 (Druck); Vorschlag einer Tontinen-Lotterie (Lotterie auf Renten) zur Tilgung der Landesschulden, 1766; Lotterielisten, 1771 (Druck), 1724–1774. 47 The plan is reproduced in: ‘Leib-Renten, Jahr-Renten und Tontinen’, in: Johann Georg Krünitz (ed.), Oekonomisch-technologische Encyclopädie, vol. 71 (Berlin 1796), 1–426, 308–312. 48 Hessisches Staatsarchiv (Marburg), 17 II No. 383: Projekt einer zu errichtenden Tontine. 49 Ihrer Königl. Majestät in Pohlen und Churfürstl. Durchl. zu Sachsen Edict wegen der im Monath Januario 1748 zu Leipzig eröffneten Leib- auch Familien-Renten-Negotiation (Dresden 1748); Edit de sa Majesté le Roi de Pologne, Electeur de Saxe concernant la negociation de rentes viageres et de famille ouverte a Leipsig au mois de Janvier 1748 (Dresde 1748). 50 Plan einer unter Assecuration der Landschafft des Fürstenthums Gotha zu entrichtenden Leib-Renten-Negotiation oder Tontine (Gotha 1752). 51 Archiv der Hansestadt Lübeck, 05.4-4 Tontine-078, No. 01; Archiv der Hansestadt Lübeck, 3.4-2 Stadt-Cassa, No. 482: Projekte zu Tontinen und Leibrenten, o.D.–1715. 52 The regulations are reproduced in: Marperger (n. 45), 340–347. 53 Its regulations can be found in: Staatsarchiv Nürnberg, Reichsstadt Nürnberg D No. 4816. 54 Sächsisches Staatsarchiv (Hauptstaatsarchiv Dresden), 10036 Finanzarchiv Loc. 41493 Rep. 59 Lit. D No. 1282: Lotterie oder Tontine zur Erweiterung des Steuerhauses in Dresden; Erweiterung des Steuerhauses in Dresden sowie die Lotterie bzw. Tontine. 55 Landesarchiv Mecklenburg-Vorpommern (Greifswald), No. 2145: Errichtung einer Fayance Tontine (Lotterie) auf den Landesjahrmärkten.

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loan agreement with a lottery element.56 Modern literature often refers to an Austrian tontine of 1760,57 yet it was a simple life annuity scheme.58 The same holds true for the Mainzer tontine of 1769: modern literature calls it a tontine, 59 but it was a simple life annuity combined with a life annuity lottery.60 Finally, with some financial schemes which were called tontines or tontine lotteries I was not able to identify any plans, and I am thus not able to assess what kind of scheme they were: this is the case for a Merseburg tontine of 1750,61 tontine lotteries in Prussia and Saxe-Weimar in and before 1757,62 a Halberstadt tontine plan of 1764 and a Breslau tontine of 1766,63 a Saxon tontine plan of 1765,64 a Rostock tontine plan of 1788,65 and a Westphalian tontine of 1811.66 All of these schemes of the 17th and 18th century were issued or planned by the public hand with two exceptions: an Augsburg tontine of 1753/55 was issued by the Kaiserliche Franciscischen Akademie der freyen Künste und Wissenschaften (Academy of the Free Arts and Sciences in Honour of Emperor Francis),67

___________ 56 Landesarchiv Nordrhein-Westfalen, Abt. Ostwestfalen Lippe (Detmold), L 92 A No. 5002: Anlegung einer Tontine auf 50 Jahre zur Finnazierung der Irrenanstalt zu Brake; Landesarchiv Nordrhein-Westfalen, Abt. Ostwestfalen Lippe, L 77 A No. 5744, fol. 51r–52r, 62r–63v. 57 Fiedler (n. 2), 51; von Zedtwitz (n. 2), 142. 58 The regulations are reproduced in: Krünitz (n. 47), 131–135. 59 Braun (n. 2), 162. 60 An excerpt from the regulations of the Kurmainzer Leibrenten-Gesellschaft of 1769 is reproduced in: Krünitz (n. 47), 135 f. 61 Landesarchiv Sachsen-Anhalt (Wernigerode), A 30aII, II No. 474: Stift-Merseburg Steuer-Cassen-Extrakt zum Landes-Bedürfnis, zur Tontine und künftigen Fonds d’Amortissement vom Jahr 1750 bis 1755. 62 See on these Otto Warschauer, Lotteriestudien (1912), 15. 63 They are mentioned by Ernst Posner (ed.), Die Behördenorganisation und die allgemeine Staatsverwaltung Preußens im 18. Jahrhundert, vol. 13 (1932), 30 f., 344–348. 64 Sächsisches Staatsarchiv (Hauptstaatsarchiv Dresden), 10025 Geheimes Konsilium Loc. 5350/08: Die zum Nutzen hiesiger Lande in Vorschlag gebrachte Anlegung [von] Lotterien und Tontinen. 65 Grundgesetzlicher neuer Erb-Vertrag der Durchlauchtigsten regierenden Herzogs und Herrn, Herrn Friederich Franz, Herzogs zu Mecklenburg … mit Ihro Erbunterthänigen Stadt Rostock, vollzogen zu Rostock, den 13ten May, 1788 (1788), 170. 66 Hessisches Staatsarchiv (Marburg), 7 a No. 1/232/48: Unter dem Namen Tontine bestandene Gesellschaft der Marställer des ehemaligen Westfälischen Hofes. 67 Die schon längst von vielen eifrigst verlangte Nachricht von der Beschaffenheit, Einrichtung und Vorhaben der Kaiserl. privilegirten Gesellschaft der freien Künste und Wissenschaft (Augsburg 1753), 25 f.; (1757) Das Neueste aus der anmuthigen Gelehrsamkeit 750–758, 827–831; (1755) Die reisende und correspondirende Pallas oder KunstZeitung 22–24.

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and two sources mention that after 1764 the Freimaurer (Freemasonry) initiated an internal tontine for its members.68 There is one notable point about the aforementioned tontines and tontine plans: in the 17th and 18th centuries, tontines were issued or planned in German territories, the German-speaking city of Gdańsk, Austria, and the German-speaking parts of the Habsburg lands. However, I was not able to identify any tontine or tontine plan in 17th- and 18th-century Switzerland, even though it is clear that Swiss people invested in foreign tontines. In conclusion, German-speaking territories saw a number of different tontines and tontine plans exhibiting a variety of designs in the 17 th and 18th centuries. Three innovations need to be highlighted. (1) The Nuremberg tontine of 1777 was a compound tontine. When a nominee from one of the first four classes died, half of his annuity was divided between the surviving members of that class. The other half benefited a fund. The purpose of the fund was primarily to compensate the heirs of deceased tontine members: if the total sum of annuity payments which a deceased member had received did not amount to his or her initially invested capital plus 4% interest per annum, then the difference between the two sums was to be paid in instalments to his or her heirs. Thus, every investor (or alternatively his or her heirs) received back annuities totalling his or her original investment plus 4% interest. This mechanism was copied by later tontines. (2) The Prussian tontine of 1788 capped the increase of annuities and introduced a system which made the increase foreseeable to investors. The increase was implemented in a predefined way. For the first class, for example, the initial interest rate was 5%. After five years it started to increase in 16 steps and reached 20% after 40 years. This design reflected academic discussions of the time. 69 With many later tontines as well the increase was capped. (3) The possibility of making partial contributions was introduced in the course of the 18 th century and was adopted by the pension funds of the 19th century. Accordingly, investors did not have to make the full investment in a lump sum, instead being allowed to pay their contributions in instalments. This opened tontines to more classes of society.

___________ 68 Johann August von Starck, Ueber den Zweck des Freymaurerordens (2 nd edn., 1781), 147; Gustav Frank, Geschichte der Protestantischen Theologie, vol. 3 (1875), 31. 69 Johann Augustin Kritter, Abhandlung von Tontinen, in welchen einem jeden Interessenten die von Jahren zu Jahren wachsende Rente vorherbestimmt, und mit einer gewissen Geldsumme versprochen wird, (1786) Leipziger Magazin für reine und angewandte Mathematik 501–531, 509–511; Nicolaus Fuß, Entwurf einer allgemeinen LeiheBank (St. Petersburg 1776), 48–59.

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III. Foreign tontines in the 17th and 18th centuries In conclusion, tontines were more widely spread in Germany than modern literature acknowledges. Furthermore, there is evidence from the 17th and 18th centuries that German, Austrian, and Swiss residents invested in foreign tontines. For the 17th century, the regulations of the Prussian tontine of 1698 refer to Prussian subjects having invested in foreign financial schemes. For the mid-18th century Johann Heinrich Gottlob von Justi (1717–1771) hinted that tontines were investment schemes attracting money from all over Europe. 70 Joseph von Sonnenfels (1732/34–1817) argued that the investment of domestic capital in foreign life annuity schemes (including tontines) was problematic as this would lead to a capital drain.71 Johann Heinrich Ludwig Bergius (1718–1781) claimed that the high interest rates which the French tontines usually paid attracted many Dutch and English investors and that Germans invested in Dutch, English, and French life annuity schemes and tontines.72 Finally, we find for the entire 18th century coverage, advertisements, announcements, and financial reports of foreign tontines in German periodicals.73 Thus, when assessing the practical importance of tontines, one has to keep in mind that the tontine market seems to have been a genuinely European market in the 17th and 18th centuries. IV. Tontines issued by pension funds in the 19th century As to the 19th century, today’s literature claims that it was the emergence of modern life insurance which caused the number of tontines to decline. 74 However, this seems to be an oversimplification. What we do not find any longer are self-contained tontines issued by the different German territories and cities. Yet pension funds, life insurance companies, and saving banks offered tontines

___________ 70

Johann Heinrich Gottlob von Justi, System des Finanzwesens (Halle 1766), 577. Joseph von Sonnenfels, Grundsätze der Polizey, Handlung, und Finanzwissenschaft, vol. 2 (3rd edn., Wien 1771), 412. 72 Johann Heinrich Ludwig Bergius, Policey- und Cameral-Magazin, vol. 6 (Frankfurt am Main 1771), 150, 175. 73 See, e.g., (1734) Kurz-gefaßte Historische Nachrichten zum Behuf der Neuern Europäischen Begebenheiten 757, 812; Christoph Heinrich Korn et al. (eds.), Neueste Geschichte der Welt, auf das Jahr 1775, vol. 6 (Ulm 1777), 94; (1776) Gnädigst privilegirtes Leipziger Intelligenz-Blatt 312–313; (1776) Gnädigst privilegirtes Leipziger IntelligenzBlatt 300–303; (1778) 1 Göttingische Anzeigen von gelehrten Sachen 93; (1779) Gnädigst privilegirtes Leipziger Intelligenz-Blatt 153; (1792) Politisches Journal nebst Anzeige von gelehrten und andern Sachen 444. 74 Koch (n. 2), 29; von Zedtwitz (n. 2), 142. 71

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throughout the 19th century.75 The Würtembergische Leibrenten-Bank (Württemberg Life Annuity Bank) of 1822, for example, offered, among other schemes, compound tontine products.76 The tontine scheme issued by the Hamburgische Allgemeine Versorgungs-Tontine (Hamburg General Pension Tontine) of 1822 exhibited a lottery element.77 The Austrian Allgemeine Versorgungsanstalt (General Pension Fund) of 182378 and the Preußische Renten-Versicherungs-Anstalt (Prussian Pension Insurance Fund) of 1838 79 engaged in the tontine business, too. The business which these funds attracted was by no means insignificant. When analysing the total numbers it has to be kept in mind that Germany was throughout the 19th century a fragmentary market with local and regional market players. In a publication from the year 1838, Robert von Mohl (1799–1875) claimed that the Stuttgarter Allgemeine Rentenanstalt (Stuttgart General Pension Fund) of 1833 had by 1838 around 25,000 members in its tontine schemes. 80 For the year of 1892 it is alleged that the pension funds in Berlin, Hannover, Darmstadt, Stuttgart, and Karlsruhe had tontines featuring 103,861 payees in total, that nine Austrian-Hungarian life insurance companies had in the same year a total of 15,238 tontine policies, and that two Austrian-Hungarian mutual tontine companies had together 89,249 members. 81 Furthermore, there were the so-called Sparkassen Tontinen (saving bank tontines).82 Their structure was simple: the members of the tontine invested a certain sum and after a fixed number of years – usually 10, 15, or 20 years – the capital

___________ 75 Albert Wild, Die Leibrenten-, Lebensversicherungs- und Renten-Anstalten. Eine theoretische und praktische Anleitung (1862), 134 f.; Julius Lehr and Max von Heckel, Tontinen, in: Johannes Conrad et al. (eds.), Handwörterbuch der Staatswissenschaften, vol. 7 (2nd edn., 1901), 125–129, 129. 76 Landesarchiv Baden-Württemberg (Hauptstaatsarchiv Stuttgart), E 146 No. 8972: Errichtung einer Leibrentenbank (Tontinenanstalt), 1817–1827. See also Landesarchiv Baden-Württemberg (Hauptstaatsarchiv Stuttgart), E 146 No. 8974: Kommissionsakten zur Errichtung einer Leibrentenbank (Tontinenanstalt), 1821–1824. 77 Staatsarchiv Hamburg, No. 613-3/91_I A 3: Pläne der Tontine, ab 1817. 78 Joseph Molnar von Müllersheim, Betrachtungen über die mit der ersten österreichischen Sparkasse vereinigte allgemeine Versorgungsanstalt, aus ihrem würdigsten und folgenreichsten Gesichtspunkte als moralisches Wohltätigkeits-Institut (1827); Ignaz Edlen von Sonnleithner, Statuten und Reglement der mit der ersten Oesterreichischen SparCasse vereinigten Versorgungs-Anstalt, für die Unterthanen des Oesterreichischen Kaiserstaates, mit Erläuterungen (3rd edn., 1831). 79 Statuten der Preußischen Renten-Versicherungs-Anstalt zu Berlin (1838). 80 Robert von Mohl, Erörterungen über die allgemeine Rentenanstalt in Stuttgart (1838), 11. 81 Hermann Brämer and Karl Brämer, Das Versicherungswesen (1894), 178 f. 82 See, e.g., Wild (n. 75), 136–153.

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was divided between the surviving members. If the payee of a Sparkassen Tontine was a young girl, it could function as dowry assurance and, indeed, it simply imitated the design of much older investment products. V. The tontine life insurance products of U.S. life insurers Finally, between 1868 and 1917, U.S. life insurance companies were active on the German market. The Germania Life Assurance Society of New York entered first in 1868, followed by the Equitable Life Assurance Society of New York in 1877, the New York Life Insurance Company in 1882, and the Mutual Life Insurance Company of New York in 1886.83 The products of especially the latter three companies combined tontines with life insurance:84 the insured paid premiums for a life insurance product, the dividends on the premiums accumulated in a tontine scheme, and the capital of the tontine was divided after a fixed period of time – usually 10, 15, or 20 years – between the surviving insured. If an insured terminated the insurance before that date, in particular by default, he or she lost all rights in the tontine. The U.S. life insurance companies were heavily criticized, but it was not so much the product itself which raised concerns. Saving money in a tontine scheme and dividing the proceeds between the surviving members was a mechanism which was already known to dowry assurances and which was also applied by the Sparkassen Tontinen throughout the 19th century. It was rather the marketing strategies and the lack of transparency which were criticized: the American insurance companies promised much higher interest rates for their tontine products than their European competitors, but without legally binding themselves. Ultimately, they were not able to fulfil their promises and paid out much smaller dividends than anticipated. In 1891, Prussia ordered these companies to meet specific accounting standards for their tontine products, requiring them to maintain separate accounts for each class of the tontine. Additionally they had to raise their deposits with the ___________ 83 Alfred Andreas Gutjahr, Das Eindringen amerikanischer Lebens-Versicherungs-Gesellschaften in Deutschland (1920), 19. 84 The following account is based on A. Taussig, Die Versprechungen der ‘New-York’ und der ‘Equitable’ (1885), 1–26; C. Cyon, Tontinen und Lebens-Versicherungen. Ein Beitrag zur Kritik der Tontinen Versicherungen der Amerikanischen Gesellschaften (2 nd edn., 1892), 9; Gustav L. Wiese, Die Tontinen-Versicherung der ‘Equitable’ Lebens-Versicherungs-Gesellschaft in New-York (1892), 10 f.; anonymous, Die Berliner Börsen-Zeitung und die Amerikanischen Lebens-Versicherungs-Gesellschaften (1888), 11; Du Pasquier (n. 6), 511; Gutjahr (n. 83), 20, 30–32, 41–46; Braun (n. 2), 304–307, 315 f.; Gunter Kürble, Der Exodus der amerikanischen Lebensversicherer aus Deutschland – die Tontine und die Vorgeschichte des Jahres 1894, (1990) 79 Zeitschrift für die gesamte Versicherungswissenschaft 581–623, 600.

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Prussian state. The American insurance companies claimed that these were discriminatory acts, and the intervention of the Prussian government caused diplomatic turmoil. Nonetheless, all insurance companies had to meet the accounting standards, and all foreign insurance companies had to have deposits with the Prussian state. In 1894 the Equitable Life Assurance Society of New York pulled out of the Prussian market. The New York Life Insurance Company and the Mutual Life Insurance Company of New York lost their concessions in Prussia in 1895. The New York Life Insurance Company was readmitted in Prussia in 1899 and was also allowed to sell its products even after the introduction of the VAG of 1901. It left the German market only in 1914. One can still find 1930s case law concerning a tontine product of the New York Life Insurance Company. 85 The Germania Life Assurance Society was able to operate in Germany even after 1914 and terminated its activities on the German market only in 1917. VI. From a multi-purpose to a single-purpose financial product In the 17th and 18th century tontines were multi-purpose financial products. For the investor, they functioned as a means to generate a pension either for the investor or for a dependant. For investors tontines could, in addition, function as an investment done with the aim of speculation. Many, but not all 18 th-century tontines exhibited lottery elements. Thus, for investors these tontines also served the purpose of gambling. For issuers, tontines were a means to raise capital. This was the predominant reason why the public hand issued tontines in the 17 th and 18th centuries.86 Often German territories and states wanted to finance wars with the help of tontines. But in the late 18th century an important shift occurred: when pension funds, insurance companies, and saving banks started to issue tontines, tontines were turned into single-purpose financial products: they were only a means to generate a pension or they were only utilized as a savings plan. VII. Conclusion The present volume is part of a project on a comparative history of insurance law in Europe. Accordingly, the focus of the present paper should be on legal questions and on the impact which tontines had on the development of insurance law. Nevertheless, it was necessary to develop first an understanding of the practical importance of tontines. In so doing it has become clear that the assertion ___________ 85 Reichsgericht (Imperial Court), (1930) 129 Entscheidungen des Reichsgerichts in Zivilsachen (RGZ) 134–143. 86 Schöpfer (n. 2), 133; Oberholzer (n. 5), 84; Braun (n. 2), 64.

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that ‘the number of tontines which were effectively issued remained relatively small’ (‘die Zahl der tatsächlich ins Leben gerufenen, derartigen Einrichtungen blieb hingegen verhältnismäßig klein’)87 needs to be qualified. The number of tontines which were issued by German territories in the 17th and 18th centuries indeed seems to have been small, yet there are a number of schemes which are no longer mentioned in modern literature. Furthermore, the tontine market seems to have been a genuinely European market in the 17th and 18th centuries. Finally, the assertion that tontines were in decline since the beginning of the 19 th century would appear to be wrong: throughout the 19 th century pension funds, insurance companies, and saving banks offered tontine products.

C. Tontines and the development of life insurance law The German-language literature of the 17th, 18th, and 19th centuries rarely fully discussed tontines. Justus Claproth (1728–1805) clarified why the discussion on tontines was so brief: the rules governing tontines were fully contained in the plans, statutes, and regulations of the different tontines. 88 Thus, these plans are an important source for the following legal analysis. Nevertheless, there are two different genres of literature in which tontines received at least some coverage. First, there are the representatives of the German and Austrian 18 th-century administrative science, the so-called Kameralismus (cameralism). They primarily discussed tontines from the perspectives of public finances and public welfare. Secondly, there is the private law discourse. In the following sections I will focus on those legal problems which are of relevance for, or exhibit some connexion to, the development of life insurance (law). I. Classifying tontines: life annuity, insurance, or gambling? Modern authors often argue that tontines do not count as insurance. 89 Many claim that tontines are rather some kind of gambling or lottery.90 The characterization of tontines as insurance, as gambling, or as lotteries is of importance for the question whether tontines should be prohibited. According to modern literature their speculative character led to moral reservations against them and to ___________ 87

Manfred Wortner, Wandlungen der Lebensversicherung. Eine rechtliche und demographische Untersuchung (1972), 111 f. 88 Justus Claproth, Rechtswissenschaft von richtiger und vorsichtiger Eingehung der Verträge und Contracte, vol. 2 (4th edn., 1798), 1084. 89 Joachim Grote, in: Theo Langheid and Manfred Wandt (eds.), Münchener Kommentar zum Versicherungsvertragsgesetz, vol. 1 (2010), AufsichtsR para. 95. 90 Peter Präve, in: Joachim Kölschbach et al. (eds.), Prölls. Versicherungsaufsichtsgesetz (12th edn., 2005), § 1 para. 14.

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their decline; the view that tontines do not count as insurance but are a form of gambling is said to have been predominant by the end of the 19th century; consequently, it is assumed that life insurance companies were prohibited from issuing tontines from the late 19th century until the Second European Life Insurance Directive of 1990 was implemented into German law in 1994. The immediate problem with this narrative and with these modern characterizations is that they do not distinguish between the different designs of tontines: with some designs the speculative character is more obvious than with others; and there are means to prevent annuities from becoming excessive, as is the case with compound tontines or when the annuity is capped. A modern author captures this well:91 Wird eine Tontine auf versicherungsmathematischer Basis berechnet, so kann sie eine Form der Rentenversicherung darstellen, bei der das versicherungstechnische Risiko zwischen Veranstalter (Versicherer) und Teilnehmer aufgeteilt wird. Die Teilnehmer wird seinen Teil des ‘Risikos’ als Chance begreifen, im Falle eines überdurchschnittlich langen Lebens eine höhere Rente zu erhalten. If a tontine is based on sound actuarial calculations, then it will be a form of pension insurance. The insurable interest is split between the issuer and the annuitant. The annuitant will understand his part of the ‘risk’ as the chance that he will receive a high rent if he reaches an age which is above the average.

Turning to 18th-century Kameralismus, it was only Johann Heinrich Jung-Stilling (1740–1817) who rejected tontines as a means for the state to raise capital.92 He assumed that a tontine could never be issued by a private entity because it was a form of gambling; the public hand should for the same reason not engage in tontines. Yet one has to be cautious before drawing any conclusions from his rejection of tontines: there were some tontine schemes which were simple lotteries; others included lottery elements. It is unclear which kind of schemes JungStilling had in mind. Furthermore, his reservations were not widely shared. Johann Peter Süßmilch (1707–1767), for example, explicitly rejected the view that tontines were a form of gambling.93 And at a time in which tontines were not issued by private entities, but by the public hand, and due to the fact that the public hand also engaged in lotteries, the question of whether or not tontines should be prohibited because they were a form of gambling simply did not arise. Most authors, as for example Johann George Leib (1670–1727), Bergius, and ___________ 91

Kürble (n. 84), 593. Johann Heinrich Jung, Lehrbuch der Finanz-Wissenschaft (Leipzig 1789), 214. See also idem, Die Grundlehre der Staatswirtschaft, ein Elementarbuch für Regentensöhne und alle, die sich dem Dienst des Staats und der Gelehrsamkeit widmen wollen (Marburg 1792), 858 f. 93 Johann Peter Süßmilch, Die göttliche Ordnung in den Veränderungen des menschlichen Geschlechts, vol. 2 (2nd edn., Berlin 1762), 397. 92

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von Justi, looked upon tontines – together with life annuities and lotteries – as lawful means for the state to raise capital.94 The discussion for and against tontines did not turn around the classification of tontines as a form of gambling, but was rather based on general arguments of public welfare. Paul Jacob Marperger (1656–1730) discussed whether it should not be compulsory for parents to invest into a life annuity for the support of their children, but von Justi disagreed.95 Others looked upon tontines as being problematic:96 people who invested all their assets in a tontine and would thereby be able to claim high annuities would lose any incentive to work and would not contribute any longer to further public welfare by their own labour. These concerns were far from new. Similar reservations were raised against Montes pietatis as a means to provide for daughters. 97 Furthermore, if an unmarried man invested his assets in a tontine he would have problems in founding a family as he would not have any assets left to support his surviving spouse; further, he would not have any assets to pass on to descendants. If a married man acquired shares in a tontine his heirs would neither see the invested capital nor benefit from the annuities. In conclusion, tontines disturbed, according to a widespread view, the social structure of the 18th-century family. Some authors concluded that the public hand should issue tontines only after a careful consideration of their negative effects.98 The 19th-century discourse in political economics followed along the same path.99 The whole discourse, however, had in fact become anachronistic: in the 19th-century the public hand no longer issued tontines.

___________ 94 Johann George Leib, Wie ein Regent Land und Leute verbessern / des Landes Gewerbe und Nahrung erheben / seine Gefälle und Einkommen sonder Ruin derer Unterthanen billigmäßiger Weise vermehren / und sich dadurch in Macht und Ansehen setzen könne, vol. 4 (Leipzig 1708), 33–36; Bergius (n. 72), 149; von Justi (n. 70), 574. 95 Paul Jacob Marperger, Montes Pietatis (2nd edn. with notes by Johann Heinrich Gottlob von Justi, Leipzig 1760), 296 note o. 96 Kritter, Abhandlung (n. 69), 503; Emil Ferdinand Vogel, Geschichte der denkwürdigsten Erfindungen von der ältesten bis auf die neueste Zeit, vol. 3 (1843), 120; von Sonnenfels (n. 71), 412, 419. 97 See, e.g., the discussion by the early 16th-century author Johannes Murmellius, Mammona oder Schlüssel deß Reichthumbs (Strasbourg 1623), 63. 98 Krünitz (n. 47), 8 f. 99 Leopold Krug, Abriß der Staatsökonomie oder Staatswirtschaftslehre (1808), 218; Ludwig Heinrich von Jakob, Grundsätze der National-Ökonomie oder Theorie des National-Reihthums (3rd edn., 1825), 618 f.; Friedrich Julius Heinrich von Soden, Lehrbuch der Nazional-Oekonomie (1810), 391 f.; Johann Friedrich Eusebius Lotz, Handbuch der Staatswirthschaftslehre, vol. 3 (1822), 425; Robert von Mohl, Die Polizei-Wissenschaft nach den Grundsätzen des Rechtsstaates, vol. 2 (2nd edn., 1844), 100. Compare also Robert Walter Große, Wirtschaft und Versicherung (1928), 103–105, 123–126.

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The private law discourse of the 18th and 19th centuries briefly mentioned tontines and discussed them in the context – and as a special form – of life annuities:100 tontines, life annuities, insurance contracts, widow and orphan assurances, and gambling contracts formed the class of aleatory contracts (gewagte Verträge). Aleatory contracts were not per se forbidden, and tontines were looked upon as being permissible. And many authors discussed tontines in connexion or as related to life insurance.101 For the 20th century, the position of Swiss law seems to be settled: tontines were classified as a form of gambling, not of insurance, and they were prohibited.102 Modern German literature on insurance law suggests that in Germany, too, tontine transactions were simply forbidden from the late 19 th century until 1994 when the Second European Life Insurance Directive of 1990 was implemented into German law. And Rudolf Müller-Erzbach (1874–1959) indeed claimed in the early 20th century that tontines were prohibited. 103 Yet the drafters of the Bürgerliches Gesetzbuch (German Civil Code) did not call into question the ___________ 100 See, e.g., Samuel Friedrich Willenberg, Dissertatio juridica de vitalitio (Gdańsk 1701), 7, 18 f.; Georg Heinrich Ayrer, Dissertatio iuridica inauguralis de rescission contractus vitalitii (Göttingen 1750), 25; Michael Christoph Hanov, Quaestus Tontini Moralitatem Praeside, in: idem, Opuscula, vol. 1 (Halle 1761), 244–276, 246; Philipp Heinrich Seyberth, De reditu annuo praesertim vitali tontina et fiscis viduarum (Frankfurt and Leipzig, 1768); Wilhelm August Friederich Danz, Handbuch des heutigen deutschen Privatrechts, vol. 2 (Stuttgart 1797), 305–332, 328; Karl Gottlob Rößig, Erste Grundsätze des deutschen Privatrechts (Leipzig 1797), 319–321; Carl Joseph Anton Mittermaier, Grundsätze des gemeinen deutschen Privatrechts, vol. 2 (6th edn., 1843), 83; Johann Caspar Bluntschli, Deutsches Privatrech, vol. 2 (1854), 83; Carl Christian Eduard Hiersemenzel, Vergleichende Uebersicht des heutigen Römischen und Preußischen gemeinen Privatrechts, vol. 2 (1855), 356; Romeo Maurenbrecher, Lehrbuch des gesammten heutigen gemeinen deutschen Privatrechtes, vol. 2 (2nd edn., 1855), 82 f.; Christian Friedrich Koch, Recht der Forderungen nach Gemeinem und nach Preußischem Rechte, vol. 3 (2nd edn., 1859), 855; Carl Friedrich Ferdinand Sintenis, Anleitung zum Studium des Bürgerlichen Gesetzbuches für das Königreich Sachsen (1864), 325; Franz Förster, Theorie und Praxis des heutigen gemeinen preußischen Privatrechts auf der Grundlage des gemeinen deutschen Rechts, vol. 2 (3rd edn., 1873), 131 f.; Georg Beseler, System des gemeinen deutschen Privatrechts, vol. 1 (4th edn., 1885), 533; Otto Stobbe, Handbuch des deutschen Privatrechts, vol. 3 (2nd edn., 1885), 348, 351; Johannes Haberstich, Handbuch des Schweizerischen Obligationenrechts, vol. 2 (1885), 327; Moritz von Stubenrauch, Commentar zum österreichischen allgemeinen bürgerlichen Gesetzbuch, vol. 2 (6th edn., 1894), 521; Carl Friedrich Wilhelm von Gerber and Konrad Cosack, System des Deutschen Privatrechts (17th edn., 1895), 373; Friedrich Endemann, Lehrbuch des Bürgerlichen Rechts, vol. 1 (6th edn., 1899), 858; Paul Oertmann, Das Recht der Schuldverhältnisse (1899), Vor § 759 para. 5, § 759 para. 2. 101 Beseler (n. 100), 531; Gerber and Cosack (n. 100), 373; Wilhelm Karup, Theoretisches Handbuch der Lebensversicherung (new edn., 1874), 10. 102 Hans Roelli and Carl Jaeger, Kommentar zum Schweizerischen Bundesgesetz über den Versicherungsvertrag, vol. 3 (1933), Art. 73 para. 30. 103 Rudolf Müller-Erzbach, Deutsches Handelsrecht (2nd and 3rd edn., 1928), 710.

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permissibility of tontines. They rather saw them as a possible variation of life annuity contracts.104 Consequently, the private law discourse of the 20th century continued to discuss tontines as a permitted form of a life annuity contract. 105 Nevertheless, most private law authors of the 20th century tended to ignore tontines. This is fully explainable on the basis of their practical unimportance. How is it explainable that we today believe that tontines were prohibited throughout the 20th century whereas the private law discourse of that century presented them as a permissible form of a life annuity contract? One possible answer would be that tontines were generally permitted and that it was insurance companies which were prohibited from issuing tontines under the provisions of the VAG of 1901. However, the VAG of 1901 did not explicitly mention tontines. Furthermore, the private law discourse was fully aware of the connexion to insurance: it was acknowledged that life insurers may sell life annuity contracts and tontines, and it was stressed that in this case the contract would be covered by both the VAG of 1901 and the Gesetz über den Versicherungsvertrag (Insurance Contract Act) of 1908.106 In conclusion, it seems that tontines were never forbidden in Germany. They simply became unfashionable. Modern literature’s classification of tontines as a form of gambling or lottery and modern literature’s moral reservations against tontines may simply be attributable to the very loose use of the word tontine (it frequently having referred to simple lotteries), to the fact that tontines, too, often exhibited lottery elements, and to the frequent focus of literature on those early ___________ 104 Motive zu dem Entwurfe eines Bürgerlichen Gesetzbuches für das Deutsche Reich, vol. 2 (1896), 639. 105 See, e.g., Carl Crome, System des Deutschen Bürgerlichen Rechts, vol. 2/2 (1902), 609; Eduard Goldmann and Leo Lilienthal, Das Bürgerliche Gesetzbuch systematisch dargestellt, vol. 1 (2nd edn., 1903), 803; Karl Sepp, Der Leibrentenvertrag nach dem Bürgerlichen Gesetzbuch. Eine civilistische Studie (1905), 22 f.; Heinrich Dernburg, Die Schuldverhältnisse nach dem Recht des Deutschen Reiches und Preußens, vol. 2 (4th edn., 1915), 144; Scherling, in: Theodor Soergel (ed.), Bürgerliches Gesetzbuch nebst Einführungsgesetz, vol. 1 (3rd edn., 1926), § 759 para. 2; Oegg, in: Emil Strohal (ed.), Planck’s Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz, vol. 2/2 (4th edn., 1928), § 759 para. 2.b)α); Rudolf Bovensiepen, Leibrente, in: Fritz Stier-Somlo and Alexander Elster (eds.), Handwörterbuch der Rechtswissenschaft, vol. 3 (1928), 944–947, 944; Otto Warneyer, Kommentar zum Bürgerlichen Gesetzbuch für das Deutsche Reich, vol. 1 (2nd edn., 1930), § 759 para. II; Heinz Bätge, Leibrente, in: Franz Schlegelberger (ed.), Rechtsvergleichendes Handwörterbuch, vol. 5 (1936), 276–281, 278; Oegg, in: Das Bürgerliche Gesetzbuch mit besonderer Berücksichtigung der Rechtsprechung des Rechtsgerichts (Kommentar von Reichsgerichtsräten), vol. 2/2 (9th edn., 1939), 759 para. 3. For the position in Austria see Josef Krainz, System des österreichischen allgemeinen Privatrechts, vol. 2 (4th edn., 1907), 291. 106 Otto Warneyer, Kommentar zum Bürgerlichen Gesetzbuch für das Deutsche Reich, vol. 1 (2nd edn., 1930), § 759 para. I; Franz Brändl, in: J. v. Staudingers Kommentar zum Bürgerlichen Gesetzbuch und dem Einführungsgesetze, vol. 2/3 (10th edn., 1939), Vor § 759 Rn. 25.

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examples of tontines which allowed the last annuitant to receive exorbitantly high annuities which were disproportionate to his or her initial investment. II. Financial soundness, solvency, securities, and transparency In the 17th and 18th centuries tontines were primarily issued by the public hand to raise capital on the European financial market. Contributors had to make their investment when the tontine was issued. In return the payee received the right to annuities until the death of the nominee on which the payee’s right was based. If the nominee was very young when the tontine was issued, the tontine could easily run 90 years or more. It is obvious that a contributor was only inclined to invest in a tontine if he was convinced that the issuer was willing and in the financial position to pay the annuities until the death of the last surviving nominee. And the contributor wanted to be certain that the tontine was run properly. Consequently, the tontines of the 17th and the 18th centuries had to meet these concerns if they wanted to be a success and raise the projected capital. A modern lawyer will look upon these issues as problems of financial regulation and financial supervision. Modern research on the history of insurance regulation usually starts with the Prussian Wiederholtes Verboth aller und jeder Collecten, wozu keine Königl. Approbation ertheilet ist (Repeated Prohibition of all Collections without Royal Approval) of 1781107 and analyses developments up to the VAG of 1901.108 For a historical analysis of the development of insurance regulation and insurance supervision, 17 th- and 18th-century tontines seem to be of no relevance: they were, after all, issued by the public hand. Questions of regulation and supervision only seem to arise when tontines are operated by private entities. Nevertheless, the Gdańsk tontine plan of 1657 clearly addressed the concerns of potential investors. Article 11 provided that the tontine had to make each year an estimate of the annuities which were to be paid out the following year. 109 Article 12 aimed at transparency: each year the tontine had to publish a list of the names of all payees/nominees so that each member was in the position to understand the calculation of his or her annuity. Finally, Art. 14 stated that each payee was to receive an obligation/bond stamped with the official town seal so that every payee could be assured that he or she would receive the annuities each year ___________ 107 Novum Corpus Constitutionum Prussico-Brandenburgensium Praecipue Marchicarum, vol. 7 (1786), 181–186. 108 See especially Michael Tigges, Geschichte und Entwicklung der Versicherungsaufsicht (1985); Hans Christoph Atzpodien, Die Entwicklung der preußischen Staatsaufsicht über das private Versicherungswesen im 19. Jahrhundert (1982). 109 The regulations are reproduced in: Foltz (n. 19), 459–461.

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until the nominee’s death. The same provisions were adopted for the Gdańsk tontines of 1775 and 1792; however, with them a secure fund was formed to guarantee the payments. Security and transparency, those are the two concerns which reappear again and again in the public tontine plans and regulations of the 17th and 18th centuries. Furthermore, elements of self-administration were incorporated in many of the tontine schemes. The contemporary literature voiced support for these provisions. Bergius and von Justi argued that with life annuities and tontines it was of utmost importance that the public hand was creditworthy because people of only moderate wealth would use them, too, in order to safeguard their own financial support or the financial support of their dependants.110 Bergius furthermore stressed that the prospectus advertising the tontine had to be clear and transparent.111 And finally, German authors of the 18th century were clear that a tontine should be run by the public hand for the very reason that the public hand was able to guarantee the payment of the annuities.112 In the late 18th and early 19th centuries we then observe a shift: private pension funds were founded. With a public pension fund there was the risk of an intervention by the sovereign prince of the state. To have private pension funds under the supervision and regulation of the state guaranteed greater stability and trust in these funds.113 In the modern historiography, the aforementioned Prussian act of 1781 which introduced for the first time the requirement of a concession or permission for initiating some insurance schemes is presented as a very modest starting point in the development of insurance regulation and insurance supervision. However, if we put this act into the context of the discussions surrounding tontines, it seems clear that the public hand had developed very precise ideas of how to run tontines and that it had prohibited tontines from being initiated by private entities in order to see that these ideas were implemented; furthermore, it seems likely that the public hand permitted private entities to run tontines only if they implemented these ideas as well. But how effective was the state supervision? The Prussian lawyer Christian Friedrich Koch (1798–1872) claimed in 1859 that the call for an effective state supervision of tontines had not been achieved.114 By contrast, the influential Hamburg commercial lawyer Meno Pöhls (1798–1849) made clear that the regulatory authorities had to screen a projected ___________ 110

Bergius (n. 72), 150; von Justi (n. 70), 578. Bergius (n. 72), 150 f. 112 Johann Andreas Christian Michelsen, Anleitung zur juristischen, politischen und öconomischen Rechenkunst, vol. 2 (Halle 1784), 180. 113 Marcus Ventzke, Das Herzogtum Sachsen-Weimar-Eisenach 1775–1783. Ein Modellfall aufgeklärter Herrschaft? (2004), 356. 114 Koch (n. 100), 856. 111

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tontine more thoroughly than any other corporation before granting a concession.115 Furthermore, the plans and statutes for tontines of the late 18 th and early 19th centuries indicate that the state supervision of tontines was taken seriously and that the private pension funds, life insurance companies, and saving banks who issued tontines met standards of financial soundness, solvency, securities, and transparency.116 The tontine business of the U.S. life insurance companies in the late 19th century then received harsh criticism. It was argued that the tontines were financially unsound in the sense that they had promised much higher dividends than could realistically be paid out. It was alleged that they did not provide the appropriate transparency and did not open their books to the public. It was assumed that they did not maintain separate accounts for their tontines and for the different tontine classes. It was criticized that, in comparison to German tontines, they invested their capital in less secure investments with the hope of higher dividends, but with the risk of loss. And it was argued that they paid unduly high commissions to their agents, thus increasing the (non-transparent) administrative costs.117 The discussions in contemporary publications were heated, and it was again forcefully argued that tontines are nothing but gambling.118 The U.S. life insurance companies countered that the criticism was unfounded and discriminatory. However, if one considers the discourse spanning over 200 years on how to run a tontine soundly, it seems that the criticism was well justified. In reaction, Prussia ordered these companies to meet specific accounting standards for their tontine products and to raise their deposits with the Prussian state. Tontines were not forbidden. It was just ensured that those standards to which the German market was accustomed were observed by foreign insurers. III. Preventing fraud on the side of the investor Under modern life insurance law, the insured has to disclose his or her true age before the contract is formed. In a different contribution I have analysed the development of the duty of disclosure in the regulations of German widow and orphan assurances, death funds, and life insurance companies in the 18th and early

___________ 115

Meno Pöhls, Das Recht der Actiengesellschaften (1842),70. See also the discussion by Joseph Johann von Littrow, Ueber Lebensversicherungen und andere Versorgungsanstalten (1832), 22. 117 Kürble (n. 84), 605, 609–611; Taussig (n. 84), 3–26; Gustav L. Wiese, Treu und Glauben der Equitable Lebensversicherungs-Gesellschaft New-York im Lichte der Wahrheit (1892), 3–32; idem (n. 84), 1–40 (the author was a former employee of that company). 118 Wiese (n. 84), 1. 116

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19th centuries.119 In that contribution it became obvious that the insured was early on burdened with a duty of disclosure. Article 1 of the regulations of the Berlin Sterbe-Kasse (Death Fund) of 1710 required the insured to be of a certain age in order to be admitted to the fund.120 Article 5 provided for a relatively mild legal consequence if it later turned out that the insured was older: the insured was burdened with a penalty of 10 talers, but the insured did not lose coverage under the insurance. By the middle of the 18th century a different legal consequence developed, as becomes obvious from the regulations of the Württemberg Allgemeine Freywillige Wittwen- und Waysen-Cassa (General Voluntary Widow and Orphan Assurance) of 1756.121 Pursuant to Art. 10 of its regulations, the insured had to prove his or her age by presenting his or her certificate of baptism; if it later turned out that the certificate was incorrect, the insured forfeited insurance coverage and all premiums. These consequences – loss of coverage and loss of all premiums – appeared in most regulations governing widow and orphan assurances since the middle of the 18th century. In tontines, too, it was material for the issuer to know the age of the nominee. However, whereas in the case of life insurance the insured has the incentive to feign a younger age, in tontines the contributor has the incentive to pretend that the nominee is older than his or her actual age. The nominee will then be assigned to a class of older nominees; consequently, the payee will receive a higher interest rate to start with, and the chances are higher that the nominee will be the last survivor of his or her class. 122 Furthermore, an issuer who utilizes a tontine in order to raise capital will only be able to close the class of that age group later than anticipated. The problem is only rarely discussed in scholarly literature. 123 The reason for this silence has already been pointed out above: Claproth clarified that academic discussions on the legal regime concerning tontines, as well as on life annuity societies and widow assurances, could be brief because these regimes were fully detailed in the regulations and statutes of the different tontine ventures. Nevertheless, Claproth is one of few authors who discussed the problem: 124 Wäre nun in der Angabe der Jahre ein Betrug oder ein beträchtlicher Irrthum vorgegangen, so kann es bey dem Contract nicht bleiben, woferne nicht dieser Unterschied

___________ 119 Phillip Hellwege, Die historische Rechtsvergleichung und das europäische Versicherungsrecht, (2014) 131 Zeitschrift der Savigny-Stiftung für Rechtsgeschichte (Germanistische Abteilung) 226–265, 247–250. 120 The regulations are reproduced in: Schöpfer (n. 2), 214. 121 Herzoglich-Würtembergische Ordnung für die allgemeine freywillige Wittwenund Waysen-Cassa von 1756 (Stuttgart 1756). 122 Krünitz (n. 47), 10. 123 It is, for example, discussed by Ayrer (n. 100), 36–39. 124 Claproth (n. 88), 1085.

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auf andere Weise wieder gut gemacht wird. Bey Wittwencassen und Tontinen müssen die Vorschriften, welche die Aufnahme der Candidaten betreffen, auf das pünctlichste beobachtet werden. If in the declaration of age there is any fraud or any substantive error, then the contract cannot stand if the difference cannot be made up in any other way. With widow assurances and tontines, the regulations which concern the admission of members have to be observed in the most accurate way.

Thus, it does not come as a surprise that the tontine regulations of the 17 th, 18 , and 19th centuries required contributors to disclose the nominees’ true age. Article 3 of the regulations of the Gdańsk tontine of 1657 stated, for example, that all investors had to disclose the nominee’s age faithfully. The article further prescribed the legal consequences if somebody was in breach of this obligation: the money was lost. Finally, Art. 3 explained the rationale behind this rule: only nominees of a similar age should be grouped together in the same class. It is, however, surprising that the harsh legal consequences – loss of both the investment and the right to all annuities – was made explicit in the context of tontines already in the middle of the 17th century, whereas in the context of widow and orphan assurances the equivalent legal consequences appeared only 100 years later. th

IV. Preventing fraud on the side of the payees In a tontine, the payee’s right to the annuity is dependent on the nominee’s life. Consequently, the payee has an incentive to pretend that a deceased nominee is still alive. Such a fraud is not at the expense of the issuer of the tontine unless it relates to the last surviving nominee or unless it is a compound tontine. In most cases the fraud will be at the expense of other payees as it interferes with the increase in the annuities. Early on, tontine regulations addressed this problem. Article 10 of the regulations of the Gdańsk tontine of 1657, for example, provided that each payee was obliged, when collecting the annuity, to present an attestatum vitae – a certificate that the nominee was still alive – if the nominee was a foreigner or for any other reason was unknown to the issuer. If the payee did not present such a certificate, he was barred from collecting the annuity in that year. Such a provision was widespread in the tontine regulations of 17th to the 19th centuries, and the legal literature was in agreement with this requirement. 125 It was clear that anybody who collected annuities fraudulently was liable in damages, as the regulations of the Hamburg tontine of 1776 made explicit. Article 10 of the Stade tontine of 1777 introduced a penalty clause: if a payee had collected the annuities on the basis of ___________ 125

See, e.g., Marperger (n. 45), 283; Koch (n. 100), 850.

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a false certificate the nominee having already passed away, the payee was liable to repay twice the amount of the collected annuities. An attestatum vitae was usually costly. The plan for the Cleves tontine of 1763 stated in Art. 8 that all civil servants, judges, and magistrates of the Duchy had to issue an attestation free of charge. The plan for the Wied tontine of 1749 introduced a different solution to the problem of costs: under the Wied tontine plan the payment of annuities was postponed. The Nuremberg tontine of 1777 wanted to be more attractive to investors and, therefore, tried to introduce procedures which were easy to comply with. Pursuant to Art. 28 it was sufficient that the nominee him- or herself signed a certificate that he or she was still alive. However, the regulations made clear the consequences of fraud: the payee lost all rights in the tontines, was liable to repay any annuities which were collected wrongfully, and was exposed to criminal proceedings. Finally, under Art. 10 of the plan of the Bremen tontine of 1767 and under Art. 8 of the plan of the Bremen tontine of 1805, a certificate was necessary only if the nominee was not living in the city of Bremen. A similar provision can be found in Art. 6 of the Stade tontine plan, according to which a certificate was required only for unknown nominees and those nominees who lived in foreign territories. In the 19th century, the statutes of the Württemberg Life Annuity Bank of 1822 addressed the problem: in principle a certificate issued by the local authority had to be presented. If the annuity was below 100 gulden, then it was possible for three consecutive years to present a certificate of a simple witness. The witness had to be respectable and known to the bank. Furthermore, the witness had to vouch for the correctness of the certificate in the sense that he promised to repay the annuity which was wrongly claimed on the basis of an incorrect certificate. Every fourth year, a certificate issued by a local authority was, however, indispensable.

D. Conclusion The history of tontines and their impact on the history of life insurance in German-speaking territories needs to be retold.126 First, there is the practical importance of tontines: the number of tontines which were issued by the German territories in the 17th and 18th centuries seems to have been small, yet there are a number of schemes which are no longer mentioned in modern literature. Furthermore, the tontine market seems to have been an international market in the 17th and 18th centuries. Finally, the assertion that tontines were in decline since the beginning of the 19th century would appear to be wrong: throughout the 19 th century pension funds, insurance companies, and saving banks offered tontine ___________ 126

For a full account see Hellwege (n. 1).

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products. In conclusion, tontines were in the 17th, 18th, and 19th centuries of greater practical importance than is generally acknowledged. However, a number of changes occurred in the late 18th and then 19th centuries. In the 17th and 18th centuries, tontines were a multi-purpose financial product issued by the public hand. In the late 18th and in the 19th centuries, tontines were transformed into single-purpose pension or saving products issued by pension funds, life insurance companies, and saving banks. Accordingly, the design of tontines changed too. Secondly, there is their importance for the development of life insurance and life insurance law: (1) It seems that tontines were never banned in Germany. The regulatory authorities became suspicious of tontine life insurance products offered by U.S. life insurance companies. And as reaction to these tontine life insurance products, tontines went out of fashion. It seems that the market had simply lost its trust in tontines. (2) Today many authors believe that tontines are not a type of insurance but a form of gambling. And indeed, tontines and lotteries had many points of overlap. In the 18th century some lotteries were simply called tontines. Some tontines exhibited elements of lotteries. And there is the fact that early tontines allowed the last annuitant to receive exorbitantly high annuities which were disproportionate to his or her initial investment. These issues still have an impact on how we characterize tontines today. Yet at the end of the 18th century many of these issues were solved, and many of the tontine products offered by pension schemes throughout the 19th century seem to have been proper pension insurance products without any connexion to lotteries. (3) In Germany, the narrative on the history of insurance regulation and insurance supervision usually commences with the Prussian Wiederholtes Verboth aller und jeder Collecten, wozu keine Königl. Approbation ertheilet ist of 1781. However, it has become clear, that the main problems of insurance regulation and insurance supervision – that is, to guarantee the financial soundness of the insurer and to guarantee a transparent insurance product – had already been worked out in the context of tontines in the 17th and 18th centuries. Nevertheless, Oberholzer’s claim that ‘[d]ue to the fact that tontines … were such a great success, early on national legislators felt impelled to intervene with respect to their greatest defects’ (‘Dadurch, dass den Tontinen … ein so grosser Erfolg beschieden war, sahen sich die Staaten schon früh gezwungen, gesetzgebungsmässig gegen die gröbsten Auswüchse vorzugehen’)127 seems to miss the mark. Initially there was no need for state intervention as it was the public hand which issued tontines. In order to raise the projected capital the public hand had to safeguard that tontines were financially sound and transparent. It was in the late 18 th and ___________ 127

See n. 5, above.

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then in the 19th century that these ideas on how to run a tontine were transformed into what we today call rules on the regulation and supervision of tontines issued by private pension funds, life insurance companies, and saving banks. (4) Finally, already in the 17th century the tontine schemes had addressed the problems of how to prove a nominee’s age and how to prove that a nominee was still alive when collecting annuities. In the context of life insurance these rules seem to have been developed later, and it seems plausible that life insurers took the tontine regulations as a model.

Chapter 10: Tontines in Portugal – Nicholas Bourey’s Paleo-Tontine of 1641 By Kent McKeever* A. Introduction ............................................................................................................ 193 B. Nicolas Bourey’s proposal of 1641 ........................................................................ 193 C. Translation issues ................................................................................................... 199 D. Distinguishing features ........................................................................................... 199 E. Differences between Bourey and Tonti .................................................................. 200 F. Comparative value .................................................................................................. 200 G. Historical background ............................................................................................ 200 H. Further research ...................................................................................................... 201

A. Introduction The idea, and name, of the tontine is usually connected to a proposal made by Lorenzo Tonti (1602–1684) to the French court, via Cardinal Mazarin (1602– 1661), in 1653. In all the standard financial histories, this is the first appearance of the idea. I certainly took it as gospel in my article, A Short History of Tontines, in 2009.1 However, I recently learned it has apparently long been known among historians in Portugal that a revenue scheme organized along the lines of a tontine was proposed by a Nicolas Bourey to the Senado de Lisboa in 1641.

B. Nicolas Bourey’s proposal of 1641 The text of this proposal is in the set of manuscripts known as the Colleccao Pombalina in the Biblioteca Nacional de Lisboa2 and is reprinted in António Henrique de Oliveira Marques, Para a historia dos seguros em Portugal as well ___________ * Note of the editor: In a first version of his contribution, Rafael Illescas had covered the proposal of 1641 in an annex to his chapter on the developments in Spain. At the same time, Kent McKeever had submitted a small, yet more elaborate contribution describing and analysing the same proposal. In order to avoid repetition, Illescas was so kind to agree that only McKeever’s text should be included as a separate chapter and that his own coverage of the proposal would not be printed in the present volume: see Hellwege, 15, above. 1 Kent McKeever, A Short History of Tontines, (2009) 15 Fordham Journal of Corporate and Financial Law 491–521. 2 No. 650, fol. 133 f.

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as in Albino Lapa, Seguros em Portugal.3 The whole document is relatively short, with only an introduction, twelve numbered paragraphs, and two more paragraphs appended for further explanation: 4 Todos os nascidos naturalmente nos inclinamos a arriscar nossa pouca ou muita fazenda, com as esperanças de acrescentar ou melhorar essa mesma fazenda, mormente quando essas esperanças por tão grandes ganhos estão tão bem fundadas como as que aqui proponho.

We are all naturally inclined to risk our personal wealth, be it small or large, hoping to add to or increase this same wealth, especially when such hopes for large gains are as well founded as those I propose here.

Suposto isso,

Based on this premise,

1. Digo que consiste este meio para alcançar o milhão que apunte na minha petição fazendo este Senado uma companhia de 10 000 pessoas e entrará nela cada um com 100 cruzados, que fazem o milhão, e os réditos dele a 5% monta 50 000 cruzados, os quais se distribuirão por todas as cabeças, começando o primeiro ano a 5% e todos os anos mais, conforme tiver vida, porque assim como forem morrendo não ganharão mais interesses e perderão os 100 cruzados com que entraram, de modo que os que vivem gozarão todos os anos de mores réditos, porque a hipoteca dos 50 000 cruzados do milhão sempre se repartirá entre as pessoas ou cabeçãs que terão vida até os 50 anos e então os que viverem repartirão os 50 000 cruzados da hipoteca entre si e então estará também este Senado desobrigado do milhão e hipoteca.

1. I say that the means through which to obtain one million cruzados, which my petition proposes, consists of having this Senate establish a fund [‘companhia’ = company] with 10,000 members who will contribute each 100 cruzados, which makes one million, and having the interest set at 5%, which amounts to 50,000 cruzados and will be distributed equally, beginning the first year and continuing for each following year of each person’s life, because as soon as they die they will not gain any more dividends and will lose the 100 cruzados they originally invested, so that the surviving investors each year enjoy increasingly higher earnings because the dividends of 50,000 cruzados will always be divided among the surviving investors until 50 years of age and therefore those who live will divide the 50,000 cruzados among themselves and this Senate will be released from the original one million investment as well as the payment of dividends [‘hipoteca’ = mortgage].

2. Entendo, que não faltarão cabeças para entrar porque uma pessoa com 100 cruzados poderá vir a ganhar muitos mil cruzados, tendo vida, e os réditos deles acrescentados de ano a ano, que

2. I understand that there will be no lack of those ready to invest because a person with 100 cruzados will be able to make many thousand cruzados, during his life, and the dividends accumulated

___________ 3 António Henrique de Oliveira Marques, Para a historia dos seguros em Portugal, notas e documentos (1977), 102–106; Albino Lapa, Seguros em Portugal, estudo histórico (1939), 103–106. 4 I am deeply indebted to Meika A. Mustrangi for the translation.

Chapter 10: Tontines in Portugal – Nicholas Bourey’s Paleo-Tontine of 1641 195 importam muitos milhares de cruzados, porque todos os anos, como arriba apontei, se repartirão entre os que vivem os 50 000 cruzados da hipoteca, e a pessoa que morrer perde o cabedal com que entrou, e ganhará somente os réditos dele até o dia do seu falecimento.

from year to year, that produce many thousands of cruzados, because every year, as I pointed out above, shall be divided among those who live the 50,000 cruzados of dividends, and the person who dies loses his original investment, and will only receive dividends until the day of his death.

3. Parece-me que não deixarão de entrar muitas pessoas, porquanto o cabedal de 100 cruzados é tão pequeno a respeito da muita ganança que pode vir a alcançar com ele, e se parecer muito 100 cruzados por cabeça, faça-se de 50 ou 25 cruzados, haverá lugar de entrar ricos e pobres, os ricos com muitas sortes na sua cabeça, os pobres com o que puderem.

3. It is apparent to me that many people will not shy away from entering, because the amount of 100 cruzados is so small compared to how much they can possibly make from it, and if it looks too high 100 cruzados per share [‘cabeça’ = head], make it 50 or 25 cruzados, there will be a place for rich and poor to invest, the rich with lots of capital, the poor with what they can.

4. A pessoa que entrar com 100 cruzados, tendo 20 anos de vida, terá levado nos ditos 20 anos os 100 cruzados com que entrou, ainda que não morresse de toda a Companhia nenhuma pessoa, o que não pode ser deixar em 20 anos de morrer muitas pessoas, e assim como vão morrendo irão os réditos dos que vivem crescendo em tanta maneira que aquele que viver 20 anos terá levado trés ou quatro vezes do com que entrou, de mais os que vivem vão gozando todos os anos mores réditos e um grande alvoroço quem viverá os mais anos desta Companhia, até 50 anos, os quais repartirão a hipoteca dos 50 000 cruzados entre si e cessará a hipoteca, e este Senado terá ganhado o milhão.

4. The person who enters with 100 cruzados, having another 20 years of life, will have received in the said 20 years the 100 cruzados with which he entered, even if no one from the original group dies, which cannot be possible in 20 years since many people regularly die, and as some die those who live will see their dividends grow in such a way that the one who lives 20 years will receive three or four times what he invested, the longer they live the more they enjoy every year larger dividends and it will be a great celebration for those who will live the longest out of this group, up to 50 years, since they will see the dividends of 50,000 cruzados distributed among themselves and the fund will cease to make distributions, and this Senate will have made one million.

5. Poderá entrar uma pessoa por quantas cabeças quiser, verbi gratia, eu quero entrar por 20 cabeças situadas sobre minha vida, a 100 cruzados cada cabeça são 2 000 cruzados, irei gozando dos 2 000 cruzados logo, a 5% o ano, e todos os anos mais conforme Deus me der vida; morrendo, perdi os 2 000 cruzados e ganhei somente os réditos deles até o dia de meu falecimento.

5. A person can join with as many shares as he wants, verbi gratia, I want to enter with 20 shares under my name, at 100 cruzados each share makes 2,000 cruzados, I will enjoy the dividends on the 2,000 cruzados immediately, at 5% a year, and all the years thereafter the more years God bestows upon me to live; dying, I lost the 2,000 cruzados, and will only have earned the associated dividends until the day of my demise.

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Kent McKeever 6. Um pai de família que tiver filhos não deixará de entrar por cada um deles com 100 cruzados, a ver se algum deles ficará com vida de 50 ou 60 anos, pero no interim que viver ganhará tantos milhares de cruzados como arriba apontei.

6. A family man who has children will not fail to enter 100 cruzados on behalf of each of them, hoping that they will live for 50 or 60 years, but even if they live less than that, they will earn so many thousands of cruzados as I pointed out above.

7. Todos os nascidos nos prometemos larga vida e enganamo-nos, porque morremos mais depressa que imaginamos e querendo abreviar estas sortes apontarei outro modo mais breve e seja fazer uma companhia de pessoas de 40 anos de idade: por esta via ficará este Senado mais depressa desobrigado e menos dos 50 anos do milhão e sua hipoteca.

7. We all hope for a long life for ourselves and we deceive ourselves, because we die sooner than we would like and trying to reduce such risk, I will suggest a speedier way, and it is to establish a fund for people who are 40 years old: this way this Senate will be more quickly free and in less than 50 years of the one million and the payment of dividends.

8. Comparo essas sortes de 100 cruzados por cabeça quase como as sortes das freguesias que houve nesta cidade os anos atrás, donde muitas pessoas botaram uns 5, 10, 20 e 25 cruzados e todos em branco; os brancos destas sortes não se podem chamar brancos, porquanto em estas sortes não as há e sempre vai a ganhar 5% o ano, e, tendo vida, muito bons prémios, e o autor das sortes, que será este Senado, o milhão que receberá do povo, de mais um exemplo vivo, eficaz e verdadeiro para que este Senado em tempos vindounos venha a receber muitos milhões, porque será uma roda viva para todos os 2 ou 3 anos fazer uma Companhia nova das crianças que foram nascendo com que este Senado receberá dinheiro novo e o ganhará ao cabo dos 50 anos.

8. I compare the risks associated with these shares of 100 cruzados almost like the lottery groups that took place in this city years ago, where many people put down 5, 10, 20 and 25 cruzados and all based on pure luck; the risks of these shares cannot be called luck, for in these shares there is no luck involved, and people will always earn 5% a year, and as long as they live they will have many good earnings, and the issuer of the shares, who will be this Senate, the one million it will receive from the people, as another alive, effective, and true example so that this Senate in times to come will receive many millions, because it will be like a wheel set in motion every 2 or 3 years to establish a new fund composed of the children who are born and this Senate will receive new inflows of money, and will be released of dividend payments after 50 years.

9. Sobretudo é necessário a seguarança e pontualidade das hipotecas, porquanto as pessoas escrupulosas que não quiserem agora entrar nestas Companhias, entrarão daqui a 3 ou 4 anos, e se inclinarão a meter seu cabedal pelo hom exemplo e pontualidade que virem na cobrança dos réditos.

9. Above all are necessary the certainty and punctuality of the dividend distributions, because careful investors who don’t buy into the fund right away will enter in 3 or 4 years, and they will be inclined to invest their personal assets based on the good example and punctuality shown in the collection of dividends.

Chapter 10: Tontines in Portugal – Nicholas Bourey’s Paleo-Tontine of 1641 197 10. Não deixarei de advertir o dano grande que causará se, em algum tempo, falta a hipoteca. Com tal desordem, que Deus não permite, será fechar as portas para que nunca se façam mais companhias e donde, como ou quando achará este Senado milhão tão barato de 5% o ano e por um mei tão suave e proveitoso para este Senado e povo, digo e declaro o que entendo desta matéria havendo pontualidade nas hipotecas que deste meio o traça podia resultar vir a ser este Senado senhor de muitos milhões.

10. I should not fail to caution about the great damage that it will cause if, at any time, dividends are not paid out. Such disorder, which God forbids, will close the doors so that there will never be other funds and where, how, or when will this Senate find one million so cheap as for 5% interest a year and by such easy and profitable means for this Senate and its people I say and declare what I understand of this matter being punctual in the dividend distributions that from this plan could result that this Senate is made lord of many millions.

11. E para que este Senado saiba o trabalho e estudo do autor deste meio, que não dou nome de alvitre pelo má fama que este nome traz consigo, trabalho, digo, que terá na repartição das hipotecas, estudo, digo, no que traço em proveito deste Senado e povo, seu ordenado será, visto ser tesoureiro das hipotecas que ele e seus herdeiros ou descendentes gozarão dos réditos daquela pessoa ou cabeça que não viver o ano por inteiro, porque somente goza os réditos do cabedal com que entrou até o dia de seu falecimento, verbi gratia, entrou uma pessoa com 100 cruzados a 5% o ano, são 5 cruzados, não viveu a tal pessoa mais que 6 meses daquele ano que começou a repartição da hipoteca, venceu o ganho por os 6 meses 2 cruzados e meio, os outros 2 cruzados e meio para o tesoureiro ou distribuidor, assim os meses dos anos a respeito enquanto durarem as hipotecas que é sem dano de nenhuns das partes, porquanto a este Senado não se prometeu mais que o ganho do milhão, e o povo os interesses do milhão que derem, de modo que a pessoa ou cabeça que morrer fica com a perda que é a vida e cabedal com que entrou na Companhia e somente fica vencendo os réditos do cabedal com que entrou até o dia do seu falecimento daquele ano em que se repartir a hipoteca.

11. And so that this Senate knows the work and study of the author of this idea, that I do not call it a proposal [‘alvitre’] because of the bad fame that this name carries with it, work, I say, that will involve the distribution of the dividends, study, I say, in what was delineated for the benefit of this Senate and its people, his salary shall be, since he is the treasurer of the distributions, that he and his heirs or descendants shall enjoy the dividends of that person or shares who does not live for the entire year, because he only enjoys the dividends from the capital with which he entered until the day of his death, verbi gratia, entered a person with 100 cruzados at 5% per year, that is 5 cruzados, did not live such person more than 6 months of that first year, he won the dividends for 6 months at 2 cruzados and a half, the other 2 cruzados and a half go to the treasurer or distributor, and thus the months of the years while the dividend payments are made without loss for either party, because to this Senate one promised not more than the revenue of one million, and to the people the dividends of the one million that they invested, so that the person or shares that die has the loss of life as well as the capital with which he joined the fund and only receives the distributions from the capital with which he entered until the day of his death of the year in which the dividends are distributed.

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Kent McKeever 12. Digo que não será pouco o trabalho que terá o tesou reiro com as repartições das hipotecas e de força haverá mister muitos oficiais para tal ministério, os quais todos há de pagar o tesoureiro e repartidor à sua custa, porquanto não será razão que este Senado ou povo os pagam, visto que prometo em minha proposta que será sem custas de nenhuma das partes.

12. I say that it will not be small the work of the treasurer on the distribution of the dividends and surely he will need many officers to help him with the job, all of whom shall the treasurer pay at his own expense, whereby they won’t be paid by the Senate or by the investors, since I promise in my proposal that it will be at no cost to either party.

Assino este alvitre tão suave, com o nome de Jesus em dia de Jesus, primeiro de Janeiro do ano de 1641 em Lisboa.

I sign this gentle proposal, with the name of Jesus in Jesus’ day, January 1, 1641, in Lisbon

a) Nicolao Bourey

a) Nicolao Bourey

Declaração em proveito do Senado:

Declaration for the benefit of the Senate:

1. Com o milhão que o Senado receberá de contado desta Companhia, resgatará com 600 000 cruzados os juros de 30 000 cruzados que paga perpétuos e os ganhará dentro de 50 anos que boa troca é resgatar juros perpétuos por tempo limitado de 50 anos, e com os restantes 400 000 cruzados comprará foros, juros e propriedades que renderem a 5% para dar o cumprimento à hipoteca dos 50 000 cruzados que se hão de pagar precisamente à Companhia todos os anos.

1. With the million that the Senate will receive from this fund, it will redeem with 600,000 cruzados the interest of 30,000 cruzados which it pays in perpetuity and it will get them back in 50 years and what a good exchange it is to redeem perpetual interest in a limited timeframe of 50 years, and with the remaining 400,000 cruzados it will buy [forums], interest, and properties which have a yield of 5% to satisfy the dividend payments of 50,000 cruzados that will be rigorously paid to fund investors every year.

2. Resultarà daqui que o Senado, ao cabo dos 50 anos, terá uma hipoteca ou renda livre e desempenhada de 50 000 cruzados, sobre a qual hipoteca poderá fazer outra Companhia e receber outra vez 1 milhão, de modo que, ao cabo de 100 anos, terá o Senado de renda 100 000 cruzados que valem 2 000 000 e assim de 50 em 50 anos irá sempre a renda do Senado multiplicando sem dano e perda do povo, que é o mais substancial ponto deste meu alvitre.

2. It will result from this that the Senate, at the end of 50 years, will have earnings or free income of 50,000 cruzados, from which another fund can be newly established and receive once again one million, so that, after 100 years, the Senate will have revenues of 100,000 cruzados that are worth 2,000,000 and so every 50 years revenues will continue to multiply without harm and loss to the people, which is the most substantial point of this my proposal.

a) Nicolao Bourey

a) Nicolao Bourey

Within the first numbered article it is clear that what is proposed is essentially a tontine – an investment fund where the living shareholders’ dividends increase with age as their co-investors die because the shareholders’ rights terminate at death, and the stable pool of dividends is shared by an increasingly smaller group.

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Furthermore, it served the same purpose as Tonti’s proposal: government revenue. However, it pre-dates the Tonti proposal by 12 years and is much simpler. Its very existence raises a number of questions. Is this the real first appearance of the idea, and Tonti was simply a better publicist? Did Tonti know of Bourey’s proposal? Was the idea floating around in mercantile circles, but not written down until Bourey and then Tonti drafted their texts? It is also curious that both Bourey’s and Tonti’s proposals never came to fruition. The implementation of the first tontines came later.5

C. Translation issues In the translation above, a couple of instances reflecting a potentially confusing use of words have been highlighted in parentheses. Bourey does not propose giving his idea a particularly special name, only ‘companhia’, which is translated as ‘fund’ in this case. In Art. 11, Bourey states he does not want to use the word ‘alvitre’ (usually translated as opinion, proposal, or project), apparently because schemes associated with that word had a bad reputation. At the end of the first article, ‘dividend’ has been used where the text reads ‘hipoteca’, which is now more commonly restricted to mortgages. Furthermore, in the first of the supplementary articles the translation of ‘foros’ as meaning forums seems awkward. Might it mean ‘privileges’?

D. Distinguishing features There are five points worth highlighting. (1) Article 1 is clumsy in referring to either an end to the tontine when a person is 50 or ending after 50 years. The latter seems to make more sense. Furthermore, this reading corresponds to Arts. 6, 7, and 8. (2) The proposal generally assumes that a participant buys in his own name (Art. 2), or in the name of a purchaser’s child or children (Art. 8). (3) There is a suggestion of new companhias every two or three years. Correspondingly, there are hints that parents would buy in the name of their newborn children. (4) Article 3 acknowledges the possibility of shares being bought as a group, to be cheaper and thus available to poorer people. It does not, however, indicate whose life should be the nominated one. (5) It seems likely that this was ___________ 5 It is usually said that the first working tontine was issued in the city of Kampen, in the Netherlands, in 1670; see, e.g., Herman Wagenvoort, Tontines, Een onderzoek naar de geschiedenis van de lijfrenten bij wijze van tontine in de contracten van overleving in de Republiek der Verenigde Nederlanden (1961). On the Kampen tontine see also Sirks, 124 f., above. However, there was a Gdańsk tontine even before the tontine in Kampen, and there are reports of even earlier Italian schemes, see Hellwege, 169–171, above; Sirks, 125 f., above; Fortunati, 213, below.

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a first, conceptual draft and that additional details would have clarified issues before implementation.

E. Differences between Bourey and Tonti Bourey does not suggest any complicated division into classes. The basic proposal seems to imply that anyone could join at any age. However, in Art. 7 there is the suggestion that a separate companhia could be created, limited to people over the age of 40, with the hope of the increase in returns coming sooner due to a higher mortality rate in that older group. What Tonti attempted to do through classes, Bourey thus seemed to think could be done by the creation of additional funds. Article 8 suggests that subsequent issues of additional companhias would attract investments in favour of children born since the last companhias.

F. Comparative value It is always a matter of interest to try to picture the relative value of the elements of any historical financial transaction. It allows us to understand where the proposal might fit in our own economy, albeit in a very crude way. One hundred pounds in 1640 would be the equivalent of 16,100 pounds as of 2015, and in the 1660s there were roughly 5.66 cruzados per pound.6 Thus, 100 cruzados would then have been roughly 17.66 pounds and would be worth about 2,900 pounds today. Based on an alternate inflation factor, the Average Earnings Index, 100 cruzados could even amount to the equivalent of 41,000 pounds today.

G. Historical background The document is dated 1 January 1641, which was a time of considerable turmoil in Lisbon and Portugal as a whole. In 1580 Philip II, King of Spain, had asserted his right to rule Portugal as well as Spain as the grandson of Manuel I of Portugal. After 60 years of joined governance of Spain and Portugal based in Madrid, central control had degenerated to the point where many Portuguese felt independent rule was preferable, and on 1 December 1640 a revolutionary coup sparked the Portuguese Restoration War (1640–1668). Local sources of revenue had to be found, and the Bourey proposal was submitted. The first French tontine of 1689 reflected a similar purpose: it was a means to finance the War of the League of Augsburg.7 ___________ 6 7

https://www.measuringworth.com/ (last accessed on 6 December 2017). See Gallais-Hamonno and Rietsch, 52 f., above.

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One source describes Bourey as a French merchant.8 By contrast, in a biography of the renowned Portuguese Jesuit Antonio Vieira (1608–1697),9 he is described as a Belgian and as long resident in Lisbon. ‘Nicolau’ Bourey shows up around 1660 in relation to a declaration to the Inquisition which was investigating Vieira. The author, in describing Bourey’s background, makes a direct reference to his tontine-like proposal. He indicates that Bourey was originally from Antwerp but had lived in Portugal for a long time. The oath appended to Bourey’s declaration to the Inquisition is reprinted in this book: 10 Feito nesta cidade de Lix.a em dia de Nossa Sñr.a da Concepção por mim Nicolau Bourey, de nação Belga, no anno de 1660, familiar do Santo oficio e morador na mesma cidade passa de sinq.ta e dous annos, a em idade de 74 annos, sem nelles, louvores ao Senhor, aver sido doente, bemdito e louvade seja elle para sempre amen. Done in this city of Lisbon on the day of Our Lady of Conception by Nicolau Bourey, of the Belgian nation, in the year 1660, a relative of the Holy Office, and resident in the same city for fifty-two years, at the age of seventy-four years, Lord, be patient.

According to the Index compiled by Humbert O. Nelli,11 the existence of this tontine proposal is not noted in the amazingly comprehensive Insurance Cyclopaedia12 of Cornelius Walford – not in the printed portion nor in the notes for the unpublished portions held by the Chartered Insurance Institute.

H. Further research Bourey’s tontine proposal of 1641 suggests several ideas for further research. One obvious one would be to try to find any connection, direct or through a third party, between Bourey and Tonti. On the other hand, the two proposals could be an example of the phenomenon known as ‘simultaneous invention’ or ‘multiple discovery’. This might inspire a project to try to find similar proposals in other European archives. Similar proposals could have a dozen different names and use a very broad vocabulary, which would make the task extraordinarily difficult.

___________ 8

Marques (n. 3), 101. João Lúcio D’Azevado, Historia de Antonio Vieira, com factos e documentos novos, vol. 2 (1920), 7 f., 33 f., 313 f. 10 D’Azevado (n. 9), 314. 11 Humbert O. Nelli, Index and Guide to Walford’s Insurance Cyclopaedia (1976). 12 Cornelius Walford, The Insurance Cyclopaedia (1871 ff.). 9

Chapter 11: Tontines in Italy By Maura Fortunati A. Tontines in Italy: The problem of their origins and legal nature............................. 203 B. Life assurance, tontines, and morality .................................................................... 210 C. Use of tontines in Italy and their functions ............................................................. 212 I. Public tontines ................................................................................................. 212 II. From public to private … and back again ....................................................... 216 1. Kingdom of Naples .................................................................................... 216 2. Papal States ................................................................................................ 217 3. Kingdom of Sardinia .................................................................................. 218 4. Kingdom of Italy ........................................................................................ 220 D. Legislation on tontines............................................................................................ 221

A. Tontines in Italy: The problem of their origins and legal nature In Italy, tontines, which emerged around the middle of the 18th century, did not have the same success as in other European countries and probably played a less important role in the development of insurance law, which preferred to exploit other mechanisms. According to the international historiographical understanding, tontines had a strong impact on the development of life assurance. However, the Italian tradition presents some special features in this specific sector, which could explain the comparatively modest influence of tontines on the Italian insurance model. First of all, for a long time Italian insurance companies concentrated almost exclusively on marine business. In 1832 there were only two major companies operating in Italy in the life insurance sector (the Compagnia di Milano and the Società di assicurazioni diverse, the latter of which had its head office in Naples):1 Nei primi decenni dell’Ottocento le polizze sulla vita erano ancora nella sfera della beneficenza, della morale, della pietà, della religione o in quella più materiale delle scommesse.

___________ 1 Paper by Tommaso Fanfani, Le assicurazioni in Italia tra ‘800 e ‘900: il ‘ramo vita’ da scommessa a prodotto innovativo at the Convegno Innovazione e sviluppo, 4-6 March 1993, provisional draft: www.usc.es/estaticos/congresos/histec05/b17_fanfani.pdf, at 11 (last accessed 9 October 2017).

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In the early decades of the 19th century, life insurance policies still subsisted in the realm of charity, morality, compassion, religion, or the more earthly realm of betting.

The sector began to grow only from the end of that century: symptomatic of this is the fact that national legislation did not concern itself with non-marine insurance until the Commercial Code of 1882. Secondly, in the 19th and early 20th centuries in Italy, despite some internal growth, life assurance business was mostly carried on by foreign companies, which as late as 1910 still received 56% of all premiums. The ‘tontine’ mechanism was therefore mainly due to the importation of foreign models of insurance.2 This does not mean that the system of tontines was unknown in Italy or that it had no influence (as we shall see, we find that it was used throughout the 19th and up to the first decade of the 20th century), but this could explain the scant interest generated by this institution, above all in modern historiography. Tontines certainly represented an alternative form of life insurance policy in a period in which, in Italy, there was still powerful moral and cultural resistance to life assurance, and the law ignored or even prohibited this form of insurance; and it is likely that tontines had the effect of inspiring reflection on these topics. Contemporary authors, however, pay only limited attention to the experience of tontines: in fact, although they mention their origin and use, they do not give them any precise significance in the history of the development of insurance law, apart from mentioning their influence on the calculation of life expectancy tables. Before we examine some concrete examples of the creation and functioning of tontines in Italy, it might however be worth mentioning how 19th and 20th century historiography and academic legal writing defined and classified tontines in legal terms. The original form devised by Lorenzo Tonti (1602–1684) underwent changes over the years, in Italy as elsewhere, without losing any of its basic characteristics; this partial change of character is reflected in descriptions of the institution given by authors discussing legal and economic history in the 19th and the first half of the 20th century. All authors consulted by me are in agreement on the invention of the tontine by Tonti and on its early developments. For this reason I see no point in repeating the circumstances connected with the rise of tontines in the French context, if only because this is fully treated in other essays in this volume. 3 It would be more ___________ 2 On the political debate regarding the desirability of creating an insurance monopoly, which also questioned the use of tontines and led to the foundation of the INA, see the text following n. 54, below. 3 For an overview of the phenomenon see also Kent McKeever, A Short History of Tontines (2010), 15 Fordham Journal of Corporate and Financial Law 491–521 and the works quoted in the bibliography.

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interesting to search for a model which Tonti might have taken as his inspiration in inventing them. According to some authorities tontines adopted a form similar to that used in Italy for dowry funds, in particular in Florence. Charitable associations or individual benefactors often set themselves the task of collecting funds for use in providing dowries for poor and needy maidens: these were works of charity carried out by specialized institutions. In Florence, however, and also in Bologna and Naples, some institutions of a somewhat different character arose, which came nearer to the provident fund model than the charity model. The most famous of these was the Monte delle doti founded in Florence in 1425 by a ʻpublic’ initiative and targeted at wealthier families with money to invest: the fathers would deposit amounts of money with the Monte, which would be guaranteed and managed by the Signoria and which would earn interest and could be reclaimed after a certain period of time when the marriage took place; if the girl died before being married, the deposit could not be reclaimed. 4 Another example of this ‘provident’ scheme, targeted at poorer families, was the Monte del matrimonio of Bologna, founded in 1583, which offered ‘unprecedented opportunities of reward for small domestic savings’, allowing the money contributed towards the dowry to be spread out over time and, above all, earn profits. 5 In this scheme too, ___________ 4 The Monte delle doti was one of the measures ʻintended to nip the budding fiscal crisis in the second half of the 1420’s. Fathers were invited to deposit 100 florins in cash for a term lasting 7½ or 15 years. At the end of 15 years (approximately the age at which girls began to marry) the deposit would yield a dowry of 500 florins … The cameral officials were instructed to pay the dowry to the girl’s husband – not to the girl or to any member of her family – only after the marriage had been consummated. If the girl died, the deposit reverted to the commune, while if she failed to marry, the commune retained the dowry.’ Julius Kirshner, Pursuing Honor While Avoiding Sin. The Monte delle Doti of Florence (1978), 16. The deposit reverted to the commune even if the girl had married but died before the deposit expired. See Anthony Molho, Marriage Alliance in Late Medieval Florence (1994), 30. See also Julius Kirshner and Anthony Molho, The Dowry Fund and the Marriage Market in Early Quattrocento Florence, (1978) 50/3 The Journal of Modern History 403–438. 5 As pointed out by Mauro Carboni, Alle origini della previdenza. Il Monte del Matrimonio nella Bologna del Seicento, (1999) 15/3 Rivista di storia economica 263–288, ‘l’originalità del Monte bolognese consiste nella scelta di combinare finalità sociali e credito, prospettando un approccio previdenziale al problema della formazione del capitale dotale e rivolgendosi a famiglie che avevano limitate disponibilità finanziarie’ (ʻthe originality of the Monte of Bologna was in choosing to combine social and credit purposes, proposing a savings-based approach to the problem of accumulating a dowry fund and targeting families with limited financial resources’). On the Monte of Bologna see also idem, Le doti della ‘povertà’. Famiglia, risparmio, previdenza: il Monte del Matrimonio di Bologna (1583–1796) (1999); Mario Maragi, Il Monte del matrimonio in Bologna (1986); Isabelle Chabot and Massimo Fornasari, L’economia della carità. Le doti del Monte di Pietà di Bologna (secoli XVI–XX) (1997). A further model was that of the Monti di Famiglia, widespread most of all in the Kingdom of Naples from the 16th century, and

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the money paid in, together with interest, could be reclaimed when the marriage took place or the girl entered a convent, but it was forfeited in the event of her death. According to some authorities, in devising his tontines Tonti would have drawn inspiration from these saving schemes, crossed with the system of public loans and combined with the annuities already in use in France and England.6 Another possible model for Tonti could have been contracts of censo, which were already used by monastic foundations as well as in trusts for pious uses and other institutions. From the 13th century on, contracts of censo began to be used by cities throughout Europe, predominantly for the maintenance of real property. The seller would obtain the necessary finance and would undertake to pay the buyer a rent for a term of years, for life, or in perpetuity.7 While the literature is in substantial agreement in identifying Tonti as the inventor of tontines, the definition of a tontine is often not uniform; at the same time one may note a substantial difficulty in providing a precise legal (and moral) classification for tontines. Even though tontines share one feature regarded as fundamental to insurance, namely mutuality, it is clear that, at least in their original form, we are looking at mutuality of a fairly unusual kind, one remote from both the medieval schemes of mutual assistance and the types of mutual insurance which emerged in the modern era. As in these schemes, tontines involve the setting up of a common fund, but this fund is not designed to provide economic assistance to a member in difficulty, while distributing the risk equally among all participants, but, on the contrary, to produce a profit for the one lucky enough to survive until a specified moment. To quote Luigi Borsari (1804–1887), this is a kind of mutuality in which there is no element of spontaneity, its reflecting ʻthe law of destiny to which the participants are subject’, not mutual aid but mors tua vita mea.8

___________ the Monti delle corporazioni di mestiere, reserved exclusively for members of trade associations. On these institutions and on the Monti di Maritaggio operating in the Kingdom of Naples see Gérard Delille, Un esempio di assistenza privata: i Monti di maritaggio nel Regno di Napoli (secoli XVI–XVIII) in: Giorgio Politi et al. (eds.), Timore e carità. I poveri nell’Italia moderna (1982), 275–282. 6 See Tullio Torriani, Le ‘Tontine’, (1950) 17/1 Assicurazioni 73–89, 74. 7 On censi, see most recently Andrea Landi, Ad evitandas usuras. Ricerche sul contratto di censo nell’Usus modernus Pandectarum (2004); idem, Tra censi e usure. Aspetti del pensiero giuridico europeo d’età moderna, in: Walter Barberis and Anna Cantaluppi (eds.), La Compagnia di San Paolo 1563–2013 (2013), 83–100; Nicola Lorenzo Barile, Contratti di censo e Monti di pietà. Problemi e prospettive di ricerca, in: Paola Maffei and Gian Maria Varanini (eds.), Honos alit artes. Studi per il settantesimo compleanno di Mario Ascheri. La formazione del diritto comune, vol. 3 (2014), 139–146. 8 Luigi Borsari, Codice di commercio del Regno d’Italia annotato (1869), 579.

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So how are tontines defined? What was their legal characterization according to historians in the 19th and 20th centuries? Above all, how important were they considered to be in the development of insurance in Italy? In Italy, the term ʻtontine’ or ʻtontine partnership’ could cover several different types of arrangements: bets, savings institutions, personal protection institutions, mutual associations, and life assurance. This confusion in terminology makes it difficult to arrive at a correct classification of the actual legal content of the institution under discussion. This difficulty is compounded by the fact that, both in Italy and elsewhere, there was a movement away from the original form of ʻinterest tontine’ and a tendency to use the so-called ʻcapital tontine’. In substance, a different form of tontine developed, providing for capital as well as interest to be distributed among the subscribers still living at the expiry of the term fixed. For example, in 1839 Francesco Foramiti (ca 1760–1843) described a tontine as ʻuna specie di società colla quale più persone pongono in comunione beni o rendite colla clausola che i superstititi ne diventeranno proprietari in tutto o in parteʼ (ʻa species of partnership in which several persons transfer property or income into a common fund and agree that the survivors will become owners of that fund in whole or part’).9 In this definition, joint ownership has taken the place of financing, and at a fixed expiry date the capital is divided among the survivors, as also happened in France towards the end of the 19th century. The difficulty in correctly classifying tontines within the existing legal categories is in my opinion clearly exemplified in some passages of Gerolamo Boccardo (1829–1904), one of the most well-known Italian economists of the period. ʻTontines,’ wrote Boccardo in his Trattato teorico-pratico di economia politica, sono una società di creditori di rendite, per lo più vitalizie, nella quale le rendite dei premorti passano in tutto o in parte in testa dei superstiti, fino alla morte dell’ultimo di questi, epoca in cui il debito rimane estinto.10 are a partnership of annuitants, generally for life, in which the income of predeceased members passes in whole or part to the survivors, up to the death of the last of them, at which point all liability is extinguished.

This appears to refer to a form of public credit, distinct from individual annuities whether for a term of years or for life, but which like these was based on a calculation of probability applied to the average duration of human life, a scheme requiring careful assessment by the government to avoid excessive losses. It was a form of partnership among annuitants designed to ensure a determinate income. ___________ 9

Francesco Foramiti, Enciclopedia legale, vol. 4 (1839), 710. Gerolamo Boccardo, Trattato teorico-pratico di economia politica, vol. 3 (3rd edn., 1863), 269. 10

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In the entry titled ʻTontines’, Boccardo stated in his dictionary that a tontine, in its simplest form, ‘è un’associazione di individui i quali, versando altrettante quote parziali, formano un capitale comune destinato a venir ripartito in una epoca data, fra i soci allora superstiti’ (‘is an association of men who, by paying partial amounts, create a common capital fund to be divided, at a fixed date, among the members then surviving‘). This, then, is ʻun’operazione finanziaria fondata sulla probabilità di morte ad ogni successiva età della vitaʼ (ʻa financial operation based on the probability of death at each successive age in life’). The nature of a tontine as a partnership is mentioned, but instead of being a partnership among recipients of income it becomes an association in which individuals, by their respective contributions, create a capital fund to be divided at a given date among the survivors. Furthermore, Boccardo, in the same context, also provides evidence of how the tontine system became a common form of life insurance. In this case, payments could be made either as a lump sum or annually and, at the expiry of the term (usually 20 years), the survivors would receive, in addition to their payments plus interest, a proportion of the payments of the deceased members including accrued interest. 11 Again, still in the same dictionary, but this time under the entry Cassa di Risparmio (Savings bank), Boccardo includes tontines in his treatment of savings banks, thus classifying them as an institution combining the purpose of individual savings and the securing of a pension.12 A summary of the academic debate in the late 19th and early 20th centuries appears in the article on ʻTontines’ published in the Digesto italiano in 1925.13 The author of the article tells us that ʻthe official position’ had classified tontine partnerships into two types: (1) partnerships for the distribution of interest, commonly known as ʻfunds’ and (2) partnerships for the distribution of both capital and interest, or tontines proper. True tontine partnerships differed from the first kind, normally known as pension funds or annuity funds, in three respects. First, they were for a temporary rather than an indefinite duration. Secondly, they consisted of several separate associations for survivors, each of which was a tontine; they were not a unitary company. Thirdly, they provided for different ways of dividing the capital and interest among the participants.14

___________ 11 Gerolamo Boccardo, Dizionario della economia politica e del commercio, vol. 4 (1861), 525–527. 12 Boccardo, Dizionario (n. 11), vol. 1 (1857), 419. 13 Giovanni De Santis, Tontine, in: Digesto italiano (1925), 1555–1565. 14 De Santis (n. 13), 1558 f.

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However, there was also discussion of whether they even qualified as partnerships at all. Some scholars regarded tontines as partnerships, but others categorically denied that they had any corporate character. For example, in 1873 in his Istituzioni di diritto commerciale, Enrico Galluppi (1849–1915) argued that tontines were lacking in one of the essential elements for the existence of a partnership or company, namely the purpose of making a profit from the joint capital and dividing it. In a tontine, according to this scholar, the profit was derived not from the activities of the association but from a circumstance beyond human control, namely the reduction in the number of shares because of the death of the members.15 At the beginning of the 20th century, Ulisse Manara (1858–1943) took the same view, insisting that tontines were not in the nature of a partnership. According to him, tontines were ʻschemes of distribution’ but lacked any purpose of pursuing a common gain, that is to say a gain shared by everyone; in tontines, ʻi capitali o le rendite messe in comune … sono unicamente destinate ad essere ripartite fra i sopravviventi a un’epoca determinataʼ (ʻthe capital or income contributed to the common fund … is held solely for distribution among the survivors at a set period’).16 In turn, and again at the end of the 19th century, Ercole Vidari (1836–1916) drew attention to the lack of any business carried on in common, his viewing this as a factor distinguishing tontines from commercial partnerships. 17 The idea of making a profit from the death of others led some scholars to consider tontines as morally reprehensible and either to condemn them completely or, at most, to accept them with caution. We often find detailed criticisms, describing tontines as immoral, and as institutions supporting a class of parasites and egoists who wished to enjoy the present without worrying about the future and who were insensitive in the presence of death. 18 ___________ 15 Enrico Galluppi, Istituzioni di diritto commerciale, vol. 1 (1873), 187. See also Emidio Pacifici-Mazzoni, Istituzioni di diritto civile italiano, vol. 3/3 (1870), 7. 16 Ulisse Manara, Delle società e delle associazioni commerciali. Parte generale, vol. 1 (1903), 277 f. 17 ʻLe tontine non rientrano tra le società commerciali, perché i benefici da esse derivanti non dipendono da un’attività esercitata in comune ma dalle quote dei morti passate ai sopravissutiʼ (ʻTontines do not qualify as commercial partnerships because the benefits derived from them do not depend on business carried out in common but on the shares of those who die passing to the survivors’), Ercole Vidari, Corso di diritto commerciale, vol. 1 (1893), 454. 18 ʻSono contrarie alla buona morale, avezzando se non a desiderare la morte quanto meno a mirarne il successivo avvenimento a sangue freddo e a occhi asciuttiʼ (ʻThey are contrary to morality, as they accustom people to, if not desire the death of others, look at it in cold blood and without tears when it comes’): Angelo Melano di Portula, Tontines, in: Dizionario analitico di diritto e di economia industriale e commerciale (1843), 1212 f. And again: ʻLe rendite vitalizie e le tontine sono debiti onerosi per chi riceve il prestito,

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B. Life assurance, tontines, and morality Another reason for the limited success of tontines in Italy may be the tendency to equate them with games of chance or betting, and the moral considerations that flow from that. Certainly, ʻman is essentially a gambler, and it is this feeling that he may score off the insurance company … that induces him to insure’,19 but in early 19thcentury Italy there were still discussions regarding the lawfulness of life assurance, whether on land or at sea. Despite the tradition in Italy ever since the 15th century of using this type of insurance in practice, 20 there was a legislative vacuum which did not favour the establishment of this model of insurance. The introduction in the Italian peninsula of the Napoleonic codes, which made no provision for life assurance, and the importation of French forms of legal interpretation meant that the Italian codes were silent even in the Restoration period and also in the first few decades of unification. In consequence, whereas in France the first life assurance company came into being in 1819, in approximately the same period Gaetano Marrè (1771–1825), the first Italian commentator on the Napoleonic Code de commerce, taught his students in his course of Genoese lectures that there can be no insurance on human life because it cannot be valued in money.21 As late as 1857, again in the University of Genoa, Cesare Parodi (1779–1870), in his lectures on commercial law, while mentioning the opinion of Jean Marie Pardessus (1772–1853) and partially agreeing on the admissibility of life assurance in the terrestrial sector, expressed his opposition to it in the maritime context, struggling to distance himself from the statutory framework and citing not only the implied prohibition in Art. 364 of the Albertine Codice di commercio (ʻInsurance may have as its subject matter … any thing or interest capable of ___________ perché sino alla fine paga lo stesso interesse sebbene ogni anno liberi una porzione del capitale. Esse sono inoltre immorali, giacchè il solo egoismo può consigliare un simile modo di collocamento del proprio denaro, favorendo la dissipazione de’ capitali, e somministrano al prestatore il mezzo da consumare il fondo e la rendita senza tema di cadere nel bisognoʼ (ʻAnnuities and tontines are burdensome obligations for the borrower because he must pay the same interest until the end even though a portion of the capital is repaid each year. They are also immoral, as only selfishness could recommend such a way of placing one’s money, as it encourages the dissipation of capital and provides the lender with a means of living off the capital and the interest with no fear of falling into want’: Giuseppe Rocco, Corso di diritto amministrativo, vol. 3 (1856), 156. 19 Timothy Alborn, Regulated Lives: Life Insurance and British Society 1800–1914 (2009), 310. 20 Enrico Spagnesi, Aspetti dell’assicurazione medievale, in: L’assicurazione in Italia fino all’Unità. Saggi storici in onore di Eugenio Artom (1975), 183–187. 21 Gaetano Marrè, Corso di diritto commerciale (1840), 223.

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valuation in money and exposed to the risks of navigation’) but also the explicit prohibition in the French Ordonnance de la marine of 1681.22 The moral question arises in a still more extreme form in the discussion of tontines, as these are a still more atypical form of life assurance. Tontines were considered immoral by some because, by offering easy gains, they encouraged people to invest their entire wealth in the tontine, thus depriving their heirs of their property. It therefore comes as no surprise that, when foreign companies first started to operate in the life insurance sector in Italy, there was criticism and opposition. Reading the pages published in the mid-19th century in the proceedings of the Accademia dei Georgofili of Florence allows one to understand the climate of opinion, at least in certain circles: in a speech aimed at highlighting the advantages of investing in savings banks it was stated that the life assurance policies arranged in Italy by French companies (or tontine associations) were invitations to engage in games of chance. They encouraged the common propensity to accumulate riches without effort and masqueraded as insurance ʻwhile insuring nothing’.23 If the purpose of these companies was to receive money from members so as to distribute it, on the death of a member, to his widow, children, siblings, or parents in proportion to the annual premiums, one could speak of life assurance. But instead they divided the money paid by those who had died among the survivors. ʻTherefore, one is not paying a premium to insure against a loss: one pays and waits to know who the money will go to’ (‘Non si paga dunque una mercede per assicurarsi da un danno: si paga, e s’aspetta di sapere a chi il danaro toccherà’), but it is known for certain that it will not go to the member’s heirs. 24 We are outside the field of insurance, mutual help, provident societies, or charitable institutions and come closer to other schemes, such as lotteries. Tontines in their original form were sometimes compared with lotteries (or the public lottery)25 and often coupled with or absolutely identified with them. This comparison continued to be made over time, showing the difficulty experienced in moving away from a negative view of tontine associations and the persistence of doubts about their legal nature. It is no accident that in 1854, during a debate in ___________ 22

Cesare Parodi, Lezioni di diritto commerciale, vol. 4 (1857), 76 f. Giuseppe Gasbarri, Considerazioni sugli stabilimenti di mutue assicurazioni sulla vita dell’uomo, Atti dell’Accademia dei Georgofili XXIV (1846), 243–277, 243. 24 Raffaello Lambruschini, Delle compagnie dette di mutue assicurazioni sulla vita dell’uomo (1847), 5 f. 25 See, e.g., Boccardo (n. 11), 525. On the relationship between lotteries, betting, and tontines in France see John Dunkley, Bourbons on the Rocks: Tontines and Early Public Lotteries in France, (2007) 30 British Journal for Eighteenth-Century Studies, 309–323. 23

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the Senate on a Bill to prohibit private lotteries, senator Cesare Trabucco Di Castagneto (1802–1888) and the then Minister of Finance, Camillo Benso conte di Cavour (1810–1861), debated this very question, the former affirming that tontines were in the nature of a lottery while the latter denied it. The Bill being debated in the Senate would have made it illegal to make offers to the public that produced a gain dependent on chance. According to Castagneto this prohibition would also strike down tontines; Cavour, on the other side, based his argument on the resemblance between tontines and insurance policies and said that banning tontines would mean that insurance was also banned, as they were similar and both of them were based on chance. 26 Luigi De Margherita (1783–1856), the proposer of the Bill, also intervened in the debate and supported the position of Cavour. However, he argued that tontines were similar to life annuity contracts, and therefore to one of the aleatory contracts foreseen by the Civil Code in force:27 perchè vi sia lotteria, conviene che vi sia un’estrazione dalla cui designazione dipenda l’eventualità del guadagno o della perdita; il sopravvivere e così guadagnare, o morire prima del tempo prefisso, e così perdere, questo dipende dall'eventualità della vita o della morte non è certamente una vera lotteria, è un contratto di sorte. For there to be a lottery, there must be a draw where the chance of winning or losing depends on what is drawn. But survival and therefore winning, or dying before the time named and therefore losing, depends on the chance of life or death. This then is certainly not a true lottery, but an aleatory contract.

C. Use of tontines in Italy and their functions Having made these observations, let us see what forms of tontine existed in Italy. The functions were first of all the accumulation of capital by the state and, secondly, mutual aid and social security, either by private initiative or with the direct intervention of the state. Even if they were close to the model of life assurance, they did not coincide with it in every respect, and they developed on separate if parallel tracks. I. Public tontines In Italy, as in the UK and the U.S.A., tontines were founded as a tool for municipal improvement; e.g. in Bologna in 1762 there was presented a plan for a tontine to finance the introduction of street lighting. In Italy, as in other European ___________ 26 However, on another occasion, as we shall see, Cavour expressed a fairly unfavourable opinion about tontines. See below 221 ff. 27 Atti del Parlamento Subalpino. Sessione del 1853–54 (5 Legislatura). Dal 19 dicembre 1853 al 29 maggio 1855, vol. 8: Discussioni del Senato del Regno (1870), 152.

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cities at the time, street lighting was beginning to spread, and the problem arose of how to raise funds, not only to install it but also, obviously, to ensure its continued functioning. In Milan, for example, Giuseppe II introduced oil street lighting in 1784 and financed it by means of a lottery. Twenty years earlier, in Bologna, there had been a plan to light the city and, as concerned the economic aspect, to have recourse to a so-called mixed tontine, combining various financial products with a lottery.28 However, this plan was not implemented and the city had to wait for the arrival of the French in 1796 to benefit from a new plan. Similarly, in the Duchy of Savoy Pietro Antonio Pelati, Marco Aurelio Gambarotta and Paolo Antonio Bellavita presented to the Duke a plan to set up a tontine. Unfortunately this plan was not dated but, according to the dating system of the archive, it was probably in the 1630s or 1640s, and thus prior to the plan presented in Paris by Tonti. The proposed tontine, in which foreigners could take part, was for the purpose of bringing money into the coffers of the State and increasing confidence in its economic institutions. It envisaged the creation of eight credit funds of 50,000 lire a year each and eight different age bands (from 8 to over 56 years old); the participants, of whom there would not be more than 6,000, would make a one-off payment of 100 scudi for each share (known as luoghi). What was paid would earn annual interest of 5% for the first four age bands and 6% for the other four. Annual interest would be divided each year among the survivors, and at the death of the last participant the entire fund would revert to the Duke. Il che tutto sarà un mezzo efficacissimo per indurre ciascheduno a concorrere con molta contentezza a tributare il proprio denaro … per la speranza che ciascheduno avrà che li tocchi in sorte la sopravvivenza et in tal guisa con lo sborso di poca somma arricchire se stesso et la propria famiglia. Which would be a most efficacious means of inducing everyone willingly to contribute his money … in the hope which everyone will have that he will be the survivor and accordingly, with the expenditure of little money, to enrich himself and his family.29

At more or less the same time we also find the plans of Andrea Pellegrino for the creation of a bank to be known as the Banco del Traffico nella città di Torino, to be established in the form of a tontine. 30 In Piedmont, French tontines were in any event a point of reference and a model to study and analyse; for example, on 18 March 1681 it was proposed to create a company from which it was possible to obtain a considerable income ___________ 28

Tontina mista o sia Progetto per illuminare la città di Bologna (Bologna 1762). Progetti di Pietro Antonio Pelati, Marc’ Aurelio Gambarotta, e Paulo Antonio Bellavita per l’erezione d’una Tontina, Turin State Archive (AST), Inventory No. 071.1 Economic affairs. Documents concerning economic affairs, Finances, Folder 1, Fascicle 42. 30 Progetti (n. 29), Fascicle 30. 29

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which ʻis none other than a kind of tontine, as practised in France’.31 Again, a century later, in 1783, Captain Peyre di Castelnuovo presented a plan ʻper lo stabilimento d’una Compagnia di Commercio in Nizza e di assicurazione come pure d’una Banca con erezione di una Tontinaʼ (ʻfor the establishment of a Trading Company in Nice and an insurance company as well as a Bank, by the establishment of a Tontine’). It was a plan to set up a company with profit-bearing shares; in the event of the death of the shareholders, the shares would be extinguished in favour of the company and the accrued profits would be divided among the survivors.32 In any case both these and similar plans as well as the tontines actually created did not have much success. The economic situation of Piedmont was certainly not favourable to these initiatives: in the absence of businesses and with little foreign trade, those with money to spare preferred not to run the risk of losses and to invest it in real property, in peacetime at any rate. In fact, it clearly appears that the growth in the number of plans and tontines in Savoy and later in the Kingdom of Sardinia was closely connected with the need to recoup money to confront the difficulties arising from the wars. In 1706, Victor Amadeus II, to solve the financial problems arising from the War of the Spanish Succession, launched a tontine, but the operation was not successful, and only twenty years later the sovereign tried again, this time in order to collect funds for the State on the occasion of the War of the Polish Succession.33 After a time, following the peace of Aix-la-Chapelle, in which this method was abandoned, there was at the end of the 18th century once more talk of tontines, often combined with lotteries,34 to obtain the funds needed for the disastrous war against France. Of particular interest in these years was the plan for a tontine with a capital of 16 million lire that had been sent by Valentino Masieri to the sovereign from Vienna on 28 August 1793 and, most of all, the creation of the Cassa de’ censi, ___________ 31 Scrittura rimessa a M. R.le dal Conte, ed Auditore Leonardi per fare una Società divisa in sei, o quattro Classi, nella quale, mediante la somma di livre 200 si puotrà sperare un reddito considerabile, il che non è altro che una specie di Tontina, ch’è stata pratticata in Francia, AST, Inventory 071.1, Economic affairs, Documents concerning economic affairs – Monti – Folder 1, Fascicle 2. On this plan see also Documenti finanziari degli Stati della monarchia piemontese (secolo XVIII) Series I, III; Giuseppe Prato, Problemi monetari e bancari nei secoli XVII e XVIII (1916), 221. 32 Documenti finanziari (n. 31), 190 f. 33 In the same period other plans also evolved: Documenti finanziari (n. 31), 223. 34 Schemes for a combined lottery and tontine had previously appeared in Turin. See, e.g., AST, Inventory 071.2 Economic affairs, Additional inventory for economic affairs, Gaming and lottery duty, Folder 1, Fascicle 14, Piano di una lotteria e tontina per una delle case della città di Torino (Plan for a lottery and tontine for one of the houses of the city of Turin) of April 1779.

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prestiti ed annualità, devised by count Prospero Balbo (1762–1837). In 1793 Masieri, who described himself as a ʻzealous Italian’, proposed to the sovereign a plan il quale, senza aggravio dei popoli e felici sudditi di Vostra Maestà somministra nella sua esecuzione la considerevole utilità al Regio Erario di sopra venti milioni di Ducati da Regno which, without creating a burden on the people and fortunate subjects of Your Majesty, will gain in its execution the considerable profit for the Royal Treasury of more than twenty million Ducats of the Realm.35

It was envisaged that there would be 64,000 subscribers; shares were fixed at 250 lire per head, and they would initially earn an annual profit of 4%. If a subscriber died before receiving interest totalling 250 lire, the interest would be reimbursed to his heirs in instalments. With that exception, the total interest of the 16 million lire so collected would be divided annually among the living subscribers. From the sixth year, at different dates and in different amounts, lots would be drawn among all subscribers then living; those whose names were drawn would receive an additional premium. The guaranteed yield for the last survivors could not in any event exceed 4,000 lire. In the year following the death of each of these survivors, and once only, this yield would be divided among ten unmarried women of the parish of the deceased to be chosen by lot, so as to provide a dowry of 400 lire each. In this way the plan combined features of a tontine (with a minimal protection for heirs), a lottery, and public assistance. Here too, as in France, the ʻtontine-lottery’ looked more attractive to subscribers than a simple tontine.36 The Cassa de’ censi, prestiti ed annualità was founded in Turin in 1795, when the city’s finances had reached very high deficits and it was impossible to defray the loans which had already fallen due. To solve this problem 362,800 tickets were put on sale for 10 lire each. Each ticket entitled the holder to a fixed income, either in the form of a tontine or for a term of years, and was assigned by drawing ___________ 35 AST, Inventory 071.3 Economic affairs. Additional inventory for economic affairs – Monti – Folder 1, Fascicle 8. 36 On tontine-lotteries and other French tontines see Julien Coudy, La ‘Tontine royale’ sous le règne de Louis XIV, (1957) Revue historique de droit français et étranger 127– 147, (1959) 326–340; Robert Jennings and Andrew Trout, The Tontine: from the Reign of Louis XIV to the French Revolutionary Era (1982); Georges Gallais-Hamonno, Nicolas Zamfirescu and Laurent Monsigny, Le ‘risqué de montant’ des primes de rentes viagères. L’exemple de la loterie-tontine de 1743, (2006) 57/3 Revue économique 615–622; David R. Weir, Tontines, Public Finances and Revolution in France and England, 1688– 1789, (1989) 49/1 The Journal of Economic History 95–124; Robert Jennings and Andrew Trout, The Tontine: Fact and Fiction, (1976) 5/3 Journal of European Economic History 663–670; Georges Gallais-Hamonno and Jean Berthon, Les emprunts tontiniers de l'Ancien Régime. Un exemple d'ingénierie financière au XVIIIe siècle (2008).

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lots among the participants. To manage the lottery the Cassa was set up. It remained in business, operating other initiatives until the early 19th century before later suspending its business, only to resume temporarily until finally being dissolved in 1847.37 There still remained a moral inhibition and some technical doubts about accepting this kind of finance; these concerns appear in the writings of economists, jurists, and politicians, all of whom continued to prefer life annuities.38 II. From public to private … and back again In Italy as elsewhere, with the transition from public to private management we see a transformation of tontines, which ceased to be negotiable instruments issued by the State and took on functions of a provident and insurance character. Nevertheless, the transition from public to private was never complete and final: the involvement of the State did not cease at this moment. In the 19th century several different situations existed. 1. Kingdom of Naples In June 1829 approval was given for the plan, first proposed in the previous February by Carlo Forquet (1774–1838), Giuseppe Filippi, and others, of a Società a tontina per le assicurazioni marittime, renamed in 1841 as the Nuova società tontina di assicurazioni marittime, with the purpose of covering marine perils. The premiums would be adapted to the circumstances of the voyage. The initial capital was 60,000 ducats, consisting of 1,000 shares of 60 ducats each, later increased to 75,000 in 1,250 shares of 60 ducats. Every year a given number of shares, chosen by lot, would be paid off using three fifths of the net profits: ʻridotte quindi le azioni a 125, verrà ripartito fra esse il capitale sociale per sorte e con istabilita proporzioneʼ (ʻthe shares being thus reduced to 125, the share capital will be divided among them by lot and in fixed proportions’).39 ___________ 37 Vincenzo Pautassi, Gli istituti di credito e assicurativi e la borsa in Piemonte dal 1831 al 1861 (1961), 178 ff. See also in the Turin State Archive, Inventory 177.21 Towns. Towns in alphabetical order: Towns from Taggia to La Turbie, Folder 10 – Turin, Fascicle 16. This initiative was probably not very successful: on 4 June 1796 (Fascicle 21) there was a public announcement offering the unsold tickets for reduced prices. 38 ʻThey are an embarrassing form of debt’, because it needs nearly a century to discharge: Ignazio Donaudi delle Mallere, Saggio di economia civile (Turin 1776), 152 ff. He was a member of the Commercial Council of the Kingdom of Sardinia. 39 Paola Avallone, Trasformazioni e permanenze in campo assicurativo nel Mediterraneo: il caso del Regno di Napoli tra XVI e XIX secolo, in: Raffaella Salvemini (ed.), Istituzioni e traffici nel Mediterraneo tra età antica e crescita moderna (2009), 161–197.

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2. Papal States In 1837 Gregory XVI authorized the creation in Rome of a ʻsocietà anonima commerciale diretta alle assicurazioni di vita, ed incendi, delle merci viaggianti per terra, e delle campagne dalla grandineʼ (‘commercial limited company for life assurance, fire insurance, insurance on the carriage of goods by land, and insurance of agricultural land against hail’), to be known as the Privilegiata Società pontificia di assicurazioni.40 Ten years later, in 1847, under the pontificate of Pius IX, the company also began to operate as a mutual association based on tontines, using the model imported into Italy by the French company L’Équitable (which catered for all subscribers together and did not divide them by age or category).41 The stated aim was to provide for individual and social needs as well as to create capital and increase personal wealth, thus uniting in a single institution the functions of insurance, a provident society, and mutual assistance. Una sola associazione comprende tutte le operazioni immaginabili, a qualunque scopo siano dirette, cioè di assicurarsi o assicurare ad altri una migliore esistenza; di provvedere a futuri bisogni altrui, di dotare fanciulle, di formare un fondo per l’educazione, di migliorare un patrimonio, di costituirlo anche integralmente. A single association includes all imaginable operations, for any of the following purposes, that is to say ensuring a better life for oneself or others: providing for the future needs of others, providing dowries for maidens, creating a fund for education, increasing personal wealth, or even creating wealth.42

The examples mentioned in the ‘Practical Manual’, published in conjunction with the ‘Regulations for Mutual Associations’, were numerous: employees who had no pension rights or who foresaw that their pensions would be insufficient, artists and members of the liberal professions, parents wishing to provide a dowry for their daughter or an education for their children, or looking to leave an inheritance for their younger sons, and so on. Subscribers would pay a given amount, in a single payment or in instalments, depending on individual economic resources, which would be tied up until a set date. The income so produced would later be increased by the capital and income of members who died or failed to comply with their obligations, and reinvested annually until the expiry date; at that point the income and capital could be re-

___________ 40 Regolamento e Sovrana Autorizzazione della Privilegiata Società Pontificia di Assicurazioni (1838). 41 Privilegiata Società Pontificia di Assicurazioni, Regolamento per le associazioni mutue (1847). 42 Privilegiata Società Pontificia di Assicurazioni, Manuale pratico per le associazioni mutue e risoluzione della direzione approvata dal Consiglio amministrativo per facilitarle (1847), 31.

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paid, converted to annuities, or partially reinvested. Insurance could also be arranged for the benefit of third parties, for example to ensure the livelihood of a widow, a spinster, or a person unable to work. 43 3. Kingdom of Sardinia In the Kingdom of Sardinia, and in much of the Italian peninsula, tontines were mostly in the hands of foreign companies which took the money they collected abroad. Forme relativamente moderne di assicurazione sulla vita erano praticate in Piemonte nei primi anni del secolo, ma nell’ambito di istituzioni pubbliche che esercitavano un richiamo insistente sul risparmio privato, offrendogli combinazioni più o meno allettanti con vitalizi, tontine, costituzioni dotali, ecc. Relatively modern forms of life insurance were practised in Piedmont in the early years of the century, but in the context of public institutions, which were keen to promote private savings, by offering them in more or less advantageous combinations with annuities, tontines, dowry funds etc.

Despite this, ʻla carenza di imprese nazionali che esercitassero i rami elementari aveva costretto il governo piemontese a non respingere le richieste avanzate da compagnie straniereʼ (ʻthe lack of domestic firms carrying on these basic branches of business had compelled the Piedmontese government not to reject applications from foreign companies’), particularly French ones.44 In Turin, local insurance enterprises appeared only in 1829, when the Società Reale di assicurazione generale e mutua started doing business. This company took the form of a mutual insurance association and operated mainly in the fire insurance sector. With the intention of promoting protectionism, in 1852 there was founded the Società delle Tontine Sarde (Royal Decree of 16 December 1852) on the initiative of Cavour – who regarded the system of tontines as a speedy and secure means of financing public expenditure – and Leone Pincherle (1814–1882). Its management was entrusted to Assicurazioni Generali of Venice, which as early as 1840 was authorized by Charles Albert to carry on all manners of insurance business in the kingdom.45 As far back as 1833, Assicurazioni Generali had carried out a feasibility study on offering insurance to the public based on the tontine system, but the plan was not accepted by the management of that company. In 1850 a new proposal by Pincherle was accepted, on the basis that it would be ___________ 43

Privilegiata Società (n. 42), passim. Bruno Caizzi, Assicurazione ed economia nell’età moderna, in: L’assicurazione in Italia (n. 20), 419. 45 On the Società delle Tontine Sarde, see Marco Marizza, Le attività delle Generali nel campo delle tontine, in: L’Archivio Storico racconta. Vicende e personaggi delle Assicurazioni Generali nell’Ottocento (2012), 152–155. 44

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implemented first in Piedmont and later in the Habsburg territories. The idea arose from an agreement between Pincherle and Cavour, entered into for the purpose of reducing the drain of capital to France: for this reason the articles of association of the company provided that all funds invested in tontines should be immediately converted into bonds forming part of the national debt of the Savoy monarchy. The articles of the company also provided that tontines should be divided into five groups; each group could include a limited or unlimited number of assured, but never less than 10, and could be open either to all ages or only to persons of the same age. Premiums could be paid either as a lump sum or in instalments; if all members died before the dissolution of the tontine, the entirety of assets would revert to the Crown.46 The Società delle Tontine Sarde, which had started business in 1850, was officially approved by a decree of 16 December 1852 by King Victor Emmanuel. It was an institution which was hitherto altogether non-existent in the kingdom; it was a state initiative, entrusted to a private company. Between 1853 and 1863 the Società delle Tontine Sarde launched at least five operations, lasting 10, 15 and 20 years, with the stated aim of allowing everyone ʻmediante tenui economie … di preparare una dote alle figlie, un capitale ai figli od una risorsa per se medesimi quando per l’avanzata età il riposo diventa un bisognoʼ (ʻwith small savings … to accumulate a dowry for daughters, capital for sons or a resource for themselves when they need to retire because of their advanced age’).47 Even if the stated aim of obtaining funds for the State Treasury to solve the state’s financial problems no longer applied, there still remained the objective of keeping private capital within the Kingdom. The major problem was actually that represented by competition from foreign insurance companies; Assicurazioni Generali, although legally an Austrian company, was not bound by its regulations to invest its accumulated capital in Austrian state securities. Conversely, other companies – especially the French company Caisse Paternelle which carried on business in the territory of the Kingdom, offering various forms of investment, including tontines – took the capital so accumulated back to their home countries. It was not by chance that, shortly after the creation of the Società delle Tontine Sarde, the Piedmontese government presented for the first time a Bill for the purpose of regulating tontine companies in the Kingdom; the Bill set two man___________ 46 Historical archive of Assicurazioni Generali, Articles of Association of the Società delle Tontine Sarde (Turin, 16 November 1850). I am grateful to Dr. Marco Marizza of the Historical Archive for this valuable information. 47 Calendario Generale del Regno pel 1859, XXXVI (1859), 585.

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datory requirements, namely prior authorization and the duty to invest accumulated capital in securities of the Kingdom of Sardinia. This provision of course met with a strong reaction, both in the parliamentary debates and from La Caisse Paternelle, which sought the opinion of one of the most important Italian economists of the time, Antonio Scialoja (1817–1877). Scialoja presented an argument which took as its point of departure the accusation of immorality which had always been made against tontines. According to Scialoja, it was no longer the case, as it had been in the past, that subscribers would invest their entire assets in tontines to the detriment of their families; now, tontine companies received small savings amounts that would not otherwise have been invested and cannot ʻbe condemned as immoral or deleterious’. Furthermore, he added, the French company was sound, and the subjects of the Kingdom of Sardinia, who were in any case a tiny fraction of the total number of investors, would be deprived of the chance of a profitable investment. The statutory requirement to invest the funds in securities of the Kingdom would shut the Paternelle out of the market of the Savoy states without securing significant advantages for national companies or for productive business.48 Parliament, however, chose to vote the other way (see below). The Società delle Tontine Sarde, nevertheless, had no more than modest success, accumulating in the course of 10 years only a couple of million lire; private individuals preferred to place their confidence in individual policies offered by insurance companies, especially foreign ones, operating in the market. It was a difficult situation, which was also discussed in Parliament, when Senator Carlo Ignazio Giulio (1803–1859) and the Minister of Finance again argued that preference should be given to the Tontine Sarde.49 It should be noted that Assicurazioni Generali preferred not to use the tontine form in the territories of the Empire nor in the rest of Italy, instead resorting to more modern forms of life insurance. 4. Kingdom of Italy After unification, in 1863 the Società delle Tontine Sarde was authorized to carry on business throughout Italy (Royal Decree of 28 June 1863) and changed the company name to Società di Tontine Italiane (Royal Decree of 18 October 1863 No. 937).50 It soon became clear, however, that the system of tontines was ___________ 48 Antonio Scialoja, Brevi note sulle tontine e sull’articolo II del progetto di legge riguardante le associazioni mutue ecc. (1853), passim. On this subject see also the Introduction of Fabrizio Bientinesi and Gabriella Gioli in: Fabrizio Bientinesi and Gabriella Gioli (eds.), Antonio Scialoja. Opere, vol. 4 (2012), xiii f. 49 See Pautassi (n. 37), 216. 50 Official collection of laws and decrees of the Kingdom of Italy. Supplementary Part III (1863), No. 795 Regio Decreto con cui è fatta facoltà alla Compagnia anonima delle

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not achieving the desired results; the report and annual accounts of 1871 stated that ʻthe results do not meet the expectations formed by investors’. The last set of tontines of Assicurazioni Generali expired in 1884 and no further ones were created. In 1893, in Turin, on the initiative of Giovanni Battista Diatto and on the model of the French company Les prévoyants de l’avenir, the first national provident society was formed, the Cassa nazionale mutua cooperativa per le pensioni, ʻche doveva tanto influire sulle future sorti delle tontine in Italiaʼ (ʻwhich was to have so much influence on the future fortunes of tontines in Italy’).51 The form was similar to that of a tontine: the amounts paid in annually by members went towards a capital fund for the purpose of granting pensions payable after 20 years of membership. If a member died before becoming entitled to a pension, the entire amount paid in was forfeited. Disputes soon arose among the members of the Cassa, leading the government to make enquiries not only about the internal workings of the Cassa but also about tontines in general and the need to regulate these in more detail. Tontines were made subject to increasingly severe laws up to 1912, when the Istituto Nazionale di Assicurazioni (INA) was formed, the Cassa was wound up, and all tontine associations were prohibited.52

D. Legislation on tontines As mentioned above, in the Kingdom of Sardinia (the state of most interest to us, given its importance in the process of national unification) the first legislation governing tontines was in force only from 1853, when on 30 June a law was published regulating public companies and mutual associations. This law required government authorization for all public companies, whether mutual or not, and for companies limited by shares, whether national or foreign, and provided that all ʻmutual associations [insuring] human life or Tontines’ should invest all premiums received in public funds of the State. This was in response to a problem which existed in the Sardinian states. The Commercial Code of 1842 in force there required governmental authorization for ___________ assicurazioni generali in Venezia, amministratrice della Società denominata delle Tontine Sarde ad estendere in tutto il Regno le sue operazioni; No. 938 Regio Decreto che autorizza la Società Tontina di assicurazione mutua stabilita negli antichi Stati Sardi ad assumere la denominazione di Società di Tontine italiane. 51 Torriani (n. 6), 84. 52 On these developments see Chiara Giorgi, Alle origini della previdenza nazionale: l’INA e la Cassa mutua cooperativa italiana per le pensioni, (2005) Le Carte e la Storia 142–154.

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national companies, but as concerns foreign tontine companies a principle of tolerance had become established, which acted to the detriment of the regnicoli (inhabitants of the Kingdom), the domestic companies, and the State treasury. For this reason, in 1852 Cavour, then president of the Council and Minister of Finance, had presented a Bill in the Chamber of Deputies for the purpose of safeguarding three different but equally important interests: those of the contracting parties, which would be better protected by public control; those of domestic companies, which would no longer be put in a position of disadvantage in free competition with foreign companies; and those of the public purse, with the introduction of a new system of taxation. By reading Cavour’s speech presenting the Bill and his contributions to the following parliamentary debate, we can obtain a clear impression of the prevailing opinion about tontines. Tontines were no longer expressly authorized by law but merely tolerated; they were still associations which were often in the nature of lotteries and as to which the government owed a duty of supervision in order to protect the public from potential fraud. The fact that Cavour himself had urged the formation of the Società delle Tontine Sarde did not prevent him from expressing a critical view of tontines. Cavour explained that he did not believe that the way in which they operated was so immoral in nature or so economically detrimental that they should not be allowed to carry on business in the territory; nevertheless, se il Ministero non ha creduto che le società di assicurazioni mutue sulla vita fossero di natura tale da doversi dalla legge vietare, non credo nemmeno essere di natura tale da meritare di essere promosse con speciale favore. while the government does not believe that mutual life insurance associations should be forbidden by law, all the same I do not believe that they deserve to be encouraged by any special favour.

He further observed that di ben diversa natura sono le assicurazioni sulla vita a premio fisso. Queste sono un contratto eminentemente morale life assurance for a fixed premium is quite another matter. This is an eminently moral type of policy

which deserved to be favoured and encouraged because of its nature as a means of provision for dependents. È un sacrificio che l’individuo fa a beneficio dei suoi eredi, della sua prole o dei suoi congiunti, mentre invece il contratto di tontine è un sacrificio che si fa nella speranza di un maggior vantaggio personale in caso di sopravvivenza, ma che va interamente perduto per lo più per i suoi eredi, per la prole, per i suoi congiunti nel caso di morte prematura. This is a sacrifice which the individual makes for the benefit of his heirs, his children, or his relatives, whereas a tontine contract by contrast is a sacrifice made in the hope

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of a greater advantage to oneself if one survives, but which for the most part will be entirely lost by heirs, children, and relatives if one dies early.

Once more, moral arguments were resorted to. Apart from these arguments we must not forget the economic motivation inspiring the Bill: preventing domestic capital from being invested abroad. After unification, the provisions of the Commercial Code of 1865 continued to ignore non-marine insurance and still more so tontines; insurance businesses were equated to commercial companies and therefore made subject to the system of prior authorization and governmental supervision that applied to such companies. This was regarded by one author as an excessive degree of control and a ʻuseless and hurtful limitation of freedom’53 and therefore abandoned in the next version of the Code. Article 145 of the Commercial Code of 1882, which addressed life assurance companies but only in a very marginal fashion, made no provision for control or supervision and simply provided that: Le società di assicurazioni sulla vita e le società amministratrici di tontine, nazionali od estere, devono impiegare in titoli del debito pubblico dello Stato, vincolati presso la cassa dei depositi e prestiti, un quarto se sono nazionali, o la metà se sono estere, delle somme pagate per le assicurazioni e dei frutti ottenuti dai titoli medesimi. Life insurance companies and companies administering tontines, whether domestic or foreign, must invest in State securities, listed by the cassa dei depositi e prestiti (deposits and loans office), one quarter, in the case of domestic companies, or one half, in the case of foreign companies, of all amounts paid for insurance and the profits earned from those securities.

However, as Serena Potito observes, the result of this legislation was problematic: Un obbligo che rappresentava l’unica garanzia per gli assicurati e che benché intendesse inizialmente creare un privilegio per le imprese nazionali, si rivelò viceversa essere un vantaggio per le società estere. Infatti, in virtù di tale vincolo, queste ultime venivano preferite dal pubblico perché si riteneva che il maggior deposito offrisse una garanzia di solidità e buona amministrazione. A restriction representing the sole protection of persons assured, and which was originally intended to privilege domestic businesses, in fact worked to the advantage of foreign companies. Because of this restriction, foreign companies were preferred by the public because it was thought that this higher deposit ensured financial probity and good administration.54

This situation called for a remedy. Accordingly, tontines were finally taken into account in the course of the extensive parliamentary debates which arose in the second half of the 19th century and the first decade of the 20th as to the advisability of creating a monopoly in the area of life insurance business. Especially ___________ 53 54

‘Tontine’, in: Nuovo Digesto Italiano (1940), 249–251, 250. Serena Potito, L’INA. Gli anni del monopolio (1912–1923) (2017), 29.

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in the early stages there were doubts about the advisability of creating a monopoly, but it was strongly felt that there was a need for greater discipline for insurance companies and a general overhaul of that sector. Many Bills – by Paolo Boselli (1838–1932), Augusto Barazzuoli (1830–1896), Luigi Rava (1860– 1938), Luigi Luzzatti (1841–1927), and Ranieri – had clearly displayed a concern over filling a legislative gap and making effective the protection offered by insurance companies; even if a requirement of prior authorization was regarded as excessive by some, there was nevertheless a wish for a discipline allowing greater visibility in respect of annual accounts, tables, premiums etc.55 The discussions then took another direction, aimed at combating the ʻflight of capital abroad’ that was caused by competition from foreign insurance companies doing business in Italian territory. This was understandably regarded as a threat to national savings and, therefore, as a political problem as well. There was a widely held opinion in parliamentary circles, promoted in particular by Francesco Saverio Nitti (1868–1953) and Giovanni Giolitti (1842–1928), that foreign insurance companies doing business in Italy did more harm than good because ʻi capitali stranieri investiti nelle assicurazioni non giungevano in Italia per creare o rafforzare attività industriali, ma solo per dar vita ad una sorta di esportazione organizzata del risparmio nazionaleʼ (‘foreign capital invested in insurance did not have the effect of creating or encouraging industrial activities in Italy, but only of promoting a sort of organized export of national savings’),56 thus favouring the credit and industry of the home countries of these companies. 57 The debate about insurance eventually grew to cover tontine business as well given that it, as mentioned above, was mostly controlled by foreign companies. In April 1899 a Bill on tontines was presented, taking account of the opinion, expressed by the Associazione per l’incremento della scienza degli attuari (Association for the promotion of actuarial science),58 that tontine business was based on principles that were technically incorrect, and containing rules more rigorous than those provided by the Commercial Code. This Bill became law only ___________ 55 See the observations of Cesare Vivante, Le imprese di assicurazione sulla vita, (1886) 1 Rivista italiana per le scienze giuridiche 77–108. 56 Ennio De Simone, Le assicurazioni nella storia d’Italia, in: Carlos Barciela López et al. (eds), Le assicurazioni. Sicurezza e gestione dei rischi in Italia e Spagna tra età moderna e contemporanea (2016), 21–44, 38. 57 On this subject see also Roberto Baglioni, L’affermazione delle società assicurative nel capitalismo italiano (1919–1940), (1997) 38/2 Studi Storici 431–468. 58 Headquartered in Milan, the Association was formed in 1897 (chronologically far later than the corresponding English and French bodies) to encourage the study of mathematics as applied to insurance, financial transactions, and the economic and social sciences. The rules of the Association are published in (1897) 15 Giornale degli economisti 487–490.

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in 1902 (Act No. 9 of 26 January 1902) and provided that associations and companies which senza assicurare il pagamento di capitali o rendite che siano determinate tecnicamente in base ai contributi e alle probabilità di sopravvivenza degli iscritti, si propongono di raccogliere contribuzioni di denaro allo scopo di assegnare, in corrispettivo delle medesime, capitali o rendite o dividendi in relazione alla durata e agli eventi della vita degli iscritti o di terzi without ensuring that payments of capital or income would be set scientifically on the basis of the contributions and life expectancies of members, propose to collect money contributions with a view to assigning, in exchange for those contributions, capital sums, incomes, or dividends depending on the duration of life or life events of contributors or third parties

must obtain governmental authorization and must invest the entirety of the amounts received from contributors together with interest in public securities of the Kingdom or in securities guaranteed by the State and issued by institutions authorized to carry on mortgage-lending business in the Kingdom.59 In substance, new duties and new specific rules were added to those already provided by the Commercial Code for all companies. The procedure for governmental authorization and supervision was brought to perfection in 1907. And in 1908 the Cocco-Ortu Bill sought to make the existing provisions even more complete.60 However, there was still a stronger conviction that tontines were an obstacle to the ʻhealthy practice of popular insurance’ and that, as concerned foreign companies, the government was not in a position to exercise adequate supervision to protect national interests. 61 On 21 December 1910 the first plan to abolish tontines altogether (the Ranieri Bill) was presented, inspired by precisely these reasons. 62 The Bill failed in the course of its passage through Parliament, but in 1911, in its report to the Chamber on the new Life Assurance Bill, the government did not even see the need to explain its reasons for favouring abolition and confined itself to mentioning that there was unanimous agreement on the need to put an end to an unsustainable situation. The Bill was approved, and in 1912 the Act was promulgated, bringing about INA’s monopoly on life assurance and the disappearance of tontines. The state monopoly in the insurance field was achieved by Giolitti as part of a wider plan that was not only economic but also political. It was based on the idea that the ʻgaranzia sicura dello Stato avrebbe provocato un incremento della previdenza sotto forma di assicurazione sulla vita e i proventi delle assicurazioni ___________ 59

Torriani (n. 6), 85. For a brief description of the parliamentary history see Giuseppe Valeri, Legislazione sulle tontine, (1909) 7 Rivista di diritto commerciale 93–95. 61 ‘Tontines’, in: Nuovo Digesto italiano (n. 53). 62 Atti Parlamentari, Camera dei deputati, legislatura XXIII. 60

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delle classi più agiate avrebbero accresciuto la misura delle pensioni degli operaiʼ (‘secure backing of the State would bring about an increase in provident arrangements in the form of life assurance and profits from the insurance of the wealthier classes would increase the amount of workers’ pensions’).63 As a result of this new law, tontines were doomed finally to disappear: even though during the debates on the text of the Bill there may have been differences of opinion about the proposed monopoly, it seems clear that everyone was nevertheless in agreement on the dissolution of tontine companies. Article 22 of Act No. 305 of 4 April 1912, concerning ‘arrangements for the provision of insurance on the duration of human life by a National Insurance Institute’, imposed an absolute prohibition in Italy on tontine or redistribution associations, whether Italian or foreign.64 Article 23 of that Act further provided that members of tontines had a right of withdrawal. If they did not exercise this right, members who were workers would be enrolled in the Cassa nazionale di previdenza, and members who were not workers would ʻbe deemed to be insured, by a deferred contract for an annuity or lump sum’, with INA. At that time in Italy there were four bodies authorized to carry on tontine business, two that were Italian (the Cassa Mutua Cooperativa italiana per le pensioni and the Mutua Sicurtà, Società di soccorso in caso di morte) and two that were foreign (the Mutuelle de France et des Colonies and the Mutuelle Lyonnaise). INA accordingly absorbed the entire life insurance sector into a state monopoly: it was a public body, under the supervision of the Ministry of Agriculture, Industry and Trade but with independent management. In this way that model of insurance was enshrined in Italy, and the need for business to be carried on properly and underwritten by public management was reaffirmed. Only after the First World War did the State monopoly leave room for private companies to

___________ 63 Giovanni Giolitti, Discorsi parlamentari, published by the Chamber of Deputies, vol. 3 (1954), 1368, cited by Serena Potito, La costituzione dell’INA e il monopolio statale delle assicurazione (1912–1922), (2012) 15 Pecunia 163–200, 166–167. 64 Art. 22: ʻÈ vietato in Italia l’esercizio delle associazioni tontinarie o di ripartizione, sia nazionali che estere. Il Ministro di Agricoltura, Industria e commercio provvederà … alla nomina di un commissario Regio per ciascuna associazione nazionale o estera, il quale procederà all’accertamento della situazione patrimoniale e alla determinazione dei diritti dei singoli soci nonché delle quote percentuali loro spettantiʼ (ʻIt is forbidden for tontine or redistribution associations, whether Italian or foreign, to trade in Italy. The Minister of Agriculture, Industry and Trade will arrange … for the appointment of a Royal Commissioner for each Italian or foreign association, which will assess the financial position of the association and determine the rights of individual members and the percentage of shares to which they are entitled’).

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operate in this sector, thus permitting a gradual, but controlled, liberalization of the market.65 Not so in the case of tontines: the prohibition was retained. Article 12 of the Codice delle assicurazioni private (Legislative Decree No. 209 of 7 September 2005), which came into force on the 1 January 2006, still provides that tontines are forbidden.

___________ 65 As to the history of INA’s monopoly and as to the drafting of the Bill and parliamentary approval of transitional provisions, the main sources consulted are as follows: Atti parlamentari, Senato del Regno, Legisl. XXIII, I Sessione (1909–1912), documento No. 713; Antonio Scialoja, L’Istituto nazionale delle assicurazioni ed il progetto giolittiano di un monopolio di Stato delle assicurazioni sulla vita, (1971) 18 Quaderni storici 71–102; Fanfani (n. 1); Alberto Jorio, Impresa di assicurazione e controllo pubblico (1980), 55–99; I settantacinque anni dell'INA 1912–1987 (1987); Antonio Longo, Il contributo di Alberto Beneduce alla gestione e all’organizzazione dell’INA, in: Alberto Beneduce e i problemi dell'economia italiana del suo tempo (1985), 123–129; Gianna Del Bono, Le origini dell’INA. Aspetti e problemi, (1978) 8/3 Ricerche storiche 655–715; Potito (n. 63); eadem, L’INA. Gli anni del monopolio (1912–1923) (2017).

Chapter 12: Tontines in Spain By Rafael Illescas A. Introduction ............................................................................................................ 229 B. A short history of tontines ...................................................................................... 229 C. Three competing approaches for conceptualizing tontines ..................................... 233 D. Spanish legislation on tontines ............................................................................... 234 E. Conclusion .............................................................................................................. 236

A. Introduction In Spain and Portugal, tontines are a historical phenomenon only. Of course, today’s law often has its origins in past traditions, and the same may be said with respect to large parts of insurance practice and the law on the Iberian Peninsula. However, it is not possible to categorize tontines as insurance in the modern sense. Instead, they were a hybrid between a lottery and a pre-form of insurance. These four sentences are, in essence, the conclusion of this contribution on tontines and on legislation concerning tontines in both the Iberian countries. From a methodological perspective, there is a second conclusion which I can draw from my research: the scarce history of Iberian tontines is best presented separately for Spain and Portugal. Tontine transactions, their regulation, and the embedded financial operations were different in both countries, and it is not possible to identify a parallel evolution of the applicable law. I will focus on the developments in Spain. An early example of a proposal for a tontine in Portugal is discussed in a separate chapter by Kent McKeever.1

B. A short history of tontines The history of tontines in Spain can be summarized in seven stages: (1) During the 17th and 18th centuries the term tontine was used to identify instruments of capital accumulation. They were issued in order to finance public projects mainly through private entities. The canal of Murcia may serve as an example. It was a canal in the eastern territories of Castile close to the Mediterranean Sea, trying to extend the navigable waters of the rivers Tagus and Douro ___________ 1

See McKeever, 193 ff., above.

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to the east and trying to install an irrigation system. The canal was financed through a scheme which was called a tontine. Nevertheless, the scheme was not a tontine in the narrow sense as we define it today: its sole purpose was to finance an infrastructure project. It was not introduced as any sort of pension scheme. 2 (2) It was only in the middle of the 19th century that modern tontines first appeared in Spain – at a time when Spanish insurance law was in a period of transition. It was the Código de Comercio of 18853 which first contained general rules on insurance contract law, covering fire, life, and maritime insurance. By contrast, the Código de Comercio of 1829 was limited to maritime insurance (Arts. 840–929) and to insurance for the carriage of goods over land (Arts. 417– 425). The code of 1829 followed Chapter 22 of the Ordenanzas de Bilbao of 1737, which similarly covered only maritime insurance and insurance for the carriage of goods over land.4 The Ordenanzas were the main legal text on commercial activities until 1829. Thus, only these two classes of insurance were regulated until 1885. However, the 1885 code did not only cover general insurance contract law. It was also much more precise and detailed than its predecessors. Between 1885 and 1908, both contract law and the administrative and financial perspectives of life insurance were further regulated. In 1908, a separate act on insurance law was enacted, the Ley de Seguros. However, the act did not cover insurance contract law. It was restricted to the regulatory side of insurance as the full title of the act reflects: Ley relativa á la inscripción en el Registro que al efecto se establece de las Compañías, Sociedades, Asociaciones, y en general, todas las entidades que tengan por fin realizar operaciones de seguro.5 With the enactment of the 1908 act, the transition period of insurance law came to an end. (3) In the middle of the 19th century and, thus, during this period of transition, the first tontines were issued in Madrid and Barcelona. In total there were approximately ten tontines. The most important were El Porvenir de las Familias (1851), El Montepío Universal (1856), and La Tutelar Compañía General Española de Seguros Mutuos sobre la Vida (1857).6 The rules of the Código de Comercio of 1829 on how to establish corporations and companies were rather restrictive, requiring in any event previous administrative authorization. Accordingly, a royal charter was required to set up a tontine. (4) Often, these mid-century tontines existed only for short periods of time, their existence was tumultuous, and they ended in scandals, insolvencies, and ___________ 2 D. José Musso y Fontes, Historia de los riegos de Lorca, de los ríos Castril y Guardal ó del Canal de Murcia y de los ojos de Archivel (1847). 3 Gaceta de Madrid, 16 October 1885, No. 289. 4 On the evolution of the insurance in Spain see Gabriel Tortella Casares (eds.), Historia del seguro en España (2014), 53 ff., 77 ff. 5 Gazeta de Madrid, 15 May 1908, No. 136. 6 On the details of these and further tontines see Tortella Casares (n. 4), 93 ff.

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default of payments, especially if they were so-called chatelusian schemes requiring payments to be made on a regular, periodic basis. In some cases, tontines transferred their profits overseas and continued to operate in some of the former American colonies. Notwithstanding these difficulties, tontines were initially the only instrument to offer something similar to life insurance. It was only after the enactment of the liberal companies act of 19 October 1869, the Ley declarando libre la creación de Bancos territoriales, agrícolas y de emisión y descuento, y de sociedades de crédito,7 that a variety of insurance products, including life insurance, were offered by Spanish and foreign companies on a so-called scientific basis. From that moment on tontines almost disappeared from the Spanish market. Nevertheless, in the 19th century tontines were not forbidden. In fact, the Código de Comercio of 1885, which is still in force today, mentions tontines in Art. 124: Las compañías mutuas de seguros contra incendios, de combinaciones tontinas sobre la vida para auxilios a la vejez, y de cualquiera otra clase ... sólo se considerarán mercantiles y quedarán sujetas a las disposiciones de este Código cuando se dedicaren a actos de comercio extraños a la mutualidad o se convirtieren en sociedades a prima fija. Mutual companies for fire insurance, mutual tontine life insurance schemes for assistance in old age, and any other class of mutual companies ... will only be considered a commercial undertaking and subject to this code when they perform commercial acts outside their mutual activities or when they become fixed premium companies.

Thus, a mutual insurance company offering tontine products is, in principle, not regarded as acting on a commercial basis and is not subjected to the code. The exceptions which Art. 124 provides for rarely applied. And life insurance was pursuant to Art. 416 usually (but not necessarily) operated on a commercial basis.8 (5) A legal change – the market situation did not change – occurred only in 1908 when the aforementioned Ley de Seguros was enacted. It was further developed by a royal decree in 1912.9 Both the act of 1908 and the decree of 1912 are the first Spanish pieces of legislation which established an up-to-date and comprehensive set of rules on insurance law. The 1912 decree was in force until 1985, when it was replaced by the Reglamento de ordenación del seguro privado.10 In 2015, it was repealed by the Real Decreto de ordenación, ___________ 7 Gaceta de Madrid, 21 October 1869, No. 294. Most importantly, the act abolished the system whereby the establishment of a company required royal authorization. 8 Art. 416 was repealed in 1980 by Ley de Contrato de Seguro, Boletin Oficial del Estado, 17 October 1980, No. 250. 9 Gaceta de Madrid, 16 February 1912, No. 47. 10 Boletin Oficial del Estado, 3 August 1985, No. 185.

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supervisión y solvencia de las entidades aseguradoras y reaseguradoras,11 which implemented European Directive 2009/138/EC.12 The pieces of legislation which were enacted in the beginning of 20th century introduced for the first time (and among many other relevant rules on insurance) a small set of provisions specifically on tontine associations: Art. 11 f. of the 1908 act and Arts. 42–47 of the 1912 decree. Paradoxically, this happened at a time when tontine associations were completely discredited and when they were of very little commercial and social relevance. (6) The following thirty years tontines continued to be almost inexistent. Their poor profits and financial problems were, however, still well-remembered. This led to a prohibition of tontines by Art. 4(6) of the Real decreto-ley sobre la Inspección Mercantil y de Seguros in 1926.13 Still, the ban was not complete: it was forbidden to establish new tontine associations as well as foreign tontine agencies in Spain, but it was permitted to continue to operate existing tontines. This exception lacked in fact practical relevance due to the inexistence of operating tontines. Nevertheless, tontines continued to be part of the conceptual and imprecise panorama of life and personal insurance. Tontines were fully banned by Art. 14(a) Ley de sobre ordenación de los Seguros privados of 1954.14 At that point of time, there was no single tontine still operating in Spain. It was their bad financial reputation which was the determinant factor in the full disappearance of tontine associations from the Spanish market. (7) The fact that tontines fell into oblivion, first commercially and then in the middle of the 20th century also legally, did not mean that their disappearance was final. Annex B(a)(4) to Ley de ordenación, supervisión y solvencia de las entidades aseguradoras y reaseguradoras of 201515 included tontines again in the list of permitted classes of life insurance: Ramo de vida y riesgos complementarios. a) El seguro directo sobre la vida se incluirá en un solo ramo, el ramo de vida, que comprenderá: … 4. Las operaciones tontinas, entendiendo por tales aquellas que lleven consigo la constitución de asociaciones que reúnan partícipes para capitalizar en común sus aportaciones y para repartir el activo así constituido entre los supervivientes o entre sus herederos.

Tontines are thus defined as operations ‘whereby associations of subscribers are set up with a view to capitalizing their contributions jointly and subsequently ___________ 11

Boletin Oficial del Estado, 2 December 2015, No. 288. Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II), OJ L 335, 17 December 2009, 1–155. 13 Gaceta de Madrid, 16 April 1926, No. 106. 14 Boletin Oficial del Estado, 19 December 1954, No. 353. 15 Boletin Oficial del Estado, 15 July 2015, No. 168. 12

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distributing the assets thus accumulated among the survivors or among the beneficiaries of the deceased’. The decision to readmit tontines was not made by the Spanish legislature. And tontines had not become en vogue again on the Spanish insurance market. Rather, the reintroduction of tontines as a permitted class of life insurance was based on the implementation of a number of European directives. And the definition of tontines in the act of 2015 corresponds to that of Art. 2(2)(a) of Directive 2002/83/EC.16 Ley sobre ordenación del seguro privado of 1984 was still unclear as to the re-approval of tontines.17 Article 3(a) only prohibited insurance operations that lack actuarial foundations, without mentioning tontines. Today, the words of the act of 2015 are clear. Nevertheless, the placement in the annex to the act still raises doubts. An annex to an act does not have the same legal binding force as the act itself. An annex is, in this respect, treated similarly to the preamble of an act. But does a preamble have binding force? Or does it contain solely additional remarks which are important for the purpose of interpretation? Leaving these doubts aside, it is clear that the act of 2015 again permits life insurers to offer tontine-based products in Spain.

C. Three competing approaches for conceptualizing tontines In essence, there are two opposed conceptual approaches to tontines: the cooperative approach and the individualistic approach. It is possible to identify these two approaches from the middle of the 19 th century, when tontines first appeared in Spain, until today. Finally, a third, mixed approach is identifiable in early 20th-century legislation: elements of chatelusian associations18 were added to tontine schemes. It is possible to find similar conceptual approaches in other European legal systems. The cooperative approach defines tontines as associations. During a fixed term, usually ten years, the members make monthly contributions. At the end of the term, the capital and the accumulated interest are distributed among the survivors or their heirs. This is how tontines function according to Annex B(a)(4) to the act of 2015. Thus, tontines are no longer annuity schemes, but savings associations. Moreover, tontines are, leaving the aforementioned exceptions aside, ___________ 16 Directive 2002/83/EC of European Parliament and of the Council of 5 November 2002 concerning life assurance, OJ L 345, 1–51. 17 Boletin Oficial del Estado, 4 August 1984, No. 186. 18 Chatelusian associations and mixed associations, the latter being in part tontines and in part chatelusian associations, were widespread in 19th-century Spain: Luis Benitez de Lugo Reymundo, Tratado de Seguros, vol. 3 (1955), 468 ff.

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not regarded as commercial enterprises. By contrast, Art. 42(1) of the 1912 decree is based on the individualistic approach. Accordingly, tontines are mutual savings associations in which members lose their rights to the capital and the accumulated revenues upon their death. Finally, the mixed approach finds recognition in Art. 42(2) of the 1912 decree: the members of such a tontine receive at a first stage only the interest on the capital; at a second stage the surviving members will split between themselves the remaining proceeds and the capital.

D. Spanish legislation on tontines Arts. 42–47 of the decree of 1912 reflect some characteristic features of tontines, but foremost they reflect the long and unfortunate financial experience with tontines in Spain. These experiences, thus, resulted in legislative efforts to eliminate, or at least reduce, the risk of a repetition of the economic distress generated by the malfunctioning of 19th-century tontines. The decree did so without prejudice to previous legislation. The 1912 decree was the first and only Spanish piece of legislation that provided for a full and comprehensive set of rules on tontines. Previous acts and royal orders were fragmented, they addressed isolated issues, most prominently the question of the concession needed to initiate a tontine scheme, and they did not offer a systematic, effective, and comprehensive legal regime on tontines. Thus, 19th-century legislation did not address all problems that need to be resolved in order to establish and operate a tontine in any appropriate way. Consequently, tontines were regulated during the largest part of their history by their by-laws and by contracts rather than by legislation. Furthermore, no piece of legislation following the 1912 decree has ever again included a systematic and comprehensive legal regime on tontines. However, the 1912 decree does not only represent the sole full and comprehensive piece of legislation on tontines. It also offers a unique response to the many problems that are associated with the operation of tontines. And the 1912 decree influenced later – as well as present-day – legislation on certain life insurance products even if they do not qualify as tontines. For these reasons, I will focus in this part of my contribution on the 1912 decree. (1) Tontines had to be registered in the public register of insurers: Art. 46. The register was established for all companies operating on the Spanish insurance market notwithstanding their legal nature. Tontines, and all other insurance schemes, had to be registered before starting to operate. The requirement of registration put tontines on an equal footing with commercial companies and separated them from purely private law associations. (2) The 1912 decree established a general obligation to deposit assets as security with the insurance register. The deposit had to be made when the tontine

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applied for registration. A minimum of 50,000 pesetas had to be lodged. The sum was very small. It is the equivalent of 300 Euros. In addition, a variable sum of up to 25,000 pesetas had to be furnished pursuant to Art. 44(7) for ‘every new group of insured persons set up and encompassed inside the individual general (tontine) association’. Under Art. 44(8) a ‘new group’ was ‘every group or section under the same management whose capital and revenues should be liquidated at a different date and whose individual contributions for this reason have to be kept in separate accounts’. (3) The 1912 decree introduced a third general requirement which had to be complied with when seeking registration. Under Art. 44(1), tontines had to obtain administrative approval for various relevant documents: the by-laws of the tontine, the general conditions of the policies, and further contractual documents, especially those governing the payment of the revenues and the capital to its members. (4) Furthermore, a number of limitations were introduced as to how tontine assets could be invested. These limitations had already been introduced by the 1908 act. Under Art. 12 of the act, only two options were open to the managing board of a tontine: to deposit the assets with the Bank of Spain or to invest them in Spanish public stocks. The former option was only of a subsidiary nature. Only if the board did not invest in public stocks was there then an obligation to deposit the assets with the Bank of Spain. And the deposited assets were at the disposal of the board in order to invest them in public stocks at any time. Furthermore, the 1912 decree included a large number of provisions on the internal corporate structure and financial administration of tontines, most prominently on the relationship between the managers and the members of a tontine. The most relevant of these provisions may be summarized as follows: (5) In the case of a pure tontine, the member’s share in the capital and the dividends had to be calculated on the basis of the number of members who had survived to a certain date. This date had to be predetermined in the by-laws. The heirs of deceased members had no right to the capital and its proceeds. Furthermore, the surviving member must not have lost his rights in the tontine either voluntarily or on the basis of the by-laws: Art. 42(1). (6) Under Art. 45(1), tontines were not allowed to pay periodically fixed sums to their members even though the members had agreed to invest periodically fixed sums into the tontine scheme. (7) According to the principle of freedom of contract it should have been possible to define in the by-laws any period of time which the tontine was going to run. However, the 1912 decree limited this freedom. Under Art. 45(3) a tontine was to run for a minimum of 10 years and a maximum of 20 years. This time frame was also mandatory for chatelusian schemes.

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(8) With respect to the distribution of the capital and its proceeds, the 1912 decree was more relaxed with regards to chatelusian schemes and mixed tontines: Art. 45(2). In principle, each member’s share in the capital and its proceeds was to be calculated on the basis of the contributions which he had paid. However, it was open to the issuer to deviate from this principle and introduce additional parameters for calculating each member’s share. However, these parameters had to be part of the by-laws of the scheme, which had to be approved by the supervisory authorities. (9) Article 44(6) introduced some important provisions concerning the management of tontines in case the management was entrusted to a separate commercial undertaking. Most importantly, the tontine members’ general assembly had to approve of, or reject, the annual financial statement, including the details regarding the calculation of each member’s share in the capital. Furthermore, the annual income, and also any generated deficit, had to be included in the accounts of the tontine, and it was not allowed to transfer them to any external accounts. (10) Finally, under Art. 47(3)–(4), it was the board of directors which was primarily liable in the event of a breach of either the 1912 decree or the by-laws of the tontine. The liability of the association of all members of the tontine was only of a subsidiary nature. The 1912 decree contained further provisions which, albeit less relevant, are still worth reading. In fact, the approach taken by the decree is relatively modern. Furthermore, it was a clear reaction to the negative experiences with tontines in the second half of the 19th century, and its aim was to prevent history from repeating itself. Nevertheless, the action was taken too late as tontines had already disappeared from the Spanish financial markets in the beginning of the 20th century.

E. Conclusion Some general conclusions may be drawn from the above analysis, and I will present them in the form of questions: (1) Were tontines by the change of their nature and the change of their structure transformed from associations of the past into present-day financial products? The act of 2015 and the European directive which the 2015 act implements do not reinstate the historical tontine but rather overcome it. Accordingly, tontines are no longer seen as associations of persons seeking provision for their retirement but as a specific, and exotic, sub-class of life insurance, legally conceptualized as a mere operation without corporate relevance. (2) From the success which tontines experienced in the middle of the 19th century to today’s practical non-existence – is this the end of the story? The Spanish

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answer is a tentative yes: tontines have survived as an idea, but not as an investment product of any practical relevance. And they had disappeared from the financial markets when there were, as of then, no real competing pension products available. When the market for pension schemes and life insurance greatly expanded – among other factors due to the solvency of these products – tontines had already disappeared from the market. One main factor leading to their disappearance was, of course, the mismanagement which tontines had experienced. In addition, public opinion linked tontines to pyramid-sales-schemes, and they therefore lost acceptance. Furthermore, the hereditary principle which is characteristic of tontines is, to the Spanish eye, defective: the annuity which any member of a tontine scheme receives is dependent on the lives of the other members of the same scheme. And the last surviving member of the scheme makes a considerable profit, whereas the members who die first basically lose their investments. This makes tontines less attractive in comparison to insurance and pension schemes, which predefine the sums which the insured receives. The Spanish evolution, with the appearance of chatelusian schemes and mixed tontines, tried to reduce what can be regarded as excessive benefits for the last survivors in classical tontines, a concentration which is detrimental to most its members and their heirs. (3) Progressing from a time when insurance law was in a transition period to a state of specific regulation of tontines and from there to a regime of general regulation for all insurance- and pension-related products, is today’s commercial irrelevance of tontines also a consequence of this development? Indeed, the legal regime concerning tontines has evolved only in the early 20th century. No unregulated contracts and no unregulated institutions were able to survive this development. Tontines as well as unregulated contracts and unregulated institutions have shared the same fate. Whereas for many centuries the lack of insurance regulation was acceptable, the same has not been true for the past century, and the same is not true today. (4) Was it a development from a market with monopoly-like structures to a highly competitive and highly successful life insurance market and from there to a dysfunctional market with scandals? For the time being the Spanish answer seems to be in the affirmative.

Chapter 13: The Evolution of the Tontine in North America By Kent McKeever A. Introduction ............................................................................................................ 239 B. The first tontines in the United States ..................................................................... 240 C. Other early ventures ............................................................................................... 242 D. Tontine projects outside the United States.............................................................. 244 E. Tontine, the word, in other circumstances .............................................................. 245 F. Tontine life insurance ............................................................................................. 246 G. Possible attempts to introduce a French-style tontine to New York ....................... 252 H. Tontine associations with ‘assignments’ of standard life insurance ....................... 252 I. Outright frauds ....................................................................................................... 253 J. Clubs ...................................................................................................................... 255 K. Conclusion and the future ....................................................................................... 257

A. Introduction Tontines first emerged in North America through a number of project-related funding devices rather than as annuity products. Several major hotels and other commercial buildings were financed via tontines between 1790 and 1830. As these free-standing tontines died out, immediately after the Civil War (1861– 1865) the idea was adopted to sell a form of life insurance that grafted a lapsedpayments tontine-like device onto a traditional whole life or endowment policy. Later these became modified into semi-tontine or deferred dividend policies. In that form they were the most widely sold life insurance policies in the United States through the end of the 19th century. In addition, from around 1890 through 1910, the word tontine was also incorporated into essentially fraudulent investment policies that were predecessors to what became known as Ponzi schemes after the collapse of Charles Ponzi’s (1882–1949) company in 1920. The evolution of traditional tontines into modern annuity structures following the continental European model did not take place in the United States, with one minor exception. On the whole, the American use of the tontine form tended to copy British rather than French or other continental models in that they were to finance specific projects rather than to create a financial instrument like an annuity.

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B. The first tontines in the United States The earliest American tontines appeared in the early 1790s. Two key ones were Alexander Hamilton’s (1757–1804) proposal for a National Tontine to stabilize the post-Revolution economy and the New York Tontine Coffee House. Two major additional ones, in Boston and Philadelphia, abandoned the tontine format before their capital was transformed into other business organizations. The only serious proposal for a traditional financial tontine came in the aftermath of the American Revolution (1765–1783) and was derived from William Pitt’s (1759–1806) 1789-tontine in England. In 1790 Hamilton presented to the United States Congress a plan to use a national tontine as one prong in a threepronged approach to paying the National Debt after the revolution. That part of his plan was never adopted.1 In the early 1790s, tontine associations were created in New York City, Boston, and Philadelphia. In New York, the project succeeded in financing a public building which was the premier public venue in the city for the next few decades. In Boston, while the group amassed significant capital, it was ultimately denied a charter using the tontine form, and the capital was used to create a bank instead. In Philadelphia, the proposed tontine ultimately became an insurance company. In New York, the Tontine Association built the Tontine Coffee House, opening in 1794. There were 203 shareholders at 200 dollars a share. As was standard in Great Britain, the shareholders did not have to name themselves as the life on which participation was based, and therefore many shareholders named children, to make sure the interest lasted as long as possible. The Coffee House was the first physical home of what later became the New York Stock Exchange. At first it was a very successful institution, not just as the place for stock trading, but as the location of many public meetings throughout the early part of the 19th century. As the city evolved, the place became a tavern, then a hotel, and it was finally torn down in 1855. The replacement structure was a general commercial operation, known as the Tontine Building, and the Tontine Association became just another landowner in burgeoning New York. The dissolution of the tontine was not triggered until 1870, when the eighth-to-last nominee died, leaving the final seven to liquidate their property and divide it among themselves. After a lawsuit, the final payouts came in the 1880s. The building and lot were sold at auction in 1881 for 138,550 dollars, amounting to slightly less than 20,000 dollars a share.2 ___________ 1 See Robert M. Jennings, Donald F. Swanson and Andrew P. Trout, Alexander Hamilton’s Tontine Proposal, (1988) 45 The William and Mary Quarterly 107–115. 2 Frederic de Peyster, History of the Tontine Building (1855). The papers of the Tontine Association are in the Library of the New-York Historical Society, (of which de

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By contrast, the Boston Tontine Association, described as a quasi-bank,3 proposed to build a structure that was primarily residential. Charles Bulfinch’s (1763–1844) Tontine Crescent was a dramatic row of houses that reflected the curved facades in Bath, England. However, at a time when corporations had to be approved by the legislature, rather than through simple registration, the Boston Tontine Association charter was refused recognition by the Massachusetts General Court.4 Although the funds had already been subscribed by the participants, the project was not ultimately structured as a tontine, but converted into the capital of a formally chartered bank, the Union Bank.5 Once built, however, the residential complex continued to be referred to by the name Tontine Crescent. The buildings were torn down in 1858. The Tontine Crescent is celebrated by architectural historians as the first major project by one of America’s earliest significant architects. The location was what is now roughly Franklin Street between Hawley and Otis streets. The overall project also involved the creation of what was called an exhibition hall in a neighbouring lot. This was actually a theater and over time became known as the Federal Street Theatre.6 Theatres were banned in Massachusetts via a 1750 statute, but by the 1790s the modernizing originators of the Boston Tontine Association were eager to establish one in Boston. Both the benefitting-by-death notion of the tontine and the obviously satanic nature of theatre were anathema to the lingering Puritan spirit in Massachusetts. Back again to 1792: That same year, in Philadelphia, a proposed Universal Tontine Association was converted into the Insurance Company of North America. The promoters abandoned the tontine form because of insufficient subscriptions attributed to both resistance to the underlying tontine concept and a sense that a number of similar proposals elsewhere had not come to fruition. One of

___________ Peyster was president,) see http://dlib.nyu.edu/findingaids/html/nyhs/tontine/index.html As to the final auction, see New York Times, 12 January 1881, 3. 3 The original plan was for the Boston Tontine Association to expire in 1850. See A Condensed Record of the National Union Bank of Boston, Massachusetts, covering its history from 1792 to 1904 (1904). 4 This is the official name of the state legislature. See: https://ballotpedia.org/Massachusetts_General_Court. 5 Massachusetts, Acts 1792, Chap. 6. The antipathy to the tontine can be seen in this clause: ‘… if any interest, rents, or profits of this Bank shall be used or improved to facilitate the operations of the Tontine Association, or any other allocation, founded on similar principles, that thereupon this act shall become void.’ See generally: Joseph Stancliffe Davis, Essays in the Earlier History of American Corporations, vol. 2 (1917), 70–74. See also A Condensed Record (n. 3). 6 For background on both the theatre, and the Tontine Association, see Heather Nathans, Early American Theatre (2003), 58–62.

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the promoters, Samuel Blodget (1757–1814), had recently moved from Boston where he had been one of the leaders of the Boston Tontine Association.7

C. Other early ventures In the early 1790s, a kind of tontine ‘virus’ seems to have struck the United States. Additional tontine proposals arose in several cities. The organization of tontines often took a couple of years between proposal and completion of the subscriptions, so the start dates end up, confusingly, being reported within a short range of dates. In New York City, the political organization known as the Tammany Society proposed a Tammany Hall Tontine. It apparently never coalesced, but ‘scrip’, i.e., the receipts issued to record the partial payment for the shares of the tontine plan, was actively traded per myriad newspaper reports of prices on the stock exchange of the period.8 The group met in taverns until a proper headquarters building was erected in 1812. Tammany Hall, as the embodiment of a massive patronage force behind many Democratic politicians was an important part of New York politics through the 1960s. Also in New York, a Friars Tontine, proposed by the Black Friars Society in March of 1792, dissolved in September of the same year. Scrip for this wouldbe tontine also traded during this period.9 Also in 1792 another tontine was proposed in Charleston, South Carolina. The funds to create what became the Bank of South Carolina were subscribed initially under a tontine plan entitled the South-Carolina Tontine Bank. But in a meeting just a few weeks later, on 13 April, the subscribers voted that the clauses ‘as related to a tontine be struck out’.10 Four years later, when it was thought appropriate to erect a building for the bank, it was felt that the sum needed would put a strain on the bank’s finances, so a Charleston Tontine Society was proposed to gather the funds for the building project.11 ___________ 7 Thomas Harrison Montgomery, A History of the Insurance Company of North America (1885), 9–13. See also Insurance Blue Book. 1876–1877 (1877), 12, 66; Davis (n. 5), vol. 2, 239–240. 8 A short description of the rise and fall of the Tammany scrip within the context of the market at the time is found in Jerome Mushkat, Tammany (1971), 15 f. See also NewYork Tammanial Tontine Association. Plan of the New-York Tammanial Tontine Association (New-York 1792). 9 New-York Daily Gazette, 15 September 1792, 3. 10 Columbian Herald and General Advertiser, 14 April 1792, 3. 11 [Charleston] City Gazette, Supplement, 1 April 1796, 1.

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In September of 1792, in Albany, New York, a Tontine Coffee House and Hotel was proposed. This became an important Albany institution. While initially proposed as a tontine, the original scheme was unsuccessful. When the project moved forward in 1798 its funding was not tied to a tontine, even though the name was kept for the business that operated there.12 In 1801 an ingenious tontine-based scheme arose as part of the city-wide elections in New York. At that time, only real property holders had the vote. The city was run by the Federalist Party. The opposition Republicans, in order to enlarge the voting rolls in their favour, arranged the purchase of a number of properties using tontines as the holding companies. Then these share-owning Republicans in the 4th, 5th, and 6th Wards enrolled as voters, claiming to be valid property owners through their participation in those tontines. The Federalist controlled Board of Alderman refused to recognize the Republican participants as property owners and voided their votes.13 Later significant tontine-structured projects included a land development scheme in the newly-created capital city of Washington, D.C., a mixed commercial building in Hanover, New Hampshire, as well as hotels in New Haven, Connecticut, and Brunswick, Maine. In 1805 the Washington Tontine Company was established by Benjamin Stoddert (1744–1813) to speculate on property within the newly created capital city. It acquired a large number of lots in the original division of the city into blocks.14 In contrast to the other tontines of the period, it was created to last for only 20 years. An undated pamphlet created after the subscriptions were enrolled provides a list of the participants, the articles of association, and a summary of the location of the property held by the tontine. The property was scattered throughout the city and was described as the equivalent of 887 lots of 3,000 square feet.15 To close the tontine, in 1825 roughly 440 lots still held by the company were sold.16 In Hanover, New Hampshire, a commercial building was constructed via a tontine starting in 1813. The ground floor consisted of stores, while the upper

___________ 12

See Gorham A. Worth, Random Recollections of Albany (3rd edn., 1866), 84. Mary Louise Booth, History of the City of New York (1859), 613 f. See also Mushkat (n. 8), 27. 14 The prospectus is an eight-page pamphlet called Remarks on the Washington Tontine, reproduced in the database Early American Imprints II. 15 Washington Tontine (1806?), reproduced in the database The Making of the Modern World. 16 List of Lots in the City of Washington, belonging to the Tontine Company (1825). 13

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floors were apartments. Directories of Dartmouth College show regular residential use of the building by students throughout the middle of the 19th century. It burned down in 1887.17 The hotel built via a tontine in 1823 in New Haven, Connecticut, is probably second only to the New York Tontine Coffee House in terms of its importance to its city. It was the leading hotel for much of the 19 th century and had many famous people as guests. It also served as a dormitory for some Yale students. Its papers are held at the New Haven Museum. The association paid dividends regularly and only wound up in 1908.18 The building was still in use at the time. In 1828 the Brunswick Tontine Hotel Company built an establishment in Brunswick, Maine,19 which was the primary social centre for the town until it burned down in 1904.20 The site of the property is now a small shopping centre known as the Tontine Mall. Besides these more visible tontines, a number of towns and cities had similar projects, including Northampton, Massachusetts (1804), Windsor, Vermont (1805), Salem, Massachusetts (1806), Guilford, Vermont (1819, a residential building, now restored for low-income housing), two buildings in Claremont, New Hampshire (1832, 1834), and several more. While reports and traces of tontine funding can be found for many of them, in some cases it is clear that ‘tontine’ was also simply used as a commercially attractive name. 21

D. Tontine projects outside the United States Tontines in North America outside the United States have proven hard to find. In the Caribbean, in 1805, a tontine was formed to exploit a piece of property, a plantation called Dry Sugar Work in Jamaica. The prospectus outlines its location as well as the good water supply and is candid about some of the investment ___________ 17

Frank J. Barrett, Early Dartmouth College and Downtown Hanover (2008). ‘New Haven’s Tontine: The Famous Agreement Matures at Last’, The Hartford Courant, 29 September 1908, 13. 19 George A. Wheeler, History of Brunswick, Topsham, and Harpswell, Maine (1878), 294–296. 20 Lewiston Saturday Journal, 9 January 1904. 21 It is very likely that ‘Tontine’ became a generic name indicating high quality for a hotel or other public house without reference to the institution being related to a financial tontine. It is hard to imagine the Tontine Bowling Saloon in Milwaukee having been financed via a tontine arrangement. In the U.S., another word that evolved that way was ‘Astor’ (or ‘Astoria’) for hotels and other public buildings, like taverns and restaurants. In Europe, ‘Ritz’ served a similar role and to a lesser extent, ‘Adlon’ (the original famously in Berlin; but there are others in Stockholm, Mariehamn, Jesolo, and Riccione). 18

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being spent on slaves to work the land.22 The organizer was a Stephen Drew (1742?–1826?), and the scheme was known as Drew’s Tontine. It was troubled from the start, and winding up procedures dragged on through at least 1820. The artist Joseph Turner (1775–1851) was a subscriber.23 In Toronto, Beverly Snow (1799–1856), a freed slave, ran a tontine coffee house at 150 King Street East. Snow had run a very successful restaurant in Washington, D.C. that was destroyed in a riot in 1835. According to one historian, the Toronto Tontine Coffee House was a place where ex-slaves who had escaped from the United States could find work.24 A proposal for the Tobago Estates Tontine was heavily criticized in a London magazine in March 1886.25 The writer points out that the property was from a bankrupt estate and had previously garnered no bids at an attempt to auction it off a few months earlier. In addition, he alleges the trustees were clearly saddled with conflict-of-interest issues. As was common by mid-century, the tontine proposal seems to have never taken off. Both of the above-mentioned West Indian schemes were developed within the colonial framework of the time and are probably better thought of as British proposals. In another glancing reference, the Kingston Theatre in Jamaica was alleged to be owned by a tontine via a letter to the Daily Gleaner in 1893. 26

E. Tontine, the word, in other circumstances There are a number of references to ships named Tontine. It is hard to know if this is a reflection of the way the ship was owned or financed, or simply the use of a distinctive word. One was the brig Tontine, which appears in a number of references to transatlantic voyages from 1810 through 1830, most notably bringing materiel bought with donations from the United States to Greece to support their War of Independence (1821–1832) against Ottoman Turkey.27 The letters of Samuel Morse (1791–1872) include one from aboard the schooner tontine ___________ 22 Proposals for the raising by Tontine the sum of £20,000 to be laid out in the cultivation of an extensive and lucrative Estate in Jamaica. A collection of papers from the attorneys for the tontine are held at the Senate House Library, University of London. The finding aid for them can be found at www.ulrls.lon.ac.uk/resources/MS691.pdf. 23 For background and description of the sales process, see Stephen J. May, Voyage of the Slave Ship. J.M.W. Turner’s Masterpiece in Historical Context (2014), 25–29. 24 Adrienne Shadd, Afua Cooper and Karolyn Smardz Frost, The Underground Railroad: Next Stop Toronto! (2002), 36. 25 ‘A Tontine Operation’, (1886) 21 Truth 336. 26 Errol Hill, The Jamaican Stage 1655–1900 (1992), 33. 27 Celebrated in ‘Apostrophe to the Brig Tontine’ by William B. Tappan, The Poems (1834), 213.

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in Charleston in 1818.28 Another nautical tontine is mentioned in a curious anecdote in a biographical account of a lumber magnate, Rufus Frederick Learned (1834–1924). In his twenties he went to California with a colleague as part of the Gold Rush:29 After fifteen months of gold mining, they succumbed to the lure of gold in Australia and took shares in a Tontine boat which was purchased by four hundred men. The destination of this boat was Sidney, [sic] Australia. The mutual agreement was that any member of the company could leave the boat at any port, but only those who completed the voyage could share in the profits and those that left earlier lost all interest in the ship as well. The first stop was at Honolulu, where they lost about fifty men who became infatuated with the Hawaiian girls and remained there. They then stopped at Apia, where the only whites were a few beach combers and there they lost 75 to a 100 men to the same cause. A stop at New Zealand came next, then the party reached Sydney, Australia, where about 100 men divided up the property and among them were Rufus Learned and his partner.

In summary, while private tontines of all sorts flourished in the United States, there was no simple evolution, as in Europe, from the old government annuities into modern pension plans. However, Henry Baldwin Hyde (1834–1899) did make sure that tontines were a crucial part of the life insurance business in the latter part of the 19th century.

F. Tontine life insurance Perhaps the most important use of the tontine concept in the United States was grafting a kind of tontine onto standard life insurance. The original tontine life insurance proposition was developed in the fierce competition between Mutual Life Insurance Company of New York and the upstart Equitable Life Assurance Society of the United States in the 1860s. When Mutual Life, the older and richer company of the two, announced it would begin paying surplus dividends annually, Hyde, the vice-president and general manager at Equitable, came up with a system to allow them to compete despite not having enough capital to make the annual dividends. What Hyde created was an adaptation of the tontine idea applied to the accumulation of surplus that would normally fund dividends. The product was introduced in 1868. It had two elements. The first element was a standard life insurance policy with payments made to specified beneficiaries on the death of the policyholder. The second element was a kind of savings account built on surpluses from the insurance company’s investments which normally were returned ___________ 28 29

Samuel F.B. Morse, His Letters and Journals (1914), 245. Lumber World Review, 10 January 1920, 30.

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to the investor as dividends, but in this case were locked into plans that distributed the accumulation only after a specified period, originally from five to twenty years. If a policyholder died before the end of the tontine term or failed to make payments according to the plan, the accumulation of surplus due that policyholder was forfeited and reverted to the pool to be shared by the surviving policyholders of that class in addition to the normal surplus – this is why the term tontine was used. Furthermore, if the policyholder allowed the policy to lapse, the accumulated reserve intended for the death benefit was added to the surplus shared by the fellow policyholders. An example of such a product provided many years later by Northwestern Mutual, which claimed to have the best internal accounting for tontine insurance, reads:30 Thus each surviving policy received: (1) the dividends that otherwise would have been paid annually; (2) interest at a rate determined by the Company; (3) a share in the surplus of policies terminating by death; and (4) a share in the surplus forfeited to the fund by those who allowed their policies to lapse.

The text then goes on to provide an example, based on an amount of one thousand dollars of insurance: annual dividends 205.12 dollars; interest 111.09 dollars; death share 22.60 dollars; lapse share 13.97 dollars; for a total of 352.78 dollars. It was not stated whether these figure were for a 10, 15 or 20 year policy. By 1905, roughly 64% of life insurance sold was in the tontine form. 31 It should be noted that during this time, insurance policy participation defaulted at a rate much higher than today. According to one expert, only about 10 per cent of policies sold at this time did not lapse!32 Although the tontine insurance device is often presented as an invention of Hyde, there are a number of earlier examples of the word appearing in an insurance company name. One example of this is to be found in England. In 1856 the United Homoeopathic and General Life Assurance Society (founded in 1855) changed its structure and became the English Provident Life Assurance and Tontine Society. However, as Cornelius Walford (1827–1885) puts it: ‘The scheme did not take and in 1857 the bus[iness] of the ass[ociation] was trans[ferred] to the Kent Mut[ual Assurance Society].’33 The ‘Table of Life Assurance Offices

___________ 30 The Final Chapter of the Story of Tontine Life Insurance in the United States, reprinted in: (1924) 27 The Economic World 674 f. 31 Roger L. Ransom and Richard Sutch, Tontine Insurance and the Armstrong Investigation: A Case of Stifled Innovation, 1868–1905, (1987) 47 The Journal of Economic History 379–390, 385. 32 Burton J. Hendrick, The Story of Life Insurance (1907), 138. 33 ‘English Provident’, in: Cornelius Walford, The Insurance Cyclopedia, vol. 2 (1873), 548.

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which have Ceased to Exist’ in Walford’s ‘Insurance Guide and Hand-Book’34 shows a different British tontine insurance company which was founded in 1846 and whose business was transferred to another entity in 1849. It is a minor tragedy that Walford’s ‘Insurance Cyclopedia’ volume covering the letter T was never published.35 In the United States a company called the Tontine Fire Insurance Company in New York was incorporated in the spring of 1855, but it was shut down by the state comptroller the following October when an investigation showed the capital used to support its founding had been withdrawn within days of incorporation. It is impossible to tell from the reported documents whether it was a tontine or if it simply used the word. It was a shell from the beginning, so it really cannot be seen as an attempt to make a legitimate tontine scheme work as insurance. 36 In a business environment without a strong duty of transparency of accounting on behalf of stakeholders, the growth of capital in the tontine funds allowed the insurance companies, most of whom quickly offered competing tontine products, substantially unregulated access to the accumulation for their own use. Reserves were not required to be accounted for until they were due. When the tontine payments were made, years later, they invariably were lower than the puffery around the selling process led the purchasers to believe, and some policy holders sued, in particular seeking an accounting of how the figures were arrived at. The classic statement, refusing a right to examine the books of the insurance company, is found in Uhlman v. New York Life Insurance Co.:37 [W]e are convinced, after a careful examination of the character of the relations existing between these parties, that it cannot be said that the defendant is in any sense a trustee of any particular fund for the plaintiff, or that it acts as to him and in relation to any such fund in a fiduciary capacity. It has been held that the holder of a policy of insurance, even in a mutual company, was in no sense a partner of the corporation which issued the policy, and that the relation between the policyholder and the company was one of contract, measured by the terms of the policy … Upon the payment of the premiums by the various policyholders embraced in the tontine class the money immediately becomes the property of the company, and no title thereto remains in any of the policyholders. Under such a policy as this there is no obligation on the part of the corporation to keep the premiums paid on such policies separate and apart from its other funds. Nor is there any obligation on its part to invest such funds in any particular way or at any particular time. The contract contemplates the fact that the funds will be

___________ 34 Cornelius Walford, The Insurance Guide and Hand-Book on Fire, Life, Marine, Tontine, and Casualty Insurance (American edn., 1868). 35 A recent review of the Walford papers held by the Chartered Insurance Institute in London showed that he had accumulated a number of references in a file labelled Tontine, but he had not started to write a comprehensive entry. 36 (1873) 2 New York Insurance Reports 87–91; Albany Journal, 22 October 1855, 2; Charleston Courier, 27 October 1855, 2. 37 109 N.Y. 421 (N.Y. 1888), 428 f.

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invested, but the character of such investment is left absolutely to the discretion of the defendant, except as it may be limited by the laws of the state.

Earlier, in Bewley v. Equitable Life Assurance Society,38 a lower court had already rejected the notion of a policyholder having any right to demand an accounting except as a judgment holder, which the plaintiffs were not. In response to criticism that a complete forfeiture as related to allowing the policy to lapse was harsh, the so-called semi-tontine was introduced, which allowed for a surrender value of the insurance policy itself for the participant if he withdrew from the policy, although this could be waived.39 However, the accumulated surplus was still forfeited to the other members of the tontine pool. From around 1880 this was the standard offering of most U.S. insurance companies. There was a fierce pamphlet war between the few traditional insurance companies, which refused to offer tontine policies, and the much larger group, which copied the policies of the Equitable. However, the lure of death- and forfeitureinflated payment at the end of the tontine period was great, and most policies written during the latter part of the 19th century were tontine or semi-tontine policies. On a more individual level, there were also a wide range of news reports, letters, and pamphlets detailing the low tontine payouts compared to expectations and the figures originally presented by salesmen to close the deal. And all of this was exacerbated by a growing awareness of substantial self-dealing within the upper management of the big insurance companies. These grumblings led to a number of formal investigations. The New York Legislature conducted an investigation of the life insurance business in 1877. It was directed generally at self-dealing among the executives, other mismanagement, and fraud. Tontine issues were also covered but were not the main focus. A two-volume report of the investigation was published, and it is clear that accounting in relationship to tontine funds was one of the issues, but only one relatively minor issue among many at that point. Cooperation on the part of the insurance executives questioned was not great. 40 The final result was the introduction of a reform bill; it passed the Assembly but did not pass in the Senate.41 However, in 1879 a law was passed that required some sort of surrender value after contributing to a policy for three years.

___________ 38

61 Howard’s New York Practice Reports 344 (1881). Presumably for a lower premium. 40 Report and testimony taken before the Committee on Insurance, relative to life insurance companies, New York Assembly, Document number 93, 1877. 41 ‘Winding up in the Senate’, New York Times, 25 May 1877, 5. 39

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In 1885 the New York State Assembly created a ‘Special Committee to Investigate Tontine Insurance’. It was ‘to investigate and ascertain what the “tontine” plan is … and also to ascertain and inquire the methods by which and the basis on which such companies claim their surplus as assets over liabilities’. However, due to machinations of the insurance lobby, the committee was given only a few days to do this. Given the limited period, the committee focused on the Equitable Insurance Company. Cooperation with the committee was not forthcoming. 42 The report referred to the ‘neglect, failure and postponement of the officers of this company to furnish the books, records, accounts and statements required’, which ‘when taken with the investigation ordered by this House, permits of no doubtful interpretation’. The primary conclusion was that the ‘system or method practiced by the company in keeping the accounts of ten-year policies, as well as fifteen-year and twenty-year policies, each in a class, instead of in yearly classes, makes it wholly impossible for any person other than a skilled actuary to determine the equitable rights of any one of the assured in any of the tontine classes’. A seemingly more thorough investigation in Ohio in the same year produced a gentler result.43 The Nineteenth Annual Report of the Superintendent of Insurance of the State of Ohio, following a summary of the business done by various insurance companies in Ohio, reads:44 The above figures evince beyond dispute the popularity of the tontine plans of life insurance over the ordinary plans. The right of every citizen to select the plan he deems most advantageous to himself and heirs certainly cannot be denied. Second, much has been said by some of the companies confining their business to the ancient plans of life insurance about the unfairness in the tontine methods of keeping accounts. Your committee found the same zealous care and fidelity in the management of the trusts and methods of bookkeeping of the tontine companies as practiced by the other life companies on other plans of life insurance.

The only real result of these investigations was the introduction of a new policy that was a further minor tweaking of the original tontine structure. If a purchaser died within the first five years of the contract, besides the death benefit, the beneficiaries would receive one-half of the premiums paid into the tontine scheme.45 However, even though the management of tontine funds was seen as flawed, the supervision of the internal accounting within the insurance companies was not made more rigorous. ___________ 42

A good summary of the evasive tactics can be found in Hendrick (n. 32), 211–213. An unsigned summary of the report can be found in (1885) 39 American Exchange and Review 288–290. 44 Superintendent of Insurance of the State of Ohio, Nineteenth Annual Report (1886), 11. 45 Described in Peter Hudnut, Semi-Centennial History of the New York Life Insurance Company, 1845–1895 (1895), 231. 43

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As the major American companies expanded their businesses abroad, there was pushback. A Prussian decree of 1892 demanded more specific accounting of their tontine accounts than New York companies were used to providing American authorities.46 This had the effect of proscribing U.S.-style tontine-linked insurance. The life insurance companies involved presented this action as a pretext to prevent competition with German domestic companies. The firm with the most German business, Equitable, was expelled or pulled out, depending on your point of view. In 1896 New York retaliated by excluding two Prussian companies from writing fire insurance in New York.47 This resulted in a trade war, involving exchanges of letters by the respective ministries. Other European countries followed suit. Russia also started to push back in 1893,48 and Austria-Hungary also limited U.S.-based tontine policies in regulations issued on 10 March 1896.49 In the midst of the dispute in France, where tontines had for the most part become illegal, one commentator wrote about the American scheme: ‘C’est un tontine avec un faux nez …’50 Finally, in 1905, the increasing uneasiness with various elements of the life insurance industry, including extravagant self-dealing as well as unhappy policyholders, culminated in the creation of the Armstrong Commission in the New York State Legislature in 1905.51 While a whole range of misconduct was addressed, the main targets were the cruel effect of forfeiture for lapsed payments and the lack of rigorous accounting in the administration of the tontine element found in standard policies. Following that scrutiny, which was fierce, tontine and ___________ 46 Even amid the nationalist heat in the United States, some commentators understood the Prussian intent: ‘There can be no doubt in the mind of any person conversant with the subject that the main objection of the Prussian government to the three American life companies was based on the ground that they did not keep their tontine accounts in a manner to do justice to policyholders and that, in view of this fact, the representations of their agents were fraudulent.’ Keeping Tontine Accounts, (1896) 8/2 Chicago Independent, 1. 47 Laws of New York, 1892, Chapter 690, as modified by Laws of 1896, Chapter 40. 48 See Rufus W. Weeks, Reply of the New-York Life Insurance Company (1893). 49 Summarized in Peter Borscheid, Germany: Insurance, Expansion, and Setbacks, in: idem and Niels Viggo Haueter (eds.), World Insurance. The Evolution of a Global Risk Network (2012), 98–117, 104 f. The diplomatic exchange of letters is reprinted in Papers Relating to the Foreign Relations of the United States, Part 1, 1896, 428–453. See also Gunter Kürble, Der Exodus der amerikanischen Lebensversicherer aus Deutschland, (1990) 79 Zeitschrift für die gesamte Versicherungswissenschaft 583–623. 50 (1890) 30 Le Moniteur des Assurances 134. 51 A good review of the Armstrong Commission, including its context, and its effects, can be found in Morton Keller, The Life Insurance Enterprise 1885–1910 (1963), 246– 264. A more recent critique is found in Ransom and Sutch (n. 31). The ten volume formal record and report was distributed as Testimony taken before the Joint Committee of the Senate and Assembly of the State of New York to Investigate and Examine into the Business and Affairs of Life Insurance Companies Doing Business in the State of New York (1905–1906).

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semi-tontine policies – using the term deferred dividend – were outlawed in New York State by statute in 1906,52 and thus, in effect, throughout the country.53

G. Possible attempts to introduce a French-style tontine to New York The 15 October 1867 issue of the Courrier des Etats-Unis, a French language newspaper published in New York City, contains a display advertisement for Les Fonds de Prevoyance et Compagnie d’Assurance sur la Vie de le Ville de NewYork, touting among other products a Branche Tontine. This is stated to be ‘Le seule Association Tontine de fonds autorisee aux Etats-Unis’. The advertisements ceased in December of the same year, and a report in March 1868 indicates the New York Legislature did not approve the incorporation of the tontine association.54 In December 1868 ads for a Compagnie d’Assurance Tontine Americaine sur la Vie et les Economies (rentes viagères) appeared in the same newspaper. It also touted itself as the only American company offering a product on the lines of a French tontine, and its ads continue through June 1869. It is unclear if these advertisements represent an attempt to create a continental style tontine or are simply an attempt to reach French speakers to get them to buy the American-style life insurance. If the former, these are the only traces of attempts to introduce a European model tontine to the United States, and they do not seem to have gotten off the ground.

H. Tontine associations with ‘assignments’ of standard life insurance Tontine associations with ‘assignments’ of standard life insurance were formed to cross-assign the benefits of life insurance to all the other members of the group, so that when one participant died, the rest of the group would share the insurance benefit. Hill v. United Life Assurance Association upheld the assignment: the insurance company provided a pamphlet to describe how a group could execute such a scheme.55 ___________ 52

Laws of New York, 1906, 763–830, Chapter 326. The life insurance business in the United States at that time was very New Yorkcentric, and in 1901 New York had imposed the ‘Appleton Rule’ on insurance companies based in the state, by which the New York rules had to be followed by insurers wherever they did business. So a change in the New York rules meant an immediate change throughout the country. 54 New York Herald, 28 March 1868. 55 25 Atlantic Reporter 771 f., 1893 (Pennsylvania Supreme Court). 53

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I. Outright frauds The word ‘tontine’ was used as a term in investment scams from 1880 through 1910. These took a number of forms, but the common element was the assumption by participants that their investment return depended, at least in part, on the failure of their fellow investors to keep up their payments. The sham companies tended to have the word tontine in the title of the company, but not always. One standard form of this swindle was known as a diamond scheme. The core notion is that people would pay a small amount each week and after a certain period would become eligible to receive a diamond whose value was significantly more than their cumulative payments. At the point of redemption, the company also offered to ‘buy’ the diamond back for a set sum, significantly higher than the total invested, but lower than the purported value of the diamond. 56 However, if a participant missed a payment, they forfeited the entire investment. Many contemporary reports indicated that the purchasers were not given a real choice about receiving a diamond, but had to take the cash. The promoters never had any diamonds and the monetary offer was a kind of compensation. The ‘business plan’ was that by the time a purchaser became eligible for payment, enough other investors would have defaulted and forfeited their investment such that the payment could be a real possibility. There seems to have been a kind of common understanding that no one really wanted a diamond, but wanted the cash the diamond was ‘worth’. The use of the diamond seems to have been an attempt to escape regulation as an investment company, since the ultimate offer was cloaked as a purchase of an object of commerce and not simply an investment with a monetary return. In a variant form, the diamond schemes came even closer to an early version of what came to be known as a Ponzi scheme. The operating premise was that purchasers were paid back in the order in which they bought into a scheme. Thus the income from later purchasers was being directed towards payouts to the first purchasers. As quickly as these kinds of operations sprang up, they were challenged by state attorney-generals and other administrators charged with supervising companies in the states.57 At the federal level they were challenged by the Post Office as a form of fraud, and forbidden to use the mails. ___________ 56 ‘You can buy… [a] diamond of the value of $200, by paying the Tontine Surety Company of Detroit, $1.25 a week for sixty-four consecutive week, a total of $80, or we will purchase diamond at time of delivery for $160 in cash …’ Text from an advertisement in (1899) 7 School Record (unpaginated front matter). 57 (1902) 45 The Jewelers’ Circular and Horological Review 26: ‘Detroit, Mich., Aug. 3. – Secretary of State Fred M. Warner, yesterday refused to receive for record and filing, the articles of association of the Preferred Tontine Mercantile Co., of Kansas City, Mo.

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In one case, for example, a standard diamond tontine contract was declared illegal due to it being usurious, but not due to it being a gambling contract.58 However, dicta in another case in a different state casually states ‘[t]hat the transaction was gambling, we think, is too plain to admit of dispute’.59 Another tack taken to suppress these sorts of scams was to declare that the unregistered surety company was a corporation for purposes of a statute designed to control investment companies, and since it had not posted bond as required by the statute, it was forbidden to do business in that particular state. 60 Variations on this kind of scheme exploded around the turn of the previous century. Not all of them included the word ‘tontine’ in their company name or the description of the contract. However, virtually all of them involved a plan in which the purchaser understood the profit was possible only if a large number of fellow participants failed to make payments and forfeited their investments. This forfeit element meant that the popular name for all the versions continued to be ‘tontine’. The authorities perceived them as akin to lotteries and tried to eradicate them whenever possible. At the federal level, defining these offerings as gambling contracts was used by the federal government to declare them mail frauds. A clear exposition of how they worked and how the government tried to stop them can be found in the case of Fitzsimmons v. U.S. in 1907.61 The underlying federal statute prohibited the use of the mails for any text – prospectus, tickets, etc. – having to do with lotteries. In this case the underlying contract, a ‘numerical bond scheme’, is transcribed in full. The purchaser would pay a dollar a week to the cumulative credit company and receive a numbered certificate. The certificate would be redeemable when all lower-numbered certificates had either been abandoned through non-payment or had been paid off. At the time of purchase the buyer does not know where his certificate number is in relationship to other participants’ numbers. The payout, basically 2.00 dollars a week, doubles the investment. Interestingly it had a maximum figure of 160 dollars, echoing the diamond contracts.

___________ The Secretary is persuaded that this is another diamond contract concern, similar to the Detroit Tontine Co. and the New Jersey Tontine Co. The Kansas City purports to do a mercantile business. The courts of Michigan have not yet passed upon the legality of these tontine concerns, although the matter is before the Supreme Court. Secretary Warner thinks they are against public policy and says he does not propose to accept their articles until the courts say he must do so.’ 58 Barney v. Tontine Surety Co., 131 Michigan Reports 191–196 (1902). 59 Bowen v. Lloyd Lynn, et al., 73 Nebraska Reports 215 (1905), 217. 60 State ex rel. Attorney General v. Tontine Surety Co., 62 Ohio State 428 (1900). 61 156 Federal Reports 477 (1907).

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The judges found this to be, in essence, a lottery. There was sufficient inequality between the amount paid in and the amount to be received that the proposed payoff was a prize and not simply earned income. Furthermore, since the distribution scheme favoured lower numbers, the number on the certificate itself acted as a kind of sweepstakes factor, adding another element of chance as to when the participant became eligible for a payout. 62 In reviewing the databases of digitized newspapers of the period from roughly 1880 through 1910, there are constant reports of various government offices shutting down these kinds of companies throughout the United States.63 It has to be noted that all of these kinds of schemes have little to do with real tontines. They traded on the word, which had become common in relation to its role in life insurance.64 The term tontine had become related to the forfeiture element, rather than a death element. But the lasting effect has been to discredit the very notion of tontines as illegal and immoral.

J. Clubs Another environment where tontines quietly existed was clubs that owned property for the benefit of their members, particularly in rural areas for shooting and fishing. One noted example of this kind of tontine is the St. Lucie Club in Florida. It was built in 1902 as a sporting and relaxing getaway spot for a group of important members of the Republican Party, mostly U.S. senators, and it reportedly functioned as a winter ‘old-boy’ power base. It ended up the property of William S. Vare (1867–1934) of Pennsylvania, who served in the U.S. House of Representatives and who was elected senator but was denied his seat due to corruption charges. Another is the Peekamoose Club in the Catskill Mountains ___________ 62 A quite extensive description/condemnation of a ‘numerical bond scheme’ can be found in ‘The Bursting of a Bond Bubble’, which is a transcription of the jury instructions in the trial of the officers of the Guarantee Investment Company printed in (1893) 5/11 The Chicago Independent 18 f. 63 The hydra-headed nature of these companies is illustrated by this text from a legal advertisement in the Chicago Daily Tribune, 22 August 1907, 11: ‘Notice is hereby given to all bondholders and all other persons having claims against the American Reserve Bond Company [Kentucky corporation], formerly “The Southern Mutual Investment Company of Lexington, Kentucky,” The North American Investment Company of the United States and The Colonial Security Company of St. Louis, formerly named the “Tontine Loan and Security Company,” formerly named the “Missouri Loan and Investment Company,” formerly named the “Pettis County Investment Company,” or against any of said corporations to present and file such claims by the first day of January, 1908, …’ 64 Some within the insurance industry were conscious of how much the tontine insurance plans laid the groundwork for the various illegal schemes of this sort. See ‘Tontine Insurance and Investment Bond Schemes’, (1893) 5/12 The Chicago Independent 11 f.

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in New York, subject of a legal dispute in the 1890s.65 Public records of these less formal organizations are rare, but a legal case in the early 1980s offers a good illustration:66 Club’s ‘Survival’ Pact Held Illegal. By The Associated Press. A 30-year-old agreement that the last surviving member of an upstate fishing club would inherit its property has been ruled an illegal ‘death gamble’ by the Appellate Division of State Supreme Court. The court acted in a dispute between the last surviving member of the Stuart Lakes Club in Delaware County, 72-year-old James Crawford of Walton, N.Y., and Amy Quinn, daughter of John Quinn, a former club president, who died in 1969. Miss Quinn lives in Manhattan. According to the decision, a group of New York business men started the club in 1928 and seven years later bought 75 acres of land in Corbett, N.Y., for $3,400. At its peak the club had 40 to 45 members, each of whom bought a $50 share. By 1952 only nine members were still living. They passed a rule providing that at death each member’s share would revert to the club. Miss Quinn refused to surrender her share to Mr. Crawford after Mr. Quinn died. She contended that she was entitled to her father’s stock interest and membership in the club corporation. The five-judge appeals panel said that the 1952 rule effectively created a ‘survivorship lottery’, and held that the rule should be eliminated. ‘This form of death gamble, bottomed on the principle that the last survivor shall fall heir to the corporation, ought not to be encouraged’, the panel declared.

The case is Quinn v. Stuart Lakes Club. The key statement by the court is:67 When the last survivors of the club, in practical effect, closed the membership rolls to new members and adopted article 9 of the by-laws as it presently exists, they constituted the result a survivorship lottery. Indeed, in our prior determination we described it as ‘a form of tontine’. Seemingly, the very purpose of precluding expanded membership was to insure that the last survivor would inherit the house, the land and all other assets of the club. This form of death gamble, bottomed on the principle that the last survivor shall fall heir to the corporation, ought not to be encouraged nor expanded beyond limits of tontine insurance which has hitherto been recognized by law (cf. Uhlman v New York Life Ins. Co. ...). Accordingly, we hold that article 9 of the by-laws of the club is not to be given effect. With this provision eliminated, and the membership rolls closed, it becomes impossible to fulfill the corporate purposes. There is, therefore, no reason for continuation of the corporate life of Stuart Lakes Club, Inc. It follows that, since the purposes of the corporation have failed, there is no justification for its continued existence and a proceeding to terminate its existence may be brought by any party claiming an interest in the corporation.

Note that the court says ‘ought’ without citing any precedent. This seems to show that the decision cannot be justified in any way other than a sense of unease among the judges, echoing the Puritan influence in Boston in the 1790s. It does not recognize the reality of any number of similar clubs harmlessly existing via a tontine structure, as shown by the St. Lucie or Peekamoose clubs mentioned earlier. ___________ 65

‘Townsend’s Letter’, The Boston Globe, 21 July 1895, 28. New York Times, 24 May 1981. 67 80 A.D. 2d 350, 439 N.Y.S.2d 30, (1981), 354 f. (emphasis added). 66

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K. Conclusion and the future The tontine clearly has a varied and somewhat troubled past in North America. But that should not prevent a re-assessment of the value of the underlying idea in modern circumstances. After my article on the history of tontines was published,68 I was contacted by a number of people, from recent MBAs to a U.S. senator’s aide, and for each of them the main question was: ‘Would a tontine be legal today?’ For each of them I had to give the lawyerly answer – hated by nonlawyers – ‘it depends’. The core issue would be whether or not the product being developed could be sufficiently distinguished from the products covered by any remaining anti-tontine statutes or case law. In the United States this would involve a tedious state-by-state review as well as an assessment of applicable federal law. Such a process is slow and chancy, and unlikely to be undertaken by anyone without there being a strong sense the new product could be defended. For example, the persistent federal hurdle as to mail fraud was conceived in an environment in which lotteries and gambling were restricted or banned. Clearly such restrictions no longer exist, although the interstate gambling statute is complicated and may or may not apply. However, if presented as a legitimate insurance or annuity product, the current law69 indicates the federal government would leave the regulation of any offering to the states. At the state level, the insurance regulators would have to be convinced. Although the simplicity of the basic idea, the impact of modern life spans, and the nature of the payment curve should make a new tontine product very attractive, any proposal would have to include a structure for an efficient and transparent record-keeping process to make it acceptable to appropriate regulatory bodies. Furthermore, it may be possible to present a modern tontine scheme as a purely financial instrument, and thus sidestep insurance regulation entirely.70 Given our diffuse governance, a national offering would have to be approved in 50 jurisdictions. That would involve a lot of legal and lobbying work. The payoff, however, could be huge, as the tontine actually fits very well into our modern lifestyle and actual lifespans.

___________ 68 Kent McKeever, A Short History of Tontines, (2009) 15 Fordham Journal of Corporate and Financial Law 491–521. 69 Federal deference to the states in insurance regulation has a complicated history, but the principle still exists and is found in the McCarran–Ferguson Act of 1945, codified at 15 U.S.C. 1011–1015. 70 See Milevsky, 307 ff., below; Forman and Sabin, 329 ff., below; and Weinert, 317 ff., below.

Chapter 14: Tontines in Latin America By Marcelo Nasser A. Introduction ............................................................................................................ 259 B. A short history of life insurance in colonial and post-colonial Latin America ....... 260 C. Tontine insurance and tontine associations in Latin America ................................. 263 I. Chile and its experience with tontines ............................................................. 265 II. Chilean tontines in Colombia? ........................................................................ 268 III. The Peruvian and Ecuardorian experience with tontines................................. 268 IV. Spanish tontines in Cuba, Argentina, and Uruguay ......................................... 270 V. The case of Mexico ......................................................................................... 271 VI. Brazil’s experience with tontines .................................................................... 271 D. Conclusions ............................................................................................................ 272

A. Introduction It has been a great pleasure to receive an invitation to conduct research on, and write about, the history of insurance, especially with regard to the institution of tontines. I was asked to deal with tontines in a South American context, and one could understand that the limits of this contribution are to be settled from Colombia in the far north to Cape Horn in Chile in the far south. However, the South American legal system (if there is something to be called as such) cannot be segregated from its evident Spanish geopolitical influence, not to mention the legal influences of Spanish law and European codifications during the 19th and the first half of the 20th centuries, which exceeds this territorial realm. I will, therefore, prefer to refer to tontines in Latin America, and that will include, to some extent, Mexico and Cuba, to mention only two countries which are clearly not within the South American territories. The following contribution will deal with tontines from the point of view of legal history: the history of tontines is indeed essential to understand the development of life insurance, pensions, and annuities in Latin America. The establishment of tontine companies and agencies in the main cities south of the U.S. border are, in my view, the key to understanding the development of life insurance companies, the use of mortality tables, and the current actuarial techniques.

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B. A short history of life insurance in colonial and post-colonial Latin America For a number of reasons, it is in no way easy to conduct research on tontines in Latin America. This assessment is partly tied to the slow and uneven development of life insurance and tontines in Latin America, which can be attributed to a number of factors: (1) Latin America is a very large zone with a large number of countries, almost all of which are heirs of the powerful Spanish empire. The important cities and ports of these countries are far away from each other. Even nowadays, for example, travelling by airplane from Santiago to Bogotá may take almost seven hours, from Santiago to Mexico City nearly ten. Furthermore, Latin American countries are separated by substantial geographical obstacles, such as the Andes or the Amazon jungle, or entail the necessity to round Cape Horn or navigate the Strait of Magellan to travel from the east to the west coast. A sea journey from Santiago to Lima, in the late 1800s, when few railroads had already shortened distances between ports and capital cities, could take several days, always passing through the ports of El Callao and Valparaíso. From Santiago to Buenos Aires (voyaging around the dangerous Cape Horn) or Sao Paulo (through the port of Santos), the journey would be even longer and more dangerous. (2) As Spanish colonies, the territories of Central and South America were, of course, under the commercial and trade rules given by the Ordenanzas de Bilbao of 1737. Indeed, by the means of Reales Cédulas issued between 1793 and 1795, the Crown promulgated these Ordenanzas as the applicable law for the colonies when no domestic law (if this concept was to be applied to colonies) was available.1 This situation persisted even after the colonies left the crown’s dominion. Of course, some important domestic laws were passed during the 1850s, as for example the civil law codifications. Some years later came the commercial law codifications and particular laws regarding trade and corporations, such as the Chilean Ley de Sociedades Anónimas of 1854, among many others. The commercial law codifications in Latin America followed the Spanish codification movement – both the Código de Comercio of 1829 authored by Pedro Sáinz de Andino (1786–1863)2 as well as the later version of 1885. Both codes were put

___________ 1 José Martinez Gijon, El capítulo X de las ordenanzas del Consulado de Bilbao, (1987) 13 Revista Chilena de Historia del Derecho 159–176; Augusto Espinosa Moder, Régimen legal del comercio de los seguros en Chile (1928) 89. 2 Javier Divar Garteiz-Aurrecoa, Las Ordenanzas de Bilbao como antecedente de la Codificación Mercantil en España, (2011) 22 Boletín de la Academia Vasca de Derecho 7–19.

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into force by many Latin American countries, such as Peru, Ecuador, and Venezuela.3 Art. 124 of the Spanish Commercial Code of 1885 referred to ‘tontines on life’ (‘tontinas sobre la vida’). (3) At present, it is impossible to present a complete history of life insurance. There is little information on its development other than information on foreign companies that operated in the region as agencies, some notes regarding the foundations of the first national companies, and statistics on the collection of premiums and claims paid. At times, the historical development has been reconstructed by individual insurance companies, associations of such companies, and banks. These reconstructions have the tendency to present, in my view, a pro-corporate vision of the development. Furthermore, life insurance has been studied with less interest by historians and commercial law experts than fire and marine insurance, and even when they have focused on the history of life insurance, they have left tontines aside. It is commonly said that the life insurance business in Latin America developed only very late, and it is clear that it arose as a commercial opportunity only after the development of marine insurance. 4 Indeed, the Ordenanzas de Bilbao as well as the Spanish Commercial Code of 1829 did not regulate life insurance – the Ordenanzas contained only a prohibition of life insurance. The allegation of immorality was also an important argument used against life insurance in Latin America.5 Finally, as one of the few Chilean authors who dealt with the history of life insurance pointed out, ‘insurance may not appear where war is too frequent, or the customs are too rude and barbarian, the means of control inefficient and the state of properties and persons completely weak; and where these circumstances exist, it becomes impossible to assess the risks with enough degree of certainty’.6 For example, fire insurance in countries like Chile was popular only after 1851 when the first fire brigade was founded in the Port of Valparaíso.7 (4) During the 1850s, many things changed for the better in Latin America, and this was definitely reflected in the rise of commerce and in important financial reforms that allowed the foundation of the first banks, such as the Banco do Brasil (1851), the Banco de la Provincia de Buenos Aires (1854), the Banco del ___________ 3 The Peruvian case is interesting since Peru merely adopted a copy of the Spanish Commercial Code of 1829 as its Commercial Code of 1853. In 1902 Peru enacted a new Commercial Code, which in this case was a copy of the Spanish Code of 1885. 4 Manuel Llorca Jaña, La historia del seguro en Chile 1810–2010 (2011) 17 ff. 5 Against the alleged ‘immorality’ see Moises Briceño Trujillo, El seguro de vida (1889) 14. 6 Espinosa Moder (n. 1), 21. 7 Llorca Jaña (n. 4), 27 ff. After the big fires in 1864 and 1868, many British companies threatened to leave the Chilean market also for the lack of a water network. The first fire brigade in Santiago de Chile was founded only in 1861.

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Perú (1863), the Banco Nacional de Chile (1865).8 In fact, the first Latin American life insurance companies (not agencies) were established precisely during and after this decade.9 (5) Chile is a very long country, as are Argentina and Mexico, not to mention Brazil. In the early 19th century, after the wars of independence, trade was exclusively in the hands of British, German, and American companies that had the economic resources to manage the geographical challenges. Banks and corporations as well as trade and insurance companies are said to have been exclusively foreign until the late 19th century. Only then were ideas on the nationalization of insurance imported from Europe. Thus, following European movements, insurance was in foreign hands until its nationalization, such as the one carried out in Chile on 20 December 1927 by Law No. 4228 (Ley de la Superintendencia de las Compañías de Seguros).10 (6) Finally, tables on mortality or survivorship were not available for the populations of these countries as they were in Britain, the United States, France, Netherlands, or Germany.11 This fact is presented as an argument to explain the allegedly late development of life insurance companies in Latin America. Indeed, the Argentinian government published a local mortality table only in 1882.12 And it was only as late as 1926 that the Mexican legislature prescribed that all life insurance companies were bound to use mortality tables.13 Thus, one of the ton-

___________ 8 Carlos Marichal, Las finanzas y la construcción de las nuevas naciones latinoamericanas, 1810–1880, in: Manuel Miño Grijalva and Josefina Zoraida Vázquez (eds.), Historia general de América Latina, vol. 6 (1999), 399–420, 418 f. 9 According to Briceño (n. 5), 10, in the year 1865, when the Chilean Commercial Code was issued, there were no life insurance companies in Chile and life insurance was a totally new matter. This is evidently wrong, as we shall prove further below. 10 Diario Oficial No. 5106. Also see Espinosa Moder (n. 1), 109. 11 For a detailed study on mortality statistics in Europe, see Alain Blum, Jacques Houdaille and Marc Lamouche, Mortality differentials in France during the late 18th and early 19th centuries, (1990) 2 Population: An English Selection 163–185. See also Emile Levasseur, The Tables of Mortality and Survivorship, (1887) 50 Journal of the Royal Statistical Society 547–569. For the British experience see William Spens, Observations on Mortality Experience, (1862) 10 The Assurance Magazine, and Journal of the Institute of Actuaries 197–205. For the experience in Philadelphia see Pliny Earle Chase, Philadelphia Life Tables, (1869) 11/81 Proceedings of the American Philosophical Society 17–22. 12 Camilo Pieschacón Velasco, El seguro de vida en América Latina (2011), 136. 13 Antonio Minzoni, Crónica de dos siglos del seguro en México (2005), 52.

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tine insurance companies that operated in the 1850s used the mortality table created roughly a century earlier by Antoine Deparcieux (1703–1768).14 And in Chile, a book from 1901 posed the question:15 Could a mortality table based on the Chilean population serve as a starting point for the establishment of a national insurance company? The experience shows that it is, for now, impossible. An attempt made by La Nacional revealed that the insured people who died claimed more money than the income of the Company.

Notwithstanding these difficulties, Latin America was, as Spain and France, a region where life insurance in the form of tontines had some success.16 Yet eventually they had the same problems that tontines faced in Europe and in the U.S.A., and they were finally banned by law in most of the countries during the first half of the 20th century.

C. Tontine insurance and tontine associations in Latin America Tontine insurance in Latin America can be studied only as part of the history of the mutual life insurance companies that sold tontine life insurance policies providing an annuity, an interest rate yield, or a fixed benefit after a number of years. Tontine insurance companies in Latin America were usually Spanishowned. They were established in major cities of the region, and they were organized as agencies, for the local legislation demanded no prerequisites other than a simple authorization for their establishment. The absence of requirements that foreign companies had to fulfil to run financial businesses in the region has been studied by historians, and it is usually identified as one of the reasons for the nationalization of insurance companies and banks during the first decades of the 20th century. It is important to remember that in the 1850s there were basically three important tontine insurance companies operating in Spain: El Porvenir de las Familias, El Montepío Universal, and La Tutelar Compañía General Española de Seguros Mutuos sobre la Vida, in Latin America also known as La Tutelar Española or La Tutelar.17 Both El Porvenir and La Tutelar were key figures in ___________ 14 El Porvenir de Las Familias, Statute (1856), 5. On the other hand, the statutes of the other life insurance company that offered tontine annuities totally disregard any reference to mortality tables: see La Tutelar, Statutes (1854), passim. 15 Oscar Salamanca, Algunas consideraciones sobre el contrato de seguro y la reglamentación de las compañías anónimas extranjeras (1901), 36. 16 Mexico used the American Experience Mortality Tables of 1869. However, in the 20th century, Hunter’s Semi-Tropical Table was used in places where there was a known epidemic of yellow fever, see Minzoni (n. 13), 24. 17 Jerònia Pons Pons, El sector asegurador en el sistema financiero español, in: José Antonio Gutiérrez Sebares and Francisco Javier Martínez García (eds.), El sistema financiero en España contemporánea (2014), 279–316, 290.

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the history of the 19th century insurance business in Latin America. It is said that in their homeland Spain these tontine life insurance companies declined from the 1860s onwards. A number of factors have been identified which allegedly caused this development. Jerònia Pons Pons, for example, points out that these companies used to have neither capital nor reserves. Together with a lack of diversification of their portfolio, this could have been the main reason why Spanish tontines did not survive past the year 1864.18 By contrast, Ángel Bahamondes claims that the splendour of these companies remained until 1872. However, one also finds literature on the so-called chatelusian tontine method until the 1920s, and tontines themselves were banned only in 1912.19 The lack of sufficient reserve funds was clearly one factor causing the decline of Spanish tontines in the late 19th century, but it was not the only cause behind this development. Governments, both in Europe and Latin America, started to develop means of insurance regulation and supervision, and these means extended to tontines, too. The Mexicanización of insurance businesses in 1935,20 the establishment of an insurance supervisory authority in Peru in 1931, and the Chilean Nacionalización of the insurance industry together with the creation of a special supervisory authority in 1927 are important examples of this development.21 The new legislation on insurance regulation introduced not only the requirement of a special authorization,22 but also the obligation to have reserve funds23 and to invest these in the countries where the companies or agencies operated.24 The early decline of tontines in both Latin America and Spain can best be explained on the basis of these different factors. It cannot be attributed to one factor alone. And again, the decline of tontine insurance cannot be explained only with reference to the introduction of premium taxation,25 as all life insurance premiums were taxed, not only tontine premiums. ___________ 18 There is some literature until the 1920s about the Chatelusian method: Fernando Boter, Rentas Vitalicias Chatelusianas (1928), 23 ff.; Pedro Corominas El sistema Chatelusiano (1914), passim. Briceño (n. 5), 10, attributes the decline of life insurance in Latin America to the failure of the tontines in Spain during ‘this last 25 years’. 19 (1912) Gaceta de Madrid No. 47, 469. 20 Pieschacón (n. 12), 328. 21 This is, as we shall see, a worldwide phenomenon. 22 The Spanish Commercial Code of 1829 only required an authorization by the commercial courts for the creation of a sociedad anónima (Art. 293); in 1848 a law on sociedades anónimas was passed following a reglamento promulgated by real decreto that required an official authorization by the king: see Divar Garteiz-Aurrecoa (n. 2) as well as the Act on Sociedades Anónimas of 1854, which also required a deposit. 23 Salamanca (n. 15), 36, shows the accumulated reserve fund of the Chilean insurance companies in 1900. 24 Proyecto de Ley del Diputado Sr. Salinas, quoted by Salamanca (n. 15), 37. 25 See, e.g., Diario Oficial (Chile) 1 January 1879.

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It is obvious that the decline of tontines in Spain had an important effect on Latin America. In fact, as early as 1901 a Chilean author had qualified tontines as being ‘today in decline’.26 This qualification is surprising since the Chilean legislature banned tontines only in 1927, with a prohibition of chatelusian schemes and all products combining such schemes and tontines following in 1931. Nevertheless, insurance companies were allowed to continue ongoing schemes as long as they adhered to the regulatory orders of the supervisory authority. As far as we know, no tontines were issued in Chile after 1931. And the prohibition of tontines is still in force today. I. Chile and its experience with tontines To start the discussion with my own country may seem arbitrary, but there is a reason that justifies this choice: the Chilean development during the 1850s is of great relevance for other Latin American countries as well. In 1854 and 1855 there were at least two documented tontines. One was called Compañia de Seguros Mutuos La Tutelar, the other El Porvenir de las Familias. The reference to two of the three main Spanish tontines is self-evident. However, the Chilean El Porvenir was much more than an agency of the Spanish company operating under the same name.27 Rather, it was an independent company. Despite its Spanish origin (at least in terms of its name), it was apparently the first properly documented tontine insurance company in Latin American: it was incorporated in Chile under Chilean corporate legislation which had just been enacted. As stated above, the Chilean El Porvenir was far from being an agency of the Spanish company. It is was established by a Spanish citizen: Jacinto María Ruiz, who became Marqués de Grijalba in 1890 and who acted as general manager of the company at least in Chile and Colombia, where it was incorporated as an agency of the Chilean company. The company also had another founder: José Arrieta (1833–1911), who also acted as deputy general manager at least in Chile and Colombia. Arrieta was a Uruguayan aristocrat and diplomat who came to Chile in 1844 when he was only 11 years old. He made a fortune in Chile and became an important member of the post-colonial aristocracy. All the stockholders of El Porvenir were Chilean tycoons and rich politicians. One by the name of Güemes was in his spare time a professor of Roman law.

___________ 26 Oscar Salamanca, Contrato de seguro y la reglamentación de las compañías anónimas extranjeras (1901), 24. 27 Arguing to the contrary, Salamanca (n. 15), 23: ‘it is not a surprising fact that life insurance is nowadays monopolized by foreign companies’.

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During the second half of the 1850s, the Chilean El Porvenir jumped into the Latin American market with a great deal of success, both in the insurance business and also in raising capital. It was well known to be a creditor of the Republic of Chile, as there is a document in the National Archives dated 30 July 1865 according to which El Porvenir loaned the government 432,000 pesos28 at an interest rate of 8%. Arrieta signed the credit agreement on behalf of El Porvenir. Prominent figures such as the president of the Brazilian State of Paraná and the Argentinean aristocrat Juan Anchorena (1829–1895) were subscribers to this tontine, investing 50,000 pesos and 30,000 pesos respectively. El Porvenir had a subsidiary company called El Progreso de Chile which was also established by Arrieta and which was financing housing for the poor people of Chile.29 It seems remarkable that El Porvenir worked as a stock corporation30 at a time when there was no legal obligation to do so: the Chilean act on Sociedades Anónimas of 1854 did not require insurance companies to incorporate as stock companies. As Moises Briceño Trujillo points out,31 agencies of foreign corporations needed only an executive authorization to offer insurance. Apart from La Chilena Seguros, which was established in 1853, foreign companies, including banks and insurance companies, would thus set up only agencies in Chile.32 Furthermore, El Porvenir posted a deposit with the Chilean government at an interest rate of 3%33 when insurance companies needed to establish no warranties whatsoever. Tontines usually did not have a minimum capital and did not deposit any reserve, so one may say that El Porvenir was ahead of its time by several decades in comparison to other insurance companies of the region. In fact, La Tutelar, the other tontine company operating in Chile and, as we shall see, in the rest of Latin America,34 was run on a different basis. It operated as a mere agency, it did business under its original Spanish statutes (having published them in Chile and other Latin American countries), and the regulatory authorities did not supervise its activities. Any form of governmental supervision or control over this or any other insurance company was simply absent. ___________ 28

Boletín de Leyes y Reglamentos (Chile) s/d, s/l. (1877) Diario Oficial de la República de Chile No. 1618. 30 Jaime Alcalde, La historia legislativa de la agencia de sociedad extranjera, (2014) 42 Revista de Derecho de la Pontificia Universidad Católica de Valparaíso 599–634. 31 Briceño (n. 9), 22. 32 Alcalde (n. 30), 601 ff. 33 The statutes of El Porvenir (n. 14), 6, also recognize that La Tutelar was the only other company which had this kind of warranty. However, La Tutelar favoured of Spanish bonds, as its own statutes (n. 14) show: Art. 4. 34 La Tutelar, a purely Spanish tontine, worked in a very different manner, as the statutes (n. 14) published in Valparaiso in 1854 clearly show. 29

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But let us go back to El Porvenir: there are several documents which prove that the Chilean El Porvenir sold tontine policies since the first half of the 1850s35 using a classic European methodology. However, people in this region used to live to an average of 30 years.36 As mentioned above, the lack of mortality tables for this period made the tontine business very complex. El Porvenir used Deparcieux’s mortality tables, which were published many years after those of Johan de Witt (1625–1672), Willem Kersseboom (1681–1771), Edmond Halley (1656– 1741/42), and others. El Porvenir sold policies at an approximate interest rate of 6% – much higher than the 3% offered by La Tutelar .37 No founding documents of El Porvenir survived; the only fact that is known is that in 1854 it turned into a sociedad anónima under the Act on sociedades anónimas of the same year. It is likely, however, that El Porvenir was in business years before that. It had offices and agents in Lima, Nueva Granada (located in present-day Colombia), the Argentinean Confederation, Ecuador, and Mexico; further, its Colombian statutes of 1856 confirm that it was planning to open agencies in the U.K. and Germany due to what it called the ‘advantages that Europe offers to capital, better interest rates and speculations in normal times’.38 While there is no trace of a transcontinental expansion to Europe by the Chilean El Porvenir, the corporation is, as far as we know, Chile’s first transnational corporation, and it had considerable success in the territories of today’s Latin America. El Porvenir used identical statutes throughout the region. They were always signed by Ruiz, Arrieta, and a number of Chilean aristocrats, including senators and members of the government. Notwithstanding the success of El Porvenir, its statutes are rarely found in public libraries. It is only the Colombian version which is easy to find, but only because it is published on the internet. Law No. 4,227 of 1927 expressly banned tontines from Chile. The respective provision was not part of the draft bill which was sent by the president to congress. It was added later in parliament. The legislative materials accompanying Law No. 4,227 say nothing about the reasons why the ban of tontines was introduced. However, it seems likely that the ban was connected with La misión Kemmerer. More specifically, Edwin Walter Kemmerer (1875–1945) led a group of American economists that visited many Latin American countries in the ___________ 35 The Bank Memories of Chile dates El Porvenir de las Familias to 1865. That is an incorrect date as its public registry shows. 36 Inhabitants of Spain had a life expectancy of 29.8 years between 1863 and 1879, as Fausto Dopico and David-Sven Reher, quoted by Pons (n. 17), 292, prove. 37 La Tutelar (n. 14), Art. 5. 38 El Porvenir (n. 14), Ch. 13.

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1920s, advising them on matters of public policy, including insurance. As a matter of chronology, La misión Kemmerer took place after the decline experienced by tontines in New York as a result of the Armstrong Report. Finally, Decree No. 251 of 1931 (Ley sobre Compañias de Seguros Sociedades, Sociedades Anonimas y Bolsas de Comercio), which is still in force today, reiterated the ban of 1927 and added the prohibition of any chatelusian scheme. It was not until 1 December 2013 that Law No. 20,667 on insurance contracts (Ley que regula el Contrato de Seguro) deleted the reference to tontines in the commercial code. II. Chilean tontines in Colombia? The history of tontines in Colombia is closely related to the Chilean experience, especially as regards El Porvenir. Beginning in 1856, the Chilean El Porvenir had been active also in Colombia, as becomes clear from its statutes of the same year. They were signed by Arrieta and published in Bogotá. The Colombian statutes refer to El Porvenir as a ‘company incorporated in Chile’ and not as a Spanish agency. The statutes also refer to the existence of La Tutelar Española as the other company of its kind in Colombia.39 Thus, there is no reason to doubt that those two companies ran all the tontine insurance business in Colombia. Tontines were not banned in this part of South America, and it is interesting to note that the Colombian Código Civil of 1873 has express provisions on annuities, as it is a reprint of the Chilean Código Civil of 1855 which, of course, also deals with annuities. Fabio Ortiz Guzman points out that Colombians were one of the most important group of subscribers to tontine policies of El Porvenir.40 Despite their apparent success, there is no evidence of any activities of these companies after 1880. III. The Peruvian and Ecuadorian experience with tontines There is a reference in the Almanaque de Comercio de Lima of 1876 that in 1863 the Chilean El Porvenir started its operations in Peru, too. There is no further information in the Almanaque that allows any estimate as to the scale of its life insurance business. El Porvenir and a company called La Patronal – a company as to which there is no further information available – also offered home loan financing products to the poor, probably following the methodology of El Progreso.41 There are records proving that El Porvenir applied for a concession ___________ 39

El Porvenir (n. 14), 6. Fabio Ortiz Guzmán, Cálculo de primas y reservas de seguros de vida elaborado por Julio Garavito basado según el texto de É. Dormoy, (2014) 35 Lecturas Matemáticas 59– 85, 62. 41 On El Progreso see the text corresponding to n. 29, above. 40

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in Peru as early as 1856 – that is the same year that El Porvenir started its business in Colombia. During the Chilean war against Peru and Bolivia, also known as La Guerra del Pacífico or the War of the Pacific (1879–1883), El Porvenir was expelled from Peru, and there is no record that it returned during or after the years of the occupation of Lima by the Chilean army. Peruvian commerce was governed by the Ordenanzas de Bilbao. During the Latin American codification period, the first Peruvian Commercial Code was enacted.42 It was based on the Spanish Código de Comercio of 1829. It did not deal with life insurance. A new Peruvian Commercial Code came into force only in 1902.43 This code was, again, a copy of a Spanish code, namely the Código de Comercio of 1885. Miguel Torres Mendez has analysed the developments leading to the enactment of this code in 1902.44 In Art. 132 the new code dealt with tontines, and also with mutual insurance. Article 132 is a copy of Art. 124 of the Spanish code.45 There is no information available as to whether mutual insurance companies still offered tontines products in the 1930s. If they did, it is hard to see how this was in conformity with the requirements for insurance companies which were introduced in Peru after La misión Kemmerer and how this related to the ban of tontines in Spain in 1926.46 Law No. 16,123 of 1966 (Nueva Ley de sociedades mercantiles) did not bring any innovative changes. Similarly, Law No. 26,70247 of 1996 (Ley General del Sistema Financiero y del Sistema de Seguros y Orgánica de la Superintendencia de Banca y Seguros) did not ban tontines; it merely disregards them altogether. The current Law No. 29,946 of 2012 (Ley del Contrato de Seguro) simply prohibits ‘all dispositions that are against this law’ without explicitly mentioning tontines. Turning to Ecuador, there are hints that the Chilean poet and politician Guillermo Blest Gana (1829–1904) was an agent of the Chilean El Porvenir in Ecuador from 1856. However, at this state of research I was not able to identify ___________ 42

Margarita Guerra Martinière, La ocupación de Lima 1881–1883, vol. 2 (1996), 100. The Code was issued on 15 February 1902. 44 Miguel Torres Mendez, Historia del Código de Comercio peruano, (1994) 48 Revista de la Facultad de Derecho de la Pontificia Universidad Católica del Perú 133–148. 45 ‘Las compañías mutuas de seguros contra incendios, de combinaciones tontinas sobre la vida para auxilios a la vejez, y de cualquiera otra clase, y las cooperativas de producción, de crédito o de consumo, sólo se considerarán mercantiles, y quedarán sujetas a las disposiciones de este Código, cuando se dedicaren a actos de comercio extraños a la mutualidad, o se convirtieren en sociedades a prima fija.’ 46 On the Spanish position see Illescas, 232, above. 47 Ley General del Sistema Financiero, del Sistema de Seguros y Orgánica de la Superintendencia de Banca y Seguros. 43

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any statutes or policies issued in that country, and thus it is impossible to present any analysis of the history of tontines in Ecuador. IV. Spanish tontines in Cuba, Argentina, and Uruguay The Spanish tontine company called El Porvenir de las Familias – not to be confused with Chilean incorporated company of the same name which I have just described – also had an important presence in Latin America. It had representatives and agencies in some countries, such as Cuba and Argentina during the 1860s. The Spanish El Porvenir had representatives in La Habana not long after it was established in Spain. Two further tontine companies (La Tutelar and the Caja Universal de Capitales) also had representatives in La Habana, Cuba.48 Furthermore, Eduardo Crocco affirms that the first life insurance company identified in Argentina and Uruguay was La Tutelar in 1855.49 El Porvenir was also present in Buenos Aires, but it is unclear if it was an agency of the Spanish company or of the Chilean El Porvenir or of both. The statutes of the Chilean El Porvenir confirm that it had agencies in Buenos Aires,50 and the president of the Province of Buenos Aires had invested in it. However, there are also records that in 1858 Ramón Joaquín López de Casa Blanca tried to gather a local board for the Spanish El Porvenir.51 Argentinean historians claim that the credit for being the first local life insurance company has to be given to La Bienhechora del Plata. It was established in 1864, its statutes were published in Buenos Aires in the same year, it worked as a mutual non-scientific life insurance company, and it is clear that it offered the same tontine policies as El Porvenir and La Tutelar. Tontines were not banned in Argentina until Law No. 20,091 (Ley de Entidades de Seguros y su Control) of 1973. However, the prohibition applies only to insurance companies issuing tontine insurance policies and does not prohibit their issuance by other types of entities. By contrast, Uruguayan law does not prohibit tontines, and companies such as Asociación Civil por Ayuda Mutua presently run a very profitable business with such products in Uruguay.

___________ 48 Alejanro Vigil Iduate, Seguros en Cuba en la Colonia: www.ecured.cu/Seguros_en_Cuba_en_la_Colonia (last accessed 20 July 2017). 49 La Tutelar insured the life of General Justo José de Urquiza (1801–1870) with a policy issued on 6 February 1866 by an agency in the city of Concepción del Uruguay, Provincia de Entre Ríos. 50 El Porvenir (n. 14), 14. 51 Crocco quotes Historia del Seguro (2nd edn., undated).

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V. The case of Mexico In Mexico, tontine insurance companies flourished. On 2 February 1865 the Mexican company La Bienhechora was established.52 It had a very long set of statutes, 184 articles in total. The statutes reveal that it was a mutual life insurance company which offered typical tontine products for periods of 5, 10, 15, 20 and 25 years.53 On 17 February 1865, a concession was granted by Maximillian, emperor of Mexico, to its founder, a Mexican by the name of Joaquín Acebo.54 The concession demanded a deposit of 40,000 pesos. Antonio Minzoni claims that La Bienhechora did not survive too long due to political and social difficulties. In fact, it existed for 50 years, which is not a short period of time in comparison to insurance companies in other countries. In 1887, a company called La Mexicana was established by two Mexican businessmen, Luis Terrazas (1829– 1923) and Enrique Creel (1854–1931). According to Minzoni, this company had a reserve fund and ran its business using a scientific calculation of premiums,55 yet this is not completely accurate. Turning to the legal regulation of tontines and life insurance in Mexico, it is worthwhile to note that the Código de Comercio of 1884 did not mention tontines. The Código Civil of 1870 dealt solely with life annuities. In 1910 the life insurance business was restricted to stock-owned companies and cooperatives. Finally, in 1926, a reserve in the state treasury became a prerequisite for all life insurance companies. VI. Brazil’s late experience with tontines An interesting development took place in Brazil in 1907. On 3 December 1907 a memorandum from the national inspector of insurance to the secretary of treasury was published in the Diário Oficial da União (Official Bulletin). It referred to ‘irregular functions of two Caixas de Pensoes Vitalicias’ which ran their business in Sao Paulo. The one was the Caixa Mutua de Pensões, which was established in 1906, the other was called A Providenca. Both were established as mutual benefit associations with neither a corporate nor a royal concession, both were not established as commercial companies, and both had agents or brokers in every city, ‘in every neighborhood, in every street’. The memorandum shows that governmental authorities had initiated investigations against both caixas in May 1907. The authorities came to the conclusion ___________ 52

Minzoni (n. 13), 22. See also Diario del Imperio, 7 February 1865. Minzoni (n. 13), 22. 54 Minzoni (n. 13), 23. 55 Minzoni (n. 13), 28. 53

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that the statutes of both funds were not only ‘like Siamese twins’ in relation to those of Flanco de Pensiones and Banco de Pensiones – two commercial companies established in Uruguay – but that they were running tontine schemes which were prohibited by law: their statutes stated that surviving investors recovered their capital after 15 years and that in addition they received a surplus flowing from the investments and dividends of deceased investors. Arts. 2 and 34–38 of Decree No. 5,072 of 1903 and Art. 30 of Decree No. 2,711 of 1860 ruled that ‘life insurance companies of any kind, tontines and all other associations that seek the sharing of earnings depending on coverage need to be authorized by the imperial government according to the current legislation’. The inspector of insurance did not only find that the two caixas lacked the necessary concession; he also argued that they were in fact tontine societies presenting themselves to the public as insurance companies. Their business model was, thus, based on deceit. In conclusion, the inspector of insurance accused both caixas of gross violations of insurance regulation legislation. Furthermore, he presented the moral argument that ‘the dead paid for the living’.

D. Conclusion Tontines are at the core of the history of life insurance in Latin America: the first life insurance companies in Latin America offered tontine-based products. Some of these companies, both Spanish and local, were very successful, and their success lasted (with some variations) until the 1920s. There is some information on the actuarial methodologies and the use of mortality tables. There is enough information about the legal approach to life insurance, tontines included, from the period of colonial America to the legislation of the new republics. Tontines in Latin America were legally banned or just disappeared due to new legal regulations, which included the deposit of a guarantee, the regulation of their investment portfolios, and taxation of premiums.

Chapter 15: Tontines in Poland By Jan Halberda* A. Introduction ............................................................................................................ 273 B. Setting the scene: the history of insurance .............................................................. 275 I. A 200-year anniversary? ................................................................................. 275 II. Early beginnings ............................................................................................. 276 III. Two Prussian decrees ...................................................................................... 276 IV. The Kingdom of Poland under Russian rule ................................................... 276 V. The Kingdom of Poland under Prussian rule................................................... 278 VI. Galicia – Polish Piedmont under Austrian rule ............................................... 278 VII. Florianka’s influence ...................................................................................... 279 C. The life insurance business of Florianka ................................................................ 279 I. Setting up the business .................................................................................... 279 II. Local rivalry .................................................................................................... 280 III. Florianka’s tontines ........................................................................................ 281 IV. The end of Florianka’s tontines ...................................................................... 283 D. Demise of tontines in Europe ................................................................................. 283 E. General terms and conditions of tontine schemes ................................................... 285 F. Conclusion .............................................................................................................. 287

A. Introduction When presenting the history of tontines in Poland, one has to bear in mind that tontines were offered on the Polish market for only a rather short time in the second half of the 19th century. During that period Poland could not be found on the European maps. After three partitions that took place in 1772, 1793, and 1795, Poland ceased to exist as a sovereign state because its territories had been divided up by its three powerful neighbours – Russia, Prussia, and Austria. Although the borders between these states changed during the Napoleonic Wars and as a result of the Congress of Vienna (1815), Poland gained its independence only in 1918 after the three nations suffered defeat in the First World War. That is the reason why the 19th century does not witness a unitary history of the Polish ___________ *

The author would like to thank Renata Zielińska-Miziura (Powszechny Zakład Ubezpieczeń S.A. Regional Branch in Cracow), who provided access to materials of the former Muzeum Ubezpieczeń (Museum of Insurance) that was run by Powszechny Zakład Ubezpieczeń in Cracow (1987–2009), and Dr. Mateusz Mataniak, who conducted research for the author at the Archiwum Narodowe (National Archives) at its branches in Cracow and Spytkowice.

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insurance business. Rather, it has to be presented as a development that takes place in parallel in distinct regions ruled by Prussia (later Germany), Russia, and Austria. Thus, the subject matter of the present chapter to some extent overlaps with stories told in this book by Phillip Hellwege and Tamara Korchagina.1 Because of that this chapter puts more emphasis on the history of insurance and tontines in the region of Galicia that was the part of Poland annexed by Austria. The history of tontines in Poland has not yet been researched. Ignacy Eichstaedt, in his attempt to present the history of insurance in Poland and in Western Europe, did not even mention Polish tontines. Although Eichstaedt depicted tontines in other countries, he does not mention any Polish tontines in his book.2 It seems that the very word ‘tontine’ was scarcely used by Polish authors involved in life insurance issues during the 19th century. Instead, they sometimes attempted to use different terms. Only Józef Mrazek (1838–1895), who was a board secretary of Florianka, and Kazimierz Langie (1839–1897) resorted to the term ‘tontyna’ (‘tontine’).3 Others, among them Antoni Doerman (1879–1931), also a secretary of Florianka, called it ‘spółki Tontiego’ (‘Tonti’s associations’),4 while Steser used the label ‘ubezpieczenia tontynowe i półtontynowe’ (‘tontineand semi-tontine insurance’) and ‘ubezpieczenia z uzbieraniem zysków’ (‘insurance with profit savings’).5 Other authors seemed to avoid reference to the notion of a ‘tontine’. Henryk Kieszkowski (1821–1905), the general manager of Florianka’s life insurance business, and Florianka’s official reports (of which Kieszkowski was probably an author) kept using the term: ‘spółki na przeżycie’ (‘survival associations’).6 The Galicyjskie Akcyjne Towarzystwo Ubezpieczeń (Galicia Insurance Stock Society – GATU) advertised its operations using the term ‘wzajemne spółki na przeżycie’ (‘mutual survival associations’).7 While ___________ 1

See Hellwege, 167 ff., above and Korchagina, 297 ff., below. Ignacy Eichstaedt, Historia ubezpieczeń i historia ubezpieczeń w Polsce (1939), 11–12. 3 Kazimierz Langie, Ubezpieczenia a tontiny (1885), 19 (the book has been published anonymously); Józef Mrazek, Monografia Towarzystwa Wzajemnych Ubezpieczeń w Krakowie, skreślona dla upamiętnienia 25tej rocznicy istnienia tego towarzystwa, przypadającej w dniu 1 Maja 1886 roku przez Józefa Mrazka (1886), 357–358, 402–403. 4 Antoni Doerman, Towarzystwo Wzajemnych Ubezpieczeń w Krakowie 1861-1911. Księga pamiątkowa półwiekowej działalności (1911), 75–76. 5 Steser, Tontyna a ubezpieczenie życiowe, Przegląd Tygodniowy Życia Społecznego, Literatury i Sztuk Pięknych 1894, no. 27 (25.6/7.7.1894), 309. 6 Henryk Kieszkowski, Towarzystwo Ubezpieczeń Wzajemnych w Krakowie. Dział ubezpieczeń na życie – jego powstanie, rozwój i ćwierćwiekowa działalność 1869–1894 (1895), 22; Sprawozdanie Towarzystwa Wzajemnych Ubezpieczeń w Krakowie z czynności dwudziestego pierwszego roku 1881/82 i sprawozdanie Towarzystwa Wzajemnego Kredytu w Krakowie z czynności w 1881 r. (1882), 54–55. The term is also applied by anonynmous (probably Ignacy Sołdraczyński), Spółki na przeżycie, Przewodnik Ekonomiczny 1871, no. 17 (23.4.1871), 133; Langie (n. 3), Mrazek (n. 3). 7 Advertisement in: Hasło. Dziennik społeczno-ekonomiczny, 1876, no. 2 (20.2.1876). 2

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commenting on tontines offered by the St. Petersburg Society, Bronisław Mayzel (1849–1927), wrote about ‘asocjacje wzajemne oparte na przeżyciu’ (‘mutual associations based on survival’),8 whereas Adam Danielewicz (1846–1935) spoke of ‘wzajemne stowarzyszenia na przeżycie’ (‘mutual societies based on survival’) or ‘wzajemne ubezpieczenia na przeżycie’ (‘mutual insurance based on survival’).9 The latter term was used by the society itself.10 The New York Life Insurance Company, which operated also in the Polish territories, offered tontines to the public as a collateral life insurance product under the label of a ‘system uzbierania zysków’ (‘profit savings scheme’). Neither the word tontine nor any similar expression was used.11

B. Setting the scene: the history of insurance I. A 200-year anniversary? Anno Domini 1803 is deemed to be the year when the insurance business in Poland started to develop. The year is depicted on a graphic image of Powszechny Zakład Ubezpieczeń (Universal Establishment of Insurance –PZU) despite the fact that it was established only in 1921. PZU is currently one of the largest insurance offices in Poland. In the 20th century it was run by the state under several different names due to political and economic transformations.12 In 2003 Allianz explicitly commemorated the 200-year anniversary of insurance business in Poland by reissuing a small book entitled ‘Krótkie objaśnienie o zabezpieczeniu na życie’ (‘A Short Explanation of Life Insurance’). The prospectus was originally published in Cracow in 1869 during the attempts to bring more colour to the development of life insurance business in Polish Galicia. 1803 is the date of a decree issued by Frederick William III of Prussia ordering that fire insurance societies be established in those territories that were taken by Prussia from Poland. ___________ 8

Bronisław Mayzel, Ubezpieczenia życiowe u nas, Kurier Warszawski 1886, no. 69b, 2. Adam Bolesław Danielewicz, Wzajemne stowarzyszenia na przeżycie, Ekonomista. Przegląd Tygodniowy Warszawski 1879, no. 35 (21.8/2.9.1879), 1. 10 St. Petersburgskie Towarzystwo Ubezpieczeń od Ognia oraz ubezpieczeń Dochodów i Kapitałów (ed.), Ubezpieczenia wzajemne oparte na przeżyciu (1880), 1 f. 11 Przepisy określające sposób prowadzenia operacyi ubezpieczeń na życie w Rossyi przez Towarzystwo ‘New-York’ (1888), 3, 9–14, paras. 8–10. 12 At the beginning (1921–1927) it bore the name of Polska Dyrekcja Ubezpieczeń Wzajemnych (Polish Board of Mutual Insurance). For a quarter of a century (1927–1952) it was run as Powszechny Zakład Ubezpieczeń Wzajemnych (Universal Establishment of Mutual Insurance), then (1952–1990) as Państwowy Zakład Ubezpieczeń (State Establishment of Insurance). Since 1991 it has been providing insurance coverage as Powszechny Zakład Ubezpieczeń (Universal Establishment of Insurance). 9

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II. Early beginnings As a matter of fact, the history of insurance in Poland started long before 1803. It has been documented that from the 16th to the 18th centuries fire societies were active in Poland. These were established in municipalities in the north-western part of Poland, especially by local guilds. The aim was to provide for help and aid in case of fire. Even earlier – since the Middle Ages – similar societies had been created by miners in Silesia.13 III. Two Prussian decrees Protection against natural disasters such as fire or hail was the main factor behind the insurance development during the 19th century in Poland. Life insurance followed much later. Two decrees of Frederick William III of Prussia that were issued on 21 April 1803 (for towns) and on 9 April 1804 (for villages) ordered that fire societies be established in so-called Southern Prussia, encompassing the Warsaw and Poznań regions. The Napoleonic Wars prevented the decrees from being fully implemented. As the Duchy of Warsaw was established in 1807 by Napoleon in the Polish territories taken from Prussia and Russia, the Towarzystwo Ogniowe dla Miast i Wsi (Fire Society for Towns and Villages) began to operate.14 IV. The Kingdom of Poland under Russian rule Then, after the Congress of Vienna (1815), the Duchy of Warsaw perished, with its territory becoming a part of Russia under the name of the Kingdom of Poland, ruled by the Russian tsar. The Fire Society for Towns and Villages ___________ 13 Andrzej Bielecki, Kształtowanie się ubezpieczeń na ziemiach polskich, in: Beata Bieńkowska and Dariusz Szafrański (eds.), Problemy prawa polskiego i obcego w ujęciu historycznym, praktycznym i teoretycznym (2009), 19 f.; Anna Bittner-Nowak, Kształtowanie się rynku ubezpieczeń w Wielkopolsce (1793–1918) (1995), 11; Roman Fijałkowski, Poznańskie instytucje wsparcia zabezpieczenia (1883), 80 (book published under the name of W. Koryzna); Mrazek (n. 3), 5; Jakob Pokoj, Artykuł 58 Ordunku Górnego, czyli rzecz o początkach ubezpieczeń na Śląsku, in: Czasopismo PrawnoHistoryczne (forthcoming 2018); Marian Szczęśniak, Zarys dziejów ubezpieczeń na ziemiach polskich (2003), 49–67. 14 Paweł Augustyn, Z ubezpieczeniami wzajemnymi przez wieki (2011), 86–88; Bielecki (n. 13), 21 f.; Ignacy Biskupski, O ubezpieczeniach (1925), 20 f.; Fijałkowski (n. 13), 82, 84, Mrazek (n. 3), 6 f.; Bronisław Mayzel, Przegląd historyczny rozwoju ubezpieczeń w Królestwie Polskim (1900), 1–3; Szczęśniak (n. 13), 83, 112; Warszawskie Towarzystwo Ubezpieczeń. Książka pamiątkowa wydana z powodu 50-cio letniego istnienia instytucji 1870–1920 (1921), 1; Zbiór Urządzeń i Wiadomości tyczących się Ubezpieczeń w Królestwie Polskim (1847), 2 f., 5 f.

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changed its name to Towarzystwo Ogniowe w Królestwie Polskim (Fire Society in the Kingdom of Poland) in 1817.15 On 10 January 1843 an order (‘ukaz’) of Tsar Nicholas I introduced insurance legislation in the Kingdom of Poland. The Fire Society was to be replaced by the Dyrekcja Ubezpieczeń Królestwa Polskiego (Kingdom of Poland Board of Insurance), which had to engage not only in fire but also in hail and life insurance. The order was followed by two decrees of the Rada Administracyjna (Administrative Board). One decree was issued on the same day as the order and established the organizational framework of the Dyrekcja. The second decree was issued on 30 July 1844 and introduced general conditions of life insurance business. The latter decree also listed a catalogue of permitted forms of life insurance (Art. 2). Tontines were not mentioned in that list. As one of the repercussions of the unsuccessful independence insurrection against Russia in 1863–1864, the Dyrekcja was abolished in 1865.16 Its powers were subsequently assigned to the Komitet Urządzający (Managing Committee). The state remained a monopolist in life insurance until 18 September 1868, when the Committee allowed foreign insurance offices to apply for authorization to conduct insurance business in Russia. Soon, according to the tsar’s order of 25 September 1869 and the Committee’s order of 5 November 1869, the state ceased to provide life insurance and concluded agreements that conveyed the business to the private sector. Thus – on the basis of such agreements executed on 10 July 1870 – the life insurance business in Polish territories under Russian rule was transferred to the St. Petersburgskie Towarzystwo Ubezpieczeń od Ognia oraz Ubezpieczeń Dochodów i Kapitałów (St. Petersburg Society of Fire Insurance and Profits and Capitals Insurance), a company which was based in St. Petersburg, first set up in 1858, and which started operations in life insurance only in 1868.17 ___________ 15 Augustyn (n. 14), 86–88; Biskupski (n. 14), 20 f.; Fijałkowski (n. 13), 84; Mrazek (n. 3), 6 f.; Szczęśniak (n. 13), 112; Warszawskie (n. 14), 1; Zbiór (n. 14), 5 f. 16 Jan Banzemer, Instytucye przezorności w Królestwie Polskim z dodatkiem uzupełniającym (1878), 49; Bielecki (n. 13) 23–25; Biskupski (n. 14), 20 f.; H.K. (probably Henryk Konic or Henryk Kieszkowski), Jaki ma charakter wynagrodzenie asekuracyjne w ubezpieczeniu na życie, Gazeta Sądowa Warszawska 1894, no. 33 (6.8/18.8.1894), 517; Mayzel (n. 14), 4–18; Edward Montalbetti, Z działalności Dyrekcji Ubezpieczeń Królestwa Polskiego (1843–1863), Wiadomości Ubezpieczeniowe 1958, no. 2, 1–4; Mrazek (n. 3), 10–12, Lucjan Pokorzyński, Powstanie i rozwój ubezpieczeń na ziemiach polskich w latach 1803–1914, w: 150 lat ubezpieczeń w Polsce (1958), 31; Szczęśniak (n. 13), 119; Zbiór (n. 14), 11–13, 193–197. 17 Banzemer (n. 16), 50 f.; H.K., Jaki ma charakter wynagrodzenie asekuracyjne w ubezpieczeniu na życie, Gazeta Sądowa Warszawska 1894, no. 34 (13.8/25.8.1894), 531; Bronisław Mayzel, Zasady płacenia premij w umowie ubezpieczeń na życie, Gazeta Sądowa Warszawska 1890, no. 25 (9.6/21.6.1890), 388; Mayzel (n. 8), 2; idem (n. 14), 25–32; Warszawskie (n. 14), 2.

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V. The Kingdom of Poland under Prussian rule In the territories that became part of Prussia, Polish entities were not allowed to work in the life insurance sector. That is the reason why for a long period there was no Polish life insurance office. Only fire societies flourished. In the Poznań region the fire risk was covered by the Towarzystwo Ogniowe dla Wielkiego Księstwa Poznańskiego (Fire Society for the Grand Duchy of Poznań) from 1836. In Silesia (today a part of Poland but then for centuries under Czech and Prussian rule), fire societies operated as of 1842. In respect of life insurance business, the Germany-wide companies played an active role.18 VI. Galicia – Polish Piedmont under Austrian rule The history of insurance in Poland was considerably influenced by the geopolitical turmoil. While Prussia and Russia adopted a rather stern anti-Polish policy, much more freedom was encountered by Poles under Austrian rule. Accordingly, Galicia (today’s southern Poland and western Ukraine with Lviv as the major city) is frequently compared with Italian Piedmont as the region wherein the successful movement for independence could finally emerge. Galicia was the place where several Polish insurance organizations could prevail despite the Austrian rule. First insurance offices were established in Austria after 1819. During the 1820s and 1830s the creation of a Polish office was being discussed in a local seym. But only after severe fires in the 1850s in Cracow and in Mielec (the latter being another Galician city) did the Austrian government finally consent to the idea of setting up a fire insurance society. Up to that time there had been no fire insurance business in Galicia.19 The newly constituted society bore the name Wzajemne ubezpieczające krajowe Towarzystwo Ogniowe w Krakowie (Inland Mutual Insurance Fire Society in Cracow) and was soon changed into Towarzystwo Wzajemnych Ubezpieczeń od Ognia w Krakowie (Fire Insurance Mutual Society in Cracow). Beginning in 1861 it started to provide fire insurance to the public. It not only provided insurance coverage, but also actively engaged in creating fire protection strategies in Galicia. Because of that, the society acquired the popular name of Florianka, which came from St. Florian, the holy patron of fire fighters. The emblem of St. Florian could be found in the society’s coat of arms.20 In the following years the society started to offer also hail (1864) ___________ 18 Augustyn (n. 14), 80; Fijałkowski (n. 13), 85 f.; Roman Ziembiński, Powstanie i działalność Śląskiego Prowincjonalnego Stowarzyszenia Ubezpieczeń Ogniowych w latach 1825–45, Acta Universitatis Wratislaviensis. Prawo 2004, no. 290, 127–146. 19 Mayzel (n. 14), 4. 20 Ustawy Zasadnicze (Towarzystwa ubezpieczenia od ognia w Krakowie) (1860), 1.

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and life insurance policies (1869).21 The society gradually grew and, despite the activity of its competitors, it soon became a virtual monopolist in Galicia. Florianka ultimately took over its major rival, GATU, between 1877 and 1879.22 Ignacy Biskupski argued that in the years before the First World War Florianka was the largest of all mutual life insurance offices in the world.23 VII. Florianka’s influence In following decades Florianka helped to create independent insurance societies in Polish territories ruled by Germany and Russia. Westa Bank Wzajemnych Ubezpieczeń na Życie (Vesta Mutual Life Insurance Bank) was established in Poznań (under German rule) in 1873.24 In Warsaw (then still under Russian rule) Warszawskie Towarzystwo Ubezpieczeń od Ognia (Warsaw Fire Insurance Society) and Towarzystwo Ubezpieczeń Przezorność w Warszawie (Providence Insurance Society in Warsaw) were set up in 1870 and 1892 respectively. 25 Westa offered a full scope of coverage, including fire, hail, and life insurance, but no tontines. Warsaw Fire Insurance Society focused on fire risk while Przezorność covered life insurance, but again no tontines.26

C. The life insurance business of Florianka I. Setting up the business First attempts to establish a life insurance branch within Florianka were made in 1867. The project failed as the management quickly realized that there was still no market for that type of insurance in poor and underdeveloped Galicia. This decision changed on 8 June 1868 when the general meeting of the society resolved to enter into the life insurance business. It ultimately enacted the statute ___________ 21 Biskupski (n. 14), 27–30; Mrazek (n. 3), 196; Pokorzyński (n. 16), 59; Szczęśniak (n. 13), 159–166. 22 Biskupski (n. 14), 33; Doerman (n. 4), 101; Edmund Ginwiłł-Piotrowski, Ubezpieczenia na życie ich rozwój i stan dzisiejszy, Kalendarz AsekuracyjnoEkonomiczny (1892), 120. 23 Bielecki (n. 13), 30; Biskupski (n. 14), 27–32; Mrazek (n. 3), 217; Szczęśniak (n. 13), 167 f. 24 Augustyn (n. 14), 83; Biskupski (n. 14), 36; Bittner-Nowak (n. 13), 126; Fijałkowski (n. 13), 106–116; Ginwiłł-Piotrowski (n. 22), 120. 25 Biskupski (n. 14), 22–26; Ginwiłł-Piotrowski (n. 22), 120 f.; Mayzel (n. 14), 38 f., 51; Pokorzyński (n. 16), 38 f.; Szczęśniak (n. 13), 135–141; Towarzystwo Ubezpieczeń Przezorność, Krótki przegląd działalności za dwadzieścia pięć lat 1892–1916 (1917), 1 f.; Warszawskie (n. 14), 3. 26 Fijałkowski (n. 13), 106–116; Szczęśniak (n. 13), 120.

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for the new branch on 31 May 1869. After the approval of Austrian administrative authorities, the operations could lawfully start on 1 November 1869.27 As life insurance was not known in Poland previously, Florianka’s management decided to publish a book on the topic entitled Krótkie objaśnienie o zabezpieczeniu na życie (‘A Short Explanation of Life Insurance’). The book started with the firm and unequivocal statement that each father should provide his family with life insurance coverage. It instructed the reader on the details of endowment and annuity life insurance, but it did not mention tontines.28 Likewise, the instructions for Florianka’s agents did not bother with tontines.29 II. Local rivalry In Austria, of which Galicia was a part, tontines came to be offered during the 1860s.30 Of the Polish life insurance offices, only Florianka and GATU were active in tontines. Westa and Przezorność did not offer tontines.31 That is another reason why the present paper focuses on Galicia. Tontines were offered by Florianka beginning in 1870 and by GATU from 1871.32 While Florianka’s core business in the life insurance branch consisted of standard life insurance products such as endowment insurance and annuities, GATU operated in a contrary fashion. For GATU, tontines were the most important insurance product. Florianka and GATU competed with each other. Contemporary publications repeatedly drew the reader’s attention to the differences between mutual insurance societies and stock corporations. Florianka was a mutual society, whereas GATU was a stock corporation. Mutual insurance societies were presented as the prime example of an organization created for the benefit of its members. The ___________ 27 Doerman (n. 4), 75 f.; Sprawozdanie Towarzystwa Wzajemnych Ubezpieczeń w Krakowie z czynności dziesiątego roku 1870/71 (1871), 12; Ginwiłł-Piotrowski (n. 22), 119; Kieszkowski (n. 6), 5–7; Mrazek (n. 3), 226 f., 230, 233. Advertisement in: Przewodnik Ekonomiczny 1870, no. 1 (17.4.1870), 8. 28 Krótkie objaśnienie o zabezpieczeniu na życie spisane i wydane przez Dyrekcyę Towarzystwa Wzajemnych Ubezpieczeń w Krakowie (1869), 1, 30–39. 29 Krótkie objaśnienie dla przystępujących do Towarzystwa Wzajemnych Ubezpieczeń w Krakowie (1871), 1 f. 30 Langie (n. 3), 17. 31 Bittner-Nowak (n. 13), 136; Pokorzyński (n. 16), 59; Szczęśniak (n. 13), 102; Zygmunt Zalewski, ‘Vesta’ Bank Wzajemnych Ubezpieczeń w Poznaniu 1873–1923. Monografja gospodarczo-historyczna z powodu 50-letniego jubileuszu pracy (1923), 68. 32 Sprawozdanie Towarzystwa Wzajemnych Ubezpieczeń w Krakowie z czynności dwudziestego drugiego roku 1882/83 i sprawozdanie Towarzystwa Wzajemnego Kredytu w Krakowie z czynności w 1882 r. (1883), 23.

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value of solidarity was emphasized. By contrast, with stock corporations the focus was on a potential conflict of interest between the shareholders and the insured. Florianka, as a mutual society, returned premiums to its members if the premiums exceeded the amounts needed to cover losses and reserves for closed periods. A stock corporation, conversely, would retain a balance as a dividend for shareholders.33 III. Florianka’s tontines The number of subscribers in Florianka’s tontines was stabile during its first years. According to its published reports, subscription grew from 55 in 1870/71, to 61 in 1871/72, and to 67 in 1872/73. Then it fell to 53 as only one tontine was initiated in 1873/74. In 1874/75, the number rose to 60 subscribers, with 23 men and 37 women. The numbers of standard policyholders increased much more rapidly. After 18 months of presence on the market there were 424 policies payable upon the insured’s death and 109 payable upon his or her survival. In 1874/75 these numbers had risen to 1,845 and 286 respectively. And again in 1893, the numbers were much higher: 10,109 and 3,896.34 Florianka issued only three tontines in total and GATU seventeen. The first Polish tontine was issued by Florianka in 1870, and it expired in 1882. Altogether there were 86 subscribers, of which 70 survived. According to the official

___________ 33 Anonymous (probably Ignacy Sołdraczyński), Rzut oka na początek i rozwój dwóch zasad w ubezpieczeniach, Przewodnik Ekonomiczny 1870, no. 3 (1.5.1870), 18–20; anonymous (probably idem), Instytucye ubezpieczeń akcyjne i oparte na wzajemności, Przewodnik Ekonomiczny 1871, no. 14 (2.4.1871), 108–110; Doerman (n. 4), 73 f.; Instrukcya dla Agentów Towarzystwa Wzajemnych Ubezpieczeń w dziale ubezpieczeń na życie (1884), 32–34; Krótkie (n. 28), 44–47; Krótkie (n. 29), 12 f.; Mrazek (n. 3), 249– 253. The mutual (as opposed to stock exchange) feature of the American office New York Mutual was emphasized in Prospekt Ogólny Towarzystwa Wzajemnego Ubezpieczenia na Życie ‘New-York’ (1896), 7 f. 34 Anonymous, in: Ekonomista. Przegląd Tygodniowy, Ekonomiczny, Finansowy, Statystyczny, 1873, no. 12 (December), 987; anonymous (probably Ignacy Sołdraczyński), Przewodnik Ekonomiczny 1871, no. 24 (11.6.1871), 189; Doerman (n. 4), 90; Kieszkowski (n. 6), 14, 30 f.; Sprawozdanie Towarzystwa Wzajemnych Ubezpieczeń w Krakowie z czynności dziesiątego roku 1870/71 (1871), 13; Sprawozdanie Towarzystwa Wzajemnych Ubezpieczeń w Krakowie z czynności jedenastego roku 1871/72 (1872), 13; Sprawozdanie Towarzystwa Wzajemnych Ubezpieczeń w Krakowie z czynności dwunastego roku 1872/73 (1873), 14; Sprawozdanie Towarzystwa Wzajemnych Ubezpieczeń w Krakowie z czynności trzynastego roku 1873/74 (1874), 16; Sprawozdanie Towarzystwa Wzajemnych Ubezpieczeń w Krakowie z czynności czternastego roku 1874/75 (1875), 18.

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report, the profits were rather modest despite the fact that this tontine was managed very efficiently. Those who survived earned 6.75% p.a. while those who decided to insure themselves against the risk of death received only 5.28% p.a.35 Florianka’s next two tontines began to operate in 1874 and 1877. They were expected to expire in 1886 and 1889 respectively. According to the report for the years 1876/77, 321 persons decided to take part in the 1877-tontine. Among the subscribers of both tontines, only 116 participants were policyholders whose contributions were insured against a risk of their death before the tontine’s maturity. That number of 116 included 32 men and 84 women. Curiously enough, the rate of women was significantly smaller among standard life insurance policyholders: 5,801 men and 2,004 women according to the report for 1876/77.36 One might wonder if there was an anticipation of women’s much better longevity that led investors to name women (their wives or daughters) rather than men (themselves or their sons) as nominees in tontine schemes. By contrast, tontines made up the core business of GATU. For example, in 1879 the contributions to GATU’s tontines amounted to 707,000 złoty, whereas in 1874 Florianka’s tontines attracted investments worth only 30,500 złoty. According to Florianka’s report for 1881/82, tontine contributions rose to 86,631.13 złoty, yet GATU was still dominant in the tontine business with contributions amounting to 722,092.77 złoty in the same year.37 The investments in Florianka’s tontines were kept as special funds and were accounted separately. The same was true for GATU’s tontines. These funds were managed independently by a special Komitet Spółek we Lwowie (Associations’ Committee in Lviv). The report for the year 1881/82 shows that the assets were invested mostly in bonds and debentures (Florianka: 85%, GATU: 47%): corporate bonds secured by mortgage certificates (83%, 32%) and state bonds (2%, 15%). Smaller amounts were kept in cash and bank accounts (13%, 35%), savings passbooks (0.2%, 11%), and loans (2%, 7%).38

___________ 35

Sprawozdanie (1881/82) (n. 6), 20; Sprawozdanie (1882/83) (n. 32), 22. Sprawozdanie Towarzystwa Wzajemnych Ubezpieczeń w Krakowie z czynności szesnastego roku 1876/77 (1877), 21; Sprawozdanie (1881/82) (n. 6), 20, 54 f.; Sprawozdanie Towarzystwa Wzajemnych Ubezpieczeń w Krakowie z czynności dwudziestego piątego roku 1885/86 i sprawozdanie Towarzystwa Wzajemnego Kredytu w Krakowie z czynności w 1885 r. (1886), 28, 72 f. 37 Doerman (n. 4), 90, 104, 115; Mrazek (n. 3), 357; Sprawozdanie (1881/82) (n. 6), 54 f.; Sprawozdanie Towarzystwa Wzajemnych Ubezpieczeń w Krakowie z czynności dwudziestego czwartego roku 1884/85 i sprawozdanie Towarzystwa Wzajemnego Kredytu w Krakowie z czynności w 1884 r. (1885), 23. 38 Sprawozdanie (1881/82) (n. 6), 54 f.; Sprawozdanie (1882/83) (n. 32), 22. 36

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IV. The end of Florianka’s tontines Florianka’s supervisory board decided to close down its tontine business in May 1876 at the latest.39 Nevertheless, Florianka issued its last tontine in 1877. Those tontines which had already been issued were, of course, kept in operation. Thus, the last two tontines appeared in the accounting charts until the annual report for the year 1886/87. In the following report they were not even mentioned.40 It is likely that they were prematurely terminated. After Florianka took over the life insurance business of its main competitor GATU in 1879, it again became active in the tontine business. The agreement between both companies was concluded in February 1879.41 In 1884, Florianka’s board decided to terminate GATU’s tontines. That decision was implemented after negotiations with the participants in the tontine scheme, and these schemes were put to an end in 1885.42

D. Demise of tontines in Europe When Florianka decided to close its tontines, the majority of the Austrian insurance companies had already taken similar steps. Those that remained active in the tontine market were Anker, Slavia,43 and the U.S. life insurance companies

___________ 39 Kieszkowski (n. 6), 23; Mayzel (n. 8), 2; Mrazek (n. 3), 293, 358. According to Doerman (n. 4), 95, and Szczęśniak (n. 13), 166, the supervisory board decision had been made already in 1875. The account of Kieszkowski seems, however, to be much more reliable than the one of Doerman. Kieszkowski witnessed the decision and was at the time general manager of Florianka’s life insurance business. Doerman was active as the society’s secretary only later, in the beginning of the 20th century. Marian Szczęśniak wrote his book on the basis of works by previous authors. 40 Sprawozdanie (1884/85) (n. 37), 50–53; Sprawozdanie (1885/86) (n. 36), 71–73; Sprawozdanie Towarzystwa Wzajemnych Ubezpieczeń w Krakowie z czynności dwudziestego szóstego roku 1886/87 i sprawozdanie Towarzystwa Wzajemnego Kredytu w Krakowie z czynności w 1886 r. (1887), 47–49; Sprawozdanie Towarzystwa Wzajemnych Ubezpieczeń w Krakowie z czynności dwudziestego siódmego roku 1887/88 i sprawozdanie Towarzystwa Wzajemnego Kredytu w Krakowie z czynności w 1887 r. (1888), 50 f. 41 Doerman (n. 4), 104; Kieszkowski (n. 6), 21 f.; Sprawozdanie Towarzystwa Wzajemnych Ubezpieczeń w Krakowie z czynności osiemnastego roku 1878/79 (1879), 10, 19 f. 42 Doerman (n. 4), 115; Mrazek (n. 3), 357 f.; Sprawozdanie (1884/85) (n. 37), 23. 43 Teofil Merunowicz, Kilka słów o ubezpieczeniach w banku asekuracyjnym ‘Slavia’ (1883), 13.

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Mutual Life Insurance Company of New York and Equitable Life Assurance Society of New York.44 American life insurers had offered tontines in the United States since 1868. In the 1880s, when there was a tendency among European offices to abolish tontines, U.S. life insurance companies launched a marketing offensive in Europe for their tontine products. That tide reached Austria and Russia in 1885.45 On the basis of the Russian Ministerial Committee’s resolution of 10 October 1885, the Mutual Life Insurance Company of New York was authorized to offer policies in Russia.46 The French company L’Urbaine and the American company Equitable followed suit, later running their operations according to the Ministerial Committee’s resolutions of 14 June 1889 and 19 July 1889 respectively. 47 Among the Russian offices that offered tontine products on the Russian market were the St. Petersburg Society, Rosyjskie Towarzystwo ubezpieczeń dochodów i kapitałów z roku 1835 (Russian Society of Profits and Capitals Insurance of 1835) and Rossya (Russia).48 Another life insurance company (Jakor) was not active in the tontine sector.49 On 18 April 1894, the Minister’s Committee issued a resolution banning tontines. The resolution was based on the report of 19 September 1893 that had been prepared by committee member Bolesław Maleszewski (1844–1912).50 Subsequently tontines were also abolished in Austria.51 And as a result tontines disappeared from the Polish market too.

___________ 44 Ginwiłł-Piotrowski (n. 22), 117; Langie (n. 3), 17 f. As late as the 1890s Equitable was still promoting its operations in the press: Gazeta Lwowska 1894, no. 182 (10.8.1894), 10; no. 13 (17.5.1895), 11. 45 Kazimierz Langie, Amerykańskie pokusy (1885), 6; Mayzel (n. 8), no. 69b, 2; Bronisław Mayzel, Ubezpieczenia życiowe u nas, Kurier Warszawski 1886, no. 70b, 1; Steser (n. 5), 309. 46 Przepisy określające sposób prowadzenia operacyi ubezpieczeń na życie w Rossyi przez Towarzystwo ‘New-York’ (1888), 3; Mayzel (n. 17), no. 24 (2.6/14.6.1890), 376; Mayzel (n. 8), 2. The foreign offices required the permission issued by the Committee. Previously they had run their businesses contra legem. 47 Mayzel (n. 14), 51; Warunki polisowe i kontroli Towarzystwa Ubezpieczeń na Życie ‘L’Urbaine’ Warszawa (date not specified), 1–2, 13. 48 Danielewicz (n. 9), 1; Mayzel (n. 8), 2; idem (n. 14), 31, Steser (n. 5), 309. 49 Towarzystwo Ubezpieczeń ‘Jakor’, Warunki ubezpieczeń życiowych (1873), 1; Ustawa Towarzystwa Ubezpieczeń ‘Jakor’ (1878), 28 f. 50 Gazeta Warszawska 1893, no. 157 (17.6.1893), 2; Mayzel (n. 14), 52–54; idem, Przegląd historyczny rozwoju instytucyj ubezpieczeń w Królestwie Polskiem, in: Księga pamiątkowa Warszawskiego Oddziału Towarzystwa Ubezpieczeń Rossya (1900), 62 f. 51 Curiously enough, tontines were still mentioned in § 19 of the Ministerial Regulation of 5 March 1896 on the formation and management of insurance societies (Rozporządzenie Ministerstw z dnia 5 marca 1896, o tworzeniu zakładów ubezpieczenia, ich urządzaniu i zawiadywaniu ich czynnościami; Dziennik ustaw Państwa, 1896, no 31).

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E. General terms and conditions of tontine schemes Florianka’s general terms and conditions provided for a list of life insurance products which it offered to the public. On that list there was endowment insurance (Art. 10A), annuity products (Art. 10B), and tontines (Art. 10C).52 The present paper will analyse the Florianka tontine regulations in comparison with the terms and conditions provided for by the St. Petersburg Society and by the New York Life Insurance Company.53 Florianka’s terms and conditions described the method of how to subscribe to a tontine by detailing the method of making a contribution: the subscriber had to make his investment in a lump sum up front or he had to make periodical instalments. The St. Petersburg Society had similar but much more detailed rules. They provided that instalments could be either annual, quarterly, or monthly (Art. 2). Florianka’s terms did not elaborate on this point in detail. Furthermore, the St. Petersburg Society did not allow persons over 70 years of age to subscribe to a tontine (Art. 2). Subscribers to Florianka’s tontine scheme were able to choose the duration of their investment: ‘for example, 12, 13, 14, and up to 25 years’. After the first year of its tontine business, Florianka reduced the maximum term of a tontine to 20 years.54 The tontine schemes of the St. Petersburg Society, too, allowed terms between 12 and 20 years. New subscribers were able to join an existing class, but not later than 10 years before the tontine’s date of maturity (Art. 3). If after two years a class had only 10 members or less, the society was authorized to terminate it and return the contributions to the subscribers. With the Mutual Life Insurance Company of New York, a tontine was a product accessory to a standard life insurance product and, thus, the insured was allowed to subscribe to a tontine for as long a period of time as his or her insurance lasted (§§ 15 f.). After the tontine’s maturation, the surviving subscribers became the co-owners of the pool composed of the aggregate assets. The St. Petersburg Society adopted similar rules in its Art. 1 and Art. 13 and the New York Life Insurance Company in its §§ 15 f. The subscribers were entitled to shares in the pool that corresponded to their contribution and their age. The St. Petersburg Society was very precise as it listed the time and the volume of the contributions already paid by the subscriber, his age, and the probability of his death before the tontine’s maturation among the factors that were taken into consideration when accounting the subscriber’s shares in the pool.55 ___________ 52

Warunki ubezpieczeń na życie w Krakowie (1874), 3 f. St. Petersburgskie (n. 10), 1 f.; Przepisy (n. 11), 1 f. 54 Anonymous (n. 6), 133. 55 St. Petersburgskie (n. 10), 1. 53

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According to its terms and conditions, the New York Life Insurance Company had to notify each subscriber six months before the tontine’s maturation and calculate the total sum of the contribution plus interest. The subscriber then had to choose between five options: (1) to redeem the standard policy and to collect its value, (2) to reinvest the sum into a new endowment policy, (3) to reinvest the sum into an annuity policy with no duty to pay additional premiums, (4) to maintain the policy, collect the profits, and keep paying the premiums, or – and this was the default option – (5) to reinvest the profits into an annuity (§§ 15 f.). If the subscriber survived the maturation of the tontine but had ceased to pay instalments to the pool, he was not excluded from sharing the benefits of the pool. Similar rules applied to Austrian tontine schemes.56 The St. Petersburg Society provided for the rule that subscribers were allowed to pay less then they declared but could not pay more, and the final instalment had to be paid not later than four months before maturity (Art. 6). There was no specific rule on that issue in the general terms of the New York Life Insurance Company. Upon death before maturity, the contributions were not inherited by subscribers’ heirs, but forfeited for the benefit of the pool. Yet, Florianka – as well as Austrian societies offering tontines57 – allowed subscribers to purchase insurance coverage against the risk of their death. In that case the contributions would be repaid to the heirs if the subscriber died before the tontine’s maturation.58 The St. Petersburg Society had similar provisions.59 With the New York Life Insurance Company, tontines were a product accessory to the standard life insurance products, and thus the insured’s heirs or the beneficiaries of the policy were authorized to recover the contributions on the basis of the terms of the standard life insurance policy (§§ 15 f.). However, they did not participated in any benefits of the pool. Additionally, the terms and conditions of the St. Petersburg Society allowed a subscriber to name him- or herself as payee and nominee in the tontine scheme. This made sense if, for example, the subscriber was to retire within the next 10 to 20 years. Or a subscriber could name a third party. This option was of interest to subscribers if, for example, a daughter was to marry within the next 10 to 20 years. In this case the third party had to survive maturity of the tontine in order to participate in the pool’s division. While the nominee could not be substituted by another after the tontine was issued, a payee could (Art. 2).60 ___________ 56

Langie (n. 3), 32 f.; Mayzel (n. 8), 2; Steser (n. 5), 310. Langie (n. 3), 32 f.; Steser (n. 5), 310. 58 Anonymous (n. 6), 133; anonymous (n. 34), 985. 59 St. Petersburgskie (n. 10), 10–15. 60 St. Petersburgskie (n. 10), 3, 6, 8 f., 17; Danielewicz (n. 9), 2. 57

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The collected assets were invested by the managers and therefore interest accrued.61 Thus the pool to be divided among subscribers consisted of capital plus compound interest less administrative costs. The assets paid by subscribers of each tontine were to be administered by Florianka’s management separately. Similar rules applied to the tontines of the St. Petersburg Society (Art. 8) and of the New York Life Insurance Company (§§. 15 f.). The subscribers in Florianka’s tontines were permitted to elect a committee which consisted of seven members and which had the right to audit the books and to decide how to invest assets. By contrast, the terms and conditions of the St. Petersburg Society provided that it was the society and not the subscribers (or any committee elected by the subscribers) who decided how to invest the tontine’s assets. Consequently, it was the society which also bore the risk of an unsuccessful investment (Art. 9). Neither the terms of the St. Petersburg Society nor those of the New York Life Insurance Company granted subscribers a right to check the society’s accounting books.

F. Conclusion Florianka’s decision to abandon tontines was made on the merits of ethics. Its board took the view that tontines were at odds with standard life insurance products and did not promote the moral development of society.62 Tontines were stigmatized as being a tool applied by egoists who did not care about their families and heirs.63 Critics argued that tontines were immoral 64 in that their subscribers profited from the deaths of their fellow tontine members.65 Some authors also compared tontines to lotteries. Moreover, they emphasised that lottery participants had equal chances to win while the same was not true in the case of tontines. Healthy and wealthy subscribers were favoured over those who were ill and poor.66 The only entity that always benefited from tontines was the company that issued them.67 What was also condemned by authors was the lack of proper information in insurers’ prospectuses. The issuers usually promised considerable profits but at the same time ignored the factual reality that these were only a thin ___________ 61

Advertisement in Przewodnik Ekonomiczny 1870, no. 3 (1.5.1870), 24. Doerman (n. 4), 95; Kieszkowski (n. 6), 22; Sprawozdanie (1882/83) (n. 32), 22. 63 Danielewicz (n. 9), 4; Ginwiłł-Piotrowski (n. 22), 117; Steser (n. 5), 310. 64 Danielewicz (n. 9), 1; Mayzel (n. 8), 2; Steser (n. 5), 310. 65 Ginwiłł-Piotrowski (n. 22), 117; Mrazek (n. 3), 358. 66 Steser (n. 5), 310. According to this author tontines in Poland were purchased as an investment/speculation-scheme by wealthy men. Similar arguments were raised in the report by Maleszewski that led to abolition of tontines in Russia. 67 Ginwiłł-Piotrowski (n. 22), 116. 62

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possibility.68 An American life insurance company, for example, advertised that in a 20-year tontine the profits might be three or four times higher than the investment. Critics proved that the promised results were statistically impossible.69 Investors were not allowed to check the books: according to the terms and conditions of most life insurers, subscribers unconditionally waived their rights to contest accounts and calculations made by the insurer.70 Especially so-called ‘American tontines’ were criticized by local authors. They depicted European tontines as bad and those offered by American insurance companies as even worse.71 Although tontines were present on the Polish market for only a relatively short period of time, they played a significant role in the development of life insurance. In particular they obstructed the development of life insurance in the Polish territories. Public opinion became suspicious of life insurance products as it was commonly believed that they bore the same, negative features as those tontines which were aggressively marketed by American life insurance companies.72 In addition, subscribers who were disappointed by tontines turned away from standard life insurance products too.73 Standard life insurance products, thus, inherited the ballast of negative publicity from tontine schemes.

___________ 68

Kieszkowski (n. 6), 22. Steser (n. 5), 310, no. 29 (9.7/21.7.1894); idem, Tontyna a ubezpieczenie życiowe, Przegląd Tygodniowy Życia Społecznego, Literatury i Sztuk Pięknych (1894), 330. Similarly Danielewicz (n. 9), 3 f., on the basis of tontines offered by the St. Petersburg Society. The author drew the conclusion that it is much better to keep one’s monies in a savings bank account. A similar argument was raised in Maleszewski’s report. 70 Steser (n. 5), 310; idem (n. 69), 330. A similar argument was raised in Maleszewski’s report. 71 Anonymous (probably Ignacy Sołdraczyński), Ubezpieczenie na życie, Przewodnik Ekonomiczny 1870, no. 14 (17.7.1870), 105 f.; Doerman (n. 4), 115 f., 136; Langie (n. 3), 19–22; idem (n. 45), 8–11; Mayzel (n. 14), 51–54; Steser (n. 5), 310. Also the official report of Florianka warned the public of the risk of American tontines: Sprawozdanie (1884/85) (n. 37), 24 f. 72 H.K. (n. 16), 517; Steser (n. 5), 309; Sprawozdanie (1882/83) (n. 32), 22. 73 Kieszkowski (n. 6), 23; Langie (n. 45), 11; Sprawozdanie (1882/83) (n. 32), 22. 69

Chapter 16: Tontines in Hungary By Balázs Tőkey A. Introduction ............................................................................................................ 289 B. The 1841-plan for a national credit bank and tontine institute................................ 290 C. A private tontine by Generali ................................................................................. 292 D. Four lessons from the Hungarian experience .......................................................... 294 E. Today’s Hungarian building lottery society ........................................................... 295

A. Introduction Hungary does not have a rich history of tontines. The reasons seem to be quite clear. Hungary as an independent country practically disappeared from the map of Europe in the 16th century when most of its territory was occupied by the Ottoman Empire and a smaller part by the Habsburgs. By the end of 17th century, the Habsburgs had conquered those Hungarian territories which had belonged to the Turks, so from this time Hungary was part of the Habsburg Empire. Additionally, Hungary had a much less developed economy than the Western provinces; it was based on a feudalist model, and the bourgeoisie made up a small segment of society. Thus, the Hungarian insurance industry was far underdeveloped in this period compared with Western Europe. We can find only some elementary traces of insurance in this era, as, for example, guilds helping sick members, widows, and orphans; miners’ social organizations helping old miners, widows, and orphans; and insurance funds covering fire risk.1 The modernization of the Hungarian society and economy started in the 19 th century when both national and foreign (Austrian and Italian) insurance companies began their operations in Hungary. 2 Thus the idea of a tontine arrived to Hungary quite late, and it did not become popular in the shadow of modern life insurance products. There are just two traces of tontines in Hungary. One of them was a plan for a national tontine institute which was developed by a Hungarian lawyer. The proposal was never implemented. The other one was a real product of the Italian insurance company Generali from the 1850s onwards. However, this product was not a success either, because Generali was, for several years, ___________ 1 Gábor Tamás, A biztosítás története Magyarországon – a kezdetektől 1857-ig (2013), 30–47. 2 Tamás (n. 1), 48–53, 78–81, 108–113.

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not able to generate enough subscribers in order to issue the tontine. In the following presentation I will analyse these two tontine plans in detail because both exhibited some atypical characteristics.

B. The 1841-plan for a national credit bank and tontine institute Ferencz Farkasfalvi Farkas (1785–after 1844) published his proposal for a national credit bank and tontine institute in 1841.3 His book was the outcome of the so-called Hungarian Reform Era (1825-1848), the awakening of the Hungarian national identity. The Hungarian political leaders of this time wanted to convert the outdated feudal economy and society to a new and modern one. Farkas’ concept is a product of this idea. The plan had two pillars: a national credit bank and a national tontine institute (hereinafter the NTI). The main goal of its author was to gather investable capital for the Hungarian economy. Thus, the capital which was to have been collected by the NTI would have been used by the national credit bank as well. This cooperation would have had another advantage, namely that the NTI would have used the infrastructure and staff of the national credit bank. 4 Farkas was familiar with the Austrian tontine and thought that its main deficiencies were a lack of reimbursement of the invested capital and the high costs. Hence, he wanted to establish a Hungarian national tontine institute which should work much better than the Austrian model. 5 Reading the text of the plan we can feel the spirit of the age in the background. Although it is mainly a description of a policy, the language has a literary quality (we can find several expressions and images which describe the occurrence of death), and the text contains new terms and words which were developed by the author. The 19th century was the era of Hungarian language reform. Thousands of new Hungarian words were created, and a significant part of these words have become part of the Hungarian language. The other footprint of the age is the first clause of the NTI policy: the text starts with a non-discrimination clause.6 According to it everyone should have been able to join the NTI regardless of rank, age, sex, religion, or nationality. It reflects the progressive movement of the era which aimed at the abolition of the feudalist prerogatives.

___________ 3 Ferencz Farkasfalvi Farkas, Egy nemzeti magyar hitelbank és élelembiztosító intézetnek tervezett szabályai (1841). 4 Farkas (n. 3), 83. 5 Farkas (n. 3), 51 f. 6 Farkas (n. 3), 52.

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The concept of the NTI was as follows: Each year a separate tontine should start. Each of them should have at least 400 members with four age groups called classis. If enough investors did not subscribe, neighbouring tontines were to be merged. It was possible for investors to join more than one tontine. 7 The main principles of the NTI were only partially in accordance with the main principles of the tontines of other countries. The NTI would have been a typical tontine in the respect that the payees would have received annuities (the rate was 5%) plus a so-called ‘sweetness’ which was further monetary benefits. However, and this is the atypical feature of the plan, the tontines had five phases. Furthermore, there were special rules for the apportionment of the so-called ‘sweetness’: a transfer of funds was permitted between age-groups but not between annual tontines. As a result, payees were able to receive a higher ‘sweetness’ earlier than in tontines of other countries. The capital was to be divided among the payees as well. Finally, the annuities were capped at 150% of the original investment.8 The description of the NTI contains further details. For example, the investor’s closest relatives and heirs could have received the annuity and the ‘sweetness’ in that year when the nominee died.9 And the system contained some other social elements as well. Inter alia, the members of the older age-groups could have received a higher ‘sweetness’ than the members of the younger age-groups. Furthermore those people who could not afford to buy a share could join a tontine as well, but before receiving any money they had to complete their share by supplementary payments or by crediting their annuity or ‘sweetness’ to their contribution. Moreover the NTI would have supported investors in nine different ways, for example, those annuities and the ‘sweetness’ which were not claimed on time would have been used to supplement incomplete investments.10 Finally, according to the plan it was, of course, possible to transfer shares to a new payee as long the nominee was still alive. In addition, it was possible to change the nominee under special circumstances. Specifically, if the nominee had emigrated and it was as a consequence impossible to ascertain whether he or she was alive, then the naming of a new nominee was permissible. However, the new nominee had to be at least three years older than the original one. 11 As mentioned above, the NTI was planned as a public Hungarian tontine, but it was never issued. Thus, it is not possible to assess in detail whether its concept was really as favourable for investors as its creator imagined. However, it seems ___________ 7

Farkas (n. 3), 53–55. Farkas (n. 3), 55–71. 9 Farkas, (n. 3), 56. 10 Farkas (n. 3), 72–78. 11 Farkas (n. 3), 78 f. 8

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that it was not based on any detailed calculations or statistical data, and therefore its success would have been at least questionable.

C. A private tontine by Generali As mentioned above, there is just one known tontine which operated in Hungary. Unlike the NTI, which was a plan for a national tontine, it was not a tontine run by the public hand; rather, it was a private tontine operated by the Italian insurance company Generali. Generali started its activities in Hungary in the 19th century, and Generali published the tontine plan in 1857.12 According to that plan, Generali offered two separate tontines: one expired after 20 years and the other was to run for a period of 12 years. Investors could join the tontines not just at the starting time but at a later date as well; however, admission was not possible in the last six years.13 Furthermore, investors could join both tontines and buy multiple shares in each tontine. The two tontines were not classical tontines. Although Generali promised (and this is still in line with other tontines) annuities (the interest rate was 4%) and further monetary benefits (again the so-called ‘sweetness’), its main feature was just one payment at the termination of the tontine. Investors could choose between two options as to how they wanted to pay the premium. They could pay a lump sum or a yearly premium. And the amount of the premium was calculated in a manner so that the investors should bear the same risk. Hence the premium depended on the age of the nominee as well. According to the plan, Generali used the statistical tables of Jean Baptiste Firmin Demonferrand (1795–1844) and Antoine Deparcieux (1703–1768).14 The plan contains the exact amounts of premiums which investors had to pay based on the chosen payment method and the age of the nominee. The two following tables present the premiums (in hundreds of forints) for the different age groups in the two tontines.15 With the tontine running over 20 years, the investors had to pay their contributions in a lump sum or in 19 annual instalments.

___________ 12 Biztosítás az ember életére – a trieszti Assicurazioni Generali czimü Cs. K. Szab. Általános Biztosításnál. (1857) 13 Biztosítás az ember életére (n. 12), 40. 14 Biztosítás az ember életére (n. 12), 40 f. 15 Biztosítás az ember életére (n. 12.), 51.

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Tontine running over 20 years Age new-born 3 months 6 months 1 year 2 years 3 years 4 years 5 years 6 years 7 years 8 years 9 years 10 years 11 years 12 years 13 years 14 years 15 years 16 years 17 years 18 years 19 years 20 years 21 years 22 years 23 years

Lump sum 52.45 58.58 59.53 62.28 65.70 67.65 69.05 69.63 70.55 70.98 71.25 71.35 71.48 71.35 71.08 70.78 70.48 70.20 69.88 69.65 69.43 69.30 69.15 69.10 69.05 69.00

Instalments 5.34 5.41 5.44 5.48 5.54 5.57 5.59 5.59 5.60 5.60 5.59 5.58 5.57 5.56 5.55 5.54 5.53 5.51 5.50 5.49 5.49 5.49 5.49 5.49 5.49 5.48

24 years 25 years 26 years 27 years 28 years 29 years 30 years 31 years 32 years 33 years 34 years 35 years 36 years 37 years 38 years 39 years 40 years 41 years 42 years 43 years 44 years 45 years 46 years 47 years 48 years 49 years 50 years

68.95 68.90 68.83 68.78 68.60 68.43 68.15 67.85 67.43 66.88 66.30 65.73 65.00 64.28 63.43 62.40 61.45 60.38 59.33 58.25 57.03 55.75 54.45 53.08 51.88 49.85 48.05

5.48 5.48 5.48 5.48 5.47 5.46 5.43 5.41 5.38 5.34 5.30 5.26 5.21 5.15 5.10 5.04 4.98 4.92 4.86 4.80 4.73 4.66 4.59 4.51 4.41 4.31 4.20

With the tontine running over 12 years, the investors had the choice of paying their contributions in a lump sum or in 11 annual instalments. Tontine running over 12 years Age new-born 3 months 6 months 1 year 2 years 3 years 4 years 5 years 6 years

Lump sum 76.25 85.10 87.30 90.68 95.93 99.08 101.43 103.05 104.18

Instalments 11.05 11.25 11.35 11.50 11.71 11.86 11.96 12.03 12.07

7 years 8 years 9 years 10 years 11 years 12 years 13 years 14 years 15 years 16 years

104.98 105.60 106.15 106.25 106.18 105.85 105.50 105.15 104.80 104.45

12.09 12.10 12.10 12.12 12.05 12.02 12.00 11.98 11.96 11.95

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17 years 18 years 19 years 20 years 21 years 22 years 23 years 24 years 25 years 26 years 27 years 28 years 29 years 30 years 31 years 32 years 33 years 34 years 35 years 36 years

104.20 103.98 103.73 103.48 103.34 103.23 103.13 102.98 102.82 102.70 102.70 102.70 102.70 102.70 102.70 102.70 102.70 102.68 102.67 102.63

11.93 11.92 11.91 11.90 11.89 11.88 11.87 11.86 11.86 11.86 11.86 11.86 11.86 11.86 11.86 11.86 11.86 11.86 11.84 11.82

37 years 38 years 39 years 40 years 41 years 42 years 43 years 44 years 45 years 46 years 47 years 48 years 49 years 50 years 51 years 52 years 53 years 54 years 55 years

102.53 102.04 101.53 100.83 99.95 98.98 98.15 97.93 95.88 94.79 93.48 92.29 91.05 89.85 88.80 87.63 86.43 85.18 83.83

11.80 11.77 11.72 11.66 11.58 11.50 11.43 11.34 11.25 11.18 11.08 10.99 10.91 10.83 10.76 10.67 10.57 10.48 10.36

The price of the shares depended on the age of the investor. However, it is doubtful that the different premiums corresponded to the different risks attached to the different age groups, as Generali used old and foreign statistical data. Besides the pricing of the shares being dependent on the investor’s age, there is a further feature of these tontines worthy of mention. Once there were ten surviving nominees or less, the payees could terminate the tontine by unanimous vote – even if the fixed term of 12 or 20 years had not lapsed – and immediately claim their shares in the scheme. Moreover, those ten payees received the highest payments, and they had the right to check and review the issuer’s calculation when apportioning the capital.16 Generali’s tontines were not a success story in Hungary: For a number of years, Generali was not able to attract enough subscribers to issue its tontine, and later Generali stopped advertising tontine plans in Hungary – at least I was not able to find any sources about later tontines issued by Generali.

D. Four lessons from the Hungarian experience Although it cannot be said that tontines were a great success in Hungary, the two aforementioned tontine plans exhibit several elements which should or could ___________ 16

Biztosítás az ember életére (n. 12.), 42 f.

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be applied in contemporary financial products. First, there is the language of the plan for the NTI. Reading the plan is almost a literary experience. By contrast, the prospectuses of present-day financial products are incomprehensible and extremely boring. The terms of NTI show us that this is avoidable and that it is possible to draft the terms and conditions in such a way that consumers will understand them. Moreover, the plan for the NTI proves that it is even imaginable that the readers could enjoy reading terms and conditions of financial products – at least sometimes. Secondly, the concept of the NTI paid particular attention to the interests of contributors who had just little money to invest. Thirdly, the tontine products exhibited great flexibility: The investors of Generali’s tontine could terminate the tontine earlier by unanimous vote once there were 10 or fewer surviving nominees. More flexibility would be appreciated by investors in modernday financial products, too. Fourthly, the right of at least some investors in Generali’s tontine to check and review the issuer’s calculation when apportioning the capital led to more transparency. Still today, there is the need for further transparency in financial products.

E. Today’s Hungarian building lottery society Recently, Hungary has seen a new financial product: a building lottery society. It is worth mentioning it in the present context because it and tontines share a commonality: they both exhibit a strong aleatory element. The idea for a building lottery society has been introduced for people who want to buy a flat but who do not have the funds to do so. Each member will have to make regular – normally monthly – payments to the society. The society will periodically draw prizes, and the winner will then be able to buy a flat with the help of the money raised by all members. Moreover, the Hungarian state will subsidize these schemes – the financial aid of the state can be up to 30% of the monthly payment.17 Although the lottery will have, in general terms, positive effects – the majority of its members will be able to buy a flat much earlier than they would be on their own – it also raises concerns. First, it seems that the requirements for establishing a building lottery society have been tailored to the needs of the single corporation which is, at the moment, inviting subscriptions to the first society, and which has very good connections to the Hungarian government. Secondly, this lottery exhibits structural similarities with consumer societies, which have a bad reputation in Hungary as they have been associated with fraudulent conduct. Thirdly, the first planned society will be able to determine the rights to financial support for buying a flat through a lottery drawing, but it will alternatively be able allocate ___________ 17

See Act XV of 2016 on Home-creating Communities.

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these rights through a bidding process. Consequently, members who are able to pay the highest contribution will receive the right to financial support first. In effect, those members who have less money will help those members to buy a flat who have more money.18 Nevertheless, it is too early to evaluate the idea of building lottery societies. At present there is only one corporation which is allowed to initiate such a society. Furthermore, it is questionable whether this corporation will be able to attract enough subscribers to actually commence the scheme.19 However, the idea of the building lottery proves that tontine-like financial products have a future. The key to their success is consumers’ trust, the absence of any fraud, and a high degree of transparency.

___________ 18 http://www.portfolio.hu/finanszirozas/hitel/indul_a_nemzeti_lakaslotto_megszolalt_a_ cegvezer.250559.html (last accessed 10 July 2017). 19 The corporation published their first public call about joining their building lottery community on 15 May 2017 (last accessed 10 July 2017): https://www.cnok.hu/docu ments/Nyilvanos_felhivas_120honap_v1.0.pdf.

Chapter 17: The Russian Experience with Tontine Insurance By Tamara Korchagina A. General comments on the emergence of life insurance and tontines in Russia ....... 297 B. The campaign to ban tontines in Russia .................................................................. 298 C. Conclusion .............................................................................................................. 304

A. General comments on the emergence of life insurance and tontines in Russia Tontines are rarely discussed in Russian literature: there are only two monographs and a small number of journal articles. In Russia, tontines were considered only in the context of insurance law, as one out of many products insurance companies offered. The Russian government never engaged in tontine transactions. Personal insurance emerged in Russia much later than in other countries. The idea of personal insurance appears in a statute of 1827, but the statute only mentions the possibility of arranging such insurance in the future. The first life insurance joint stock company, the Russian Society for Insurance of Lifelong and Other Term Income and Money Capital, was created in 1835 and had a monopoly on the market of personal insurance until 1855. The development of personal insurance in Russia was very slow, despite the support of the government, which exempted this first company from taxes; life insurance was for a long time in an embryonic state and started to develop rather successfully only in the last quarter of the 19th century. The birth of the insurance market took place within the framework of the feudal economy system, which hampered the development of insurance. The vast majority of the population, the peasants, was treated as property of landowners. However, there were public mutual aid organizations in Russia. And, although in a weak form, people always sought to ensure their interests through mutual assistance: religious societies and patriarchal peasant communities as well as various funeral funds.

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One can argue that the legislative regulation of life insurance began in 1771 with the establishment of the Widows’ Treasury. The first publication on insurance dates from 1832 in the Journal of the Ministry of Internal Affairs.1 It basically gives a brief historical overview over the introduction of insurance in Europe. The industrial revolution which started in 1840 as well as reforms in the second half of the 19th century, such as the Peasants’ Emancipation Reform of 1861 (Krestyanskaya Reforma), accelerated the development of the insurance business in Russia, and life insurance was becoming increasingly widespread. As a result of reforms, local governmental institutions and mutual insurance companies were established. In 1871 foreign insurance companies were allowed to carry out insurance business within the Russian Empire. The companies offering life insurance included 11 joint stock companies (including three foreign companies), government savings banks, a railway pension fund, and two mutual insurance companies. However, life insurance was used by only 0.25% of the population and only by the most affluent segments of society.2 Starting in 1885, foreign companies were allowed to engage in life insurance in Russia. American companies like the New York Life Insurance Company and the Equitable Life Assurance Society of New York (The Equitable) began to operate in Russia and only offered life insurance products featuring the accumulation of profits, so-called tontine life insurances.3 During this period new legislation was adopted which regulated the insurance business. Yet despite the spreading of insurance, its legal regulation remained unsatisfactory. In 1898, M.A. Ostrogradsky (1857–1923) wrote:4 Private insurance law in Russia is undergoing a period of formation. – Legislation almost does not exist in this area. Article 2199 of the Code of Civil Laws gives an insufficient definition of an insurance contract and does not contain the concept of life insurance. With the exception of this article, the Civil Laws contain only provisions relating to marine insurance.

B. The campaign to ban tontines in Russia Only two Russian companies offered tontine products, one named Russian and the other St. Petersburg,5 but there is no detailed information on them in the ___________ 1 Some points on insurance, (1832) Journal of the Ministry of Internal Affairs, Part VI, Book I. 2 A.M. Avakyan, History of the occurrence of personal insurance contracts, (2011) 3 Society: politics, economics, law 168. 3 Essay on the development of life insurance, (1905) 9–10 Insurance Review 549. 4 M.A. Ostrogradsky, Legislation in Russia on life insurance, (1898) 11 Insurance Review 565–569. 5 (1894) 4 Insurance Review 240.

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available sources. In fact, tontines were known in Russia mostly due to the activities of American insurance companies. American insurance companies waged an aggressive advertising campaign for tontine products, which aroused the criticism of Russian entrepreneurs. At the end of 1889, the Russian press started a campaign to stop or at least restrict the activities of foreign life insurers in Russia. Beginning in January 1890 the campaign was led by a new body of joint stock insurance companies and a monthly magazine, the ‘Insurance Review’. The main targets of criticism were the New York Life Insurance Company and The Equitable. On 20 February 1890, the newspaper Svet wrote that ‘it is necessary to rebel against the invasion of foreign insurance companies, the admission of which transfers into the hands of foreign leaders huge amounts of blood savings of the Russian people’. According to the newspaper, foreign insurance companies were ‘unworthy of a man who loves his homeland’. The campaign culminated in a key report titled ‘On the activities of American Societies in the Life Insurance Sector in Russia’, authored in April 1890 by the Society for the Promotion of Russian Trade and Industry, a kind of advisory commission with representatives from trade and industry as well as the government. The report criticized the speculative nature of tontine insurance schemes offered by the American companies and complained that these companies marketed these schemes through promises of improbable and unrealistic profits as created by a financial scheme which we would today call a pyramid scheme. The main conclusion of the report was that life insurance should be of a purely national character and that tontine operations should be banned. In fact, it was the inadequate condition of the Russian insurers which led to the acute rejection of, and annoyance over, the aggressive promotional activities of American companies. The report noted that the Russian people were victims of ‘the effects of an in Russia hitherto unknown and stunning advertising campaign’. The American companies were even accused of a ‘shameless ingenuity in advertising’. The discussion in the press, in the state, and in public institutions on the Russian activities of foreign life insurance companies continued for several years. On behalf of the Minister of Finance, B.F. Maleshevsky (1844–1912) – a well-known insurance specialist and member of the Academic Committee of the Ministry of Finance – investigated in 1893 the issue of tontine- and semi-tontine operations, and in particular those insurance products with elements of accumulation of profits which were offered by American insurance companies. Maleshevsky’s report contained an analysis of semi-tontine insurance, which is unique and which, according to Maleshevsky, should not be confused with any combined insurance products that were offered by Russian or Western European

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companies.6 With a semi-tontine the profit in which the policyholders participate is used neither to lower insurance premiums nor to increase the insured capital evenly, as is the case with other insurance products. With a semi-tontine, only those insured who survive a predefined term (10, 15, or 20 years) enjoy the profits. Insurers were obliged to give policyholders an estimate of the expected profits when concluding the contract. The expected profits were included in a special calculation sheet. The estimate was grossly exaggerated, it was simply impossible to meet, and it was never realized. The Equitable, for example, advertised to insure a person of the age of 40 years for an annual premium of 388.20 rubles paid for 20 years. In the event of death, it promised to pay 10,000 rubles. After 12 years, the insured was to receive 11,400 rubles in cash or after 20 years 19,300 rubles. Maleshevsky considered it necessary to investigate how it was possible to fulfill such tempting promises, given the company’s financial position. From its reports for the years 1887 to 1891, it follows that the overhead costs averaged at 23.67% of gross premiums received whereas with Russian companies they averaged between 17.56% and 19.10%, and with English companies between only 10% and 14.52%. In German mutual societies they ranged in 1891 from 7.13% to 9.05%, compared to 24.5% with The Equitable and 25.73% of gross premiums with New York Life Insurance. Maleshevsky assumed that the annual average profit of the insurance company would not be less than the average for the three preceding years, amounting to 5.44% of the premiums received. Accordingly, he calculated that, in order to cover all expenses, 18.23% of the premiums must be deducted (23.67% –5.44%). Thus, only 81.77% of the premiums remained to secure the obligations towards the insured. Maleshevsky assumed that The Equitable made a profit of 5% on its capital. For his further calculations he used what was known as the American Experience Table of 1868, on the basis of which The Equitable, too, calculated its premiums; additionally he used the Combined Experience Table, a table derived from the experience of 17 English life insurance companies, on the basis of which The Equitable calculated its reserves. Maleshevsky came to the conclusion that the promises of The Equitable were unsound. The New York Life Insurance Company and The Equitable stated in their advertisements that the accumulation of profits with semi-tontines promised even better results than with full tontines. In Maleshevsky’s opinion, this claim contradicted common sense because there was no repurchase of policies for tontine insurance, and each policy in default lost its force. To the same category of fairytale statements, Maleshevsky counted the claim of The Equitable that it ‘produce[d] insurance in essence for nothing’, as the company spent almost a quarter ___________ 6

(1893) 5 Insurance Review 286.

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of the collected premiums for remuneration of agents and for administration. With New York Life Insurance, these expenses amounted in 1892 to 30.6% of the collected premiums.7 In answer to the question whether the tontine products offered by the American companies in Russia should be considered harmful to the Russian people and to the Russian insurance business, Maleshevsky wrote: The combination of the humane and highly moral idea of life insurance with a lottery condemned by the people’s conscience is certainly harmful, because such a combination serves only as an advertisement for insurance companies offering a tontine or a semi-tontine for the accumulation of profits in favour of survivors, and baiting the public in a network of agents receiving high commissions from the collected premiums. If a lottery is sometimes permitted by the Government, then only in exceptional cases, for example, in view of extremely difficult times for the state or in favour of unfortunate or destitute people such as, for example, orphans, foundlings, blind, the maimed, etc. The combination of life insurance with a lottery raises immoral passions to profit at the expense of those who die early as well as of those policies which terminate early, and it is incredibly inflated and exploited by insurance companies. Tontines are certainly harmful both for the Russian people and the proper future development of insurance operations in Russia, because they will inevitably entail the same frustration for the insured as happened in France when it was found impossible to fulfil the tempting promises of the Lafarge fund – a frustration which, according to the testimony of all authors on insurance, set back the development of insurance in France for half a century. The tempting promises of the American companies concerning accumulation of profits in tontines are calculated solely on frivolity, the passion for profit and the utter lack of even a superficial knowledge of the insurance business among the public. This game in the dark is profitable and even very beneficial only for agents, because a rapid increase in the number of policyholders gives them a means to easy profit. I do not sympathize with lotteries in the life insurance business to which I attach a very serious importance as to its moral aims, because I see in insurance a pledge to alleviate the many economic misfortunes of peoples’ lives. Life insurance, if it is properly organized, is in the near future destined to play a very important role in the cultural world, and therefore with respect to the question of whether it is possible to introduce tontine insurance in Russian companies I must speak out in the most categorical way; in this respect, I quite subscribe to the opinion of the well-known expert on insurance L. Bergeron, who in his work ‘La vérité sur les tontines’ (Paris, 1875) formulates the harm of tontine insurance. Equally, I fully subscribe to the statement of the Government Commissioner for Insurance in the State of Massachusetts, John R. Tarbox, who, in a report submitted to the Senate and to the Legislative Assembly of the said state, states the following about tontine insurance as practised in America: ‘In my opinion, a tontine is nothing else but a gamble; it is all the more to be condemned because the mode of accumulating the profits is based on robbing from the unfortunate, widows and orphans.’ Morally, tontines and life insurance products which are offered by Russian companies have nothing in common. Everyone understands the humane goal of family fathers to

___________ 7

(1893) 5 Insurance Review 292.

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provide a dowry to their daughters when they are of age; the purpose of capital insurance for old age is also clear, that is, by the time when the family father separates all his inherited or acquired estate between adult children, and for himself, wishing not to be a burden to the family, provides a certain capital (or rent), with a view to spend the interest from the capital on himself, while the capital will be left after his death to his heirs. The basis of a semi-tontine insurance is the reliance on the fact that the contract is often terminated early, and the insured spent part of their fortune to acquire predominantly personal benefits to the detriment of their offspring. This kind of insurance is very similar to a lottery, but in a lottery all chances are equal, and with semi-tontine insurance, the chances of winning are higher for people who are healthy and well-todo, and the chances of losing are higher for the weak and ill-provided, who can always face the need to stop paying premiums.

The Equitable argued in defense of its semi-tontine insurance products (with accumulation of profits) that ‘those who live long, who carry the burden, despite its weight, and who pay a premium for many years, are rightfully recognized as having the right to receive (on insurance with accumulation of profits) more significant payments than those who die prematurely or terminate their insurance early’. In response to this argument by The Equitable, B.F. Maleshevsky stated: With proper life insurance, surpluses recovered from insured persons are returned to them in cash every year, or are applied to increase the insured capital and thus, depending on the number and amount of gross premiums paid, all surpluses are distributed evenly among all insured persons.

Furthermore, the journal ‘Insurance Review’ reported in 1893 that the tontine system was condemned by specialists of the insurance business throughout Europe; attention was drawn to a 25 January 1892 circular of the Prussian Minister of the Interior, Ernst Ludwig Herrfurth (1830–1900), that was distributed to the chief police office (Königliches Polizeipräsidium) and to all the governors of Prussia. In this circular, Herrfurth points to the unauthorized changes in the statutes of The Equitable that give the company the right to distribute tontine profits at its own discretion, and he invites the police office and all governors to closely monitor the actions of the company.8 The circular also indicated that both The Equitable and the New York Life Insurance Company were expelled from Switzerland, and it referred with approval to how the Swiss government described tontines in its decree of 1887 with which it banned tontines: Death insurance, which should ensure the participation of the family from the blows of fate, is used here to seduce the insured, they have a passion for winning, and incite them to entrust their savings to the whim of fate, very often with unhappy results.

In 1893, the Finnish senate forbade The Equitable from offering its tontinebased products in Finland. The Equitable was, however, still allowed to offer insurance products which were based on the principles of life insurance operated by European companies. In its report of 1893, the journal ‘Insurance Review’ ___________ 8

(1893) 6 Insurance Review 245.

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finally informed the reader of a special commission appointed by the Legislative Assembly of the State of New York to investigate tontine insurance. According to the report, this commission believed that tontines were a sort of gambling. In October and November 1893, the Commission for the Establishment of Governmental Supervision of Insurance Companies discussed the future of semitontines offered by The Equitable and New York Life Insurance. The commission considered a full ban. Already in spring 1893, the commission had considered recommending the prohibition of semi-tontines. However, the representatives of both companies had intervened and the commission had postponed its final decision until both had the chance to fully explain the details of their tontine products. In mid-August, they submitted their explanatory statements. The New York Life Insurance Company tried to defend its semi-tontines. It mainly offered a simple explanation of the principles of life insurance and gave an overview of the profit distribution schemes in different countries. Finally, it defined its own system of accumulation and its own manner of profit distribution. Nevertheless, the statement which was submitted by the New York Life Insurance Company did not give a clear explanation of how the distribution of the tontine profits between the policyholders actually functioned. The submission of The Equitable was set forth in an extremely harsh and almost offensive form; it contained objections to Maleshevsky’s conclusions and repeated the same arguments in favour of semi-tontines which were already put forward by the New York Life Insurance Company. The commission took both explanatory statements into consideration, together with a second extensive report by Maleshevsky in which he provided evidence-based refutations of all the objections set forth by The Equitable. In conclusion, the Commission decided to recommend to the government that it ban all tontine- and semi-tontine insurance. The conclusion reached by the commission was supported by a monograph authored by the engineer K.F. Zion in the year 1891. It was dedicated to tontines and presented a brief history of tontine insurance. The author focused especially on comparing the losses borne by retired participants of the tontine with the income received by survivors.9 The government of the Russian Empire, giving paramount importance to spreading life insurance as widely as possible among the people, recognized the need to stop tontine insurance in Russia because it undermined the people’s trust in this method of accumulating savings. Tontine life insurance systems with a distribution of accumulated profits only among those policy holders who reached a certain age were seen as a significant obstacle in the development of personal insurance. They were viewed as an alien appendix to insurance aimed at the pur___________ 9

K.F.Zion, Tontines and life insurance (1891).

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suit of profit, and it was argued that they could not guarantee the financial stability of insured individuals. Finally, on 25 March 1894 a law was passed that prohibited all insurance companies which were active in Russia from entering into tontine- or semi-tontine life insurance contracts.10

C. Conclusion In summary, the experience of tontine operations in Russia influenced the establishment of government supervision of insurance companies and the adoption of statutory regulation on insurance supervision.11

___________ 10 11

(1894) Collection of legal acts and government orders No. 70 Art. 498. (1894) Collection of legal acts and government orders No. 98 Art. 680.

Part 3: The Present and Future of Tontines

Chapter 18: What Can Tontine Design of the Future Learn from Its Past? By Moshe A. Milevsky1 A. Introduction ............................................................................................................ 307 B. Value ...................................................................................................................... 314 C. Clear ....................................................................................................................... 314 D. Real ........................................................................................................................ 315 E. Flexible ................................................................................................................... 315 F. Conclusion .............................................................................................................. 316

A. Introduction This volume contains a remarkable collection of articles, written by and after a broad gathering of scholars in the field of insurance, law, commerce, and history. One can easily claim without the slightest hint of exaggeration that ever since the introduction of tontines hundreds of years ago, this is the first time that such an assembly of academic and scholarly tontine expertise has been convened in one place. One of the notable elements in this particular collection is not necessarily the scope or depth of any particular article – although they do contain new archival material and associated revelations. Rather, when viewed in its entirety this monograph forces us to rethink much of what (we thought) we knew about tontines and especially their influence on legal history. This fact is especially important and relevant if tontines are ever to be resurrected as popular instruments for retirement income planning in the 21st century, which is my particular focus in this piece. So, I’ll briefly outline the conventional wisdom, encapsulate some of the new lessons from the tontine’s past, and finally move on to their (possible) future. The conventional (perhaps twitter-like) summary of tontine history can be summarized glibly as follows. Tontines are financial instruments with insurancelike features. They were: (1) invented in 1653 by Lorenzo Tonti, an Italian banker and well-born official who was exiled in Paris; and (2) became quite popular in France during the 18th century, and modestly so in England; (3) they were subsequently co-opted (rhymes with corrupted) by large American insurance ___________ 1 The author would like to acknowledge helpful discussions (and ongoing work) with Thomas Salisbury as well as members of the U.S.-based Society of Actuaries, a group that is funding ongoing research on the possibility of re-introducing tontine-like instruments.

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companies in the mid-19th century, where they thrived and multiplied; only to (4) vanish from the financial scene by the mid-20th century after a series of uniquely American scandals involving corrupt company officers and government officials; (5) as a result they are illegal in most jurisdictions and according to one author2 ‘the most discredited financial instrument in history’. With such a sordid resume, one could not be faulted for wondering what there is to learn from their past, and that certainly is the perception among the common press and media. Of course, the truth is always subtler and more nuanced than any brief summary can provide, and the story of tontines is no different. The articles in this volume are a testament to the ongoing refinement of our understanding of tontine history. Indeed, we continue to learn that their geographical reach, legal influence, and economic impact went far beyond what was previously understood. I will start at the very beginning with Lorenzo Tonti himself. In one of the many revelations unearthed by authors within this volume, Christian Rietsch and Georges Gallais-Hamono3 have combed the French archives to discover – and there really are no other words for it – that Lorenzo Tonti’s accolades have been far overblown. In fact, Lorenzo Tonti was not our protagonist’s real name; he was born Lorenzo Baroncini. He never had a position of great authority, responsibility, or stature in Italy; he was not a banker or financier. He most certainly was not a high-profile governor of Gaeta, as some biographies4 have erroneously claimed. Historians have been well aware of his lack of financial success with his tontines initiatives, or any other proposals for that matter.5 But the work by Rietsch and Gallais-Hamonno demonstrates that Tonti (Baroncini) led a very strange existence. He really did spend his life ‘feeding on hopes or smoke’ as one of the archive letters uncovered by Rietsch and Gallais-Hamonno states. Overall, these authors paint a fascinating picture of his complicated personal life despite the dearth of original sources. To make matters worse for Lorenzo (the name I will use from here on) and to provide further confirmation of Stigler’s law of eponymy stating that no scientific discovery is named after its original discoverer, the work by Kent McKeever6 reveals that the name Tonti in tontine might be misplaced for other ___________ 2

Edward Chancellor, Live Long and Prosper, The Spectator, 24 March 2001. See Rietsch and Gallais-Hamonno, 19 ff., above. 4 Including, quite awkwardly, my own summary in the book: King William’s Tontine: Why the Annuity of the Future Should Resemble Its Past (2015). 5 It was not only Tonti who ended-up in financial despair, after spending years in the Bastille. Apparently, Poul Klingenberg (of Danish fame) died broke in 1690 as well: see Sunnqvist, 154 f., above. Perhaps this is a lesson to future tontine entrepreneurs. 6 See McKeever, 193 ff., above. 3

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reasons. Namely, McKeever found – and arranged to have translated – a document which shows that a very old (public finance) tontine scheme was in fact proposed in Lisbon, Portugal, by Nicolas Bourey in the year 1641. The details and features are remarkably close to those contained in Lorenzo’s original proposal. Yet the 1641 (in Lisbon) date is over a decade prior to the tontine’s purported official birth in 1653 (in Paris), attributed to the publication of Lorenzo’s document for Cardinal Mazarin. To add insult to injury, this find is not a great revelation on its own. Portuguese historians have long been well-aware of Bourey and his proposal to the senate in Lisbon. This is yet another important fact that tontine aficionados have apparently missed until now. Although, to offset some of the blame for the omission – and as noted by McKeever himself – the noted insurance historian Cornelius Walford (1827–1885) makes no mention of the Portuguese paternity in his Insurance Cyclopedia (and the index guide). Either way, while speaking ill of the dead is always ill-advised, Lorenzo should not be viewed as the innovative entrepreneur who introduced a new form of mortality-contingent claim. As Robin Pearson7 points out (in this volume), life annuities were widely sold by urban authorities in Italy, Spain, Holland, and Switzerland well before Lorenzo. As I noted in my own book on King William’s tontine, it seems that William Shakespeare (1564–1616) himself might have been the beneficiary of a (will and a) scheme that today we would call a tontine. They existed informally, but not as an instrument of public finance. The shift from conventional fixed annuity government financing to fluctuating tontine financing came about in the mid 17th century, just as the variety and scope of longevity-contingent claims increased. The myriad reasons for the increase in longevity-contingent claim diversity have been partially attributed to the decline in catastrophic shocks from mortality such as the bubonic plague. Betting on (long vs. short) life became less risky. The conventional wisdom was that Lorenzo was the catalyst, but it seems that the Portuguese Bourey deserves credit as well. The expansion of our understanding contained in this volume go beyond matters of the tontine’s paternity and intellectual origin. Phillip Hellwege 8 documents the extent to which tontines affected the development of insurance law in Germany (and beyond). It is already well known to statistical scientists that the promotion of tontine annuities in the mid 17th century also marked the beginning of actuarial science as a discipline. Names such as John Graunt (1620–1674), Johan de Witt (1625–1672), Edmond Halley (1656–1741/42), and Abraham de Moivre (1667–1754) were there at the very beginning of the field – and they all ___________ 7 8

See Pearson, 79 f., above. See Hellwege, 180–190, above.

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had some involvement in the tontine and annuity business. The development and refinement of pricing techniques for tontines and annuities went hand-in-hand with the evolution of actuarial knowledge. One fed on the other. The key insight in this collection is that tontines contributed to more than actuarial science, they also contributed to the development of insurance law and legal thinking. That is an insight that was appreciated by the economic and mathematical literature. The rules on partnerships, inheritance, trusts – and even whether dead men can transfer or bequeath possessions – all thread their way into the sphere of tontines. Moreover, should a tontine scheme be considered gambling? Or, is it a form of life insurance? How and by whom should they be regulated? Oddly enough these legal questions are still being debated (again) today, and I will return to those challenges in my summary. Nevertheless, tontines forced the legal community of the time to think very carefully about some very fundamental issues in law. Tontines were a catalyst for the development of mathematics, statistics, actuarial science, and also legal doctrine. But in addition to shedding light on some of the historical and legal influences, Hellwege refers to9 and elsewhere10 reviews (and introduces non-German speakers to) the Gdańsk tontine of 1657, which he points out was documented by Werner Ogris in 1961. This is noteworthy because there are some indications that the Gdańsk tontine did actually get launched (and was not simply proposed), which might place it ahead of the successful Kampen 1670 tontine and just after the (very early) Danish proposals in 1653 associated with Poul Klingenberg (1615– 1690). The Gdańsk 1657 tontine’s prospectus or issuing document allows for and encourages wide participation. It was not meant as a local affair. But beyond Gdańsk, Hellwege writes about the Prussian tontine of 1698, the Bolzano tontine of 1735, the Gotha tontine of 1752, the Hamburg tontine of 1776, the Nuremberg tontine of 1777, the Oldenburg tontine of 1782, and takes us all the way to the pension funds in the mid-19th century. Viewed in totality, his work indicates that tontines were embedded in the ecosystem of municipal and government financing far beyond France or England. On a side note, Johann Wolfgang von Goethe (1749–1832) showed an interest in tontines, and one of the most prolific mathematicians of all time, Leonard Euler (1707–1783), wrote about tontines as well. Hellwege quotes from a German source the claim – which he debates and questions himself – that ‘tontines played an extraordinarily important role for the development of insurance’. But one

___________ 9

See Hellwege, 169, 171, above. Phillip Hellwege, A History of Tontines in Germany. From a multi-purpose financial product to a single-purpose pension product (2018), 38–40. 10

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thing is for certain, by the end of the 19 th century German lawyers viewed tontines as a form of gambling,11 and they were subject to severe restrictions. This was quite independent from the sordid American experience. Again, that did not imply tontines were a sideshow or footnote in the pantheon of insurance history and insurance law. Rather, one could argue they were part of the intellectual foundation. Moving beyond Europe, the article by Salvatore Mancuso 12 reviews the history and widespread use of tontine-like products in Africa, which are also referred to as rotating credit associations. And, while the African versions are missing the all-important mortality credits which distinguish the tontine from any other savings plan, it could be that they started financial life that way. He reviews and discusses tontine-like savings instruments in Nigeria, Cameroon, Ghana, Sudan, Zambia, and Zimbabwe. In South Africa they appear under the names mahodisana (for women only) and stokfel (open to men and women.) In fact, it has been estimated that one in every two black South Africans today is a member of an informal stokfel – a scheme which traces its origins to the tontine concept. In modern-day France, the insurance company Le Conservateur offers a tontine-like savings policy paying higher dividends to survivors as a result of the mortality credits, according to the article by Jan-Hendrik Weinert.13 In other words, the rumours of the tontine’s demise might be premature. Marcelo Nasser14 discusses tontines and their legal history in Latin America. Pearson – who reminded us early on that tontines evolved from life annuities – discusses the social and economic factors behind public and private tontines, and in particular the ongoing relationship to their close cousin the life annuity. Martin Sunnqvist15 examines tontines in Scandinavia, and Rafael Illescas16 reviews their experience and challenges in Spain. The point here is not to offer a laundry list of countries but to point out that each country had to contend with unique (legal) challenges to be able to offer tontines, and the diversity of experience is informative. For example, in Hungary, Balázs Tőkey17 reviews the mechanics of tontine design and management. In particular he discusses the conditions under which ___________ 11

In 1994 life insurance companies were (again) allowed to operate tontines. See Mancuso, 343 ff., below. 13 See Weinert, 318 ff., below. 14 See Nasser, 259 ff.. above. 15 See Sunnqvist, 153 ff., above. 16 See Illescas, 229 ff., above. 17 See Tőkey, 289 ff., above. 12

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an original tontine nominee – on whose life the payment was contingent – could be replaced with an alternative name. From an actuarial perspective this would be quite risky and gives rise to severe anti-selection problems, using the modern phraseology. The Hungarian solution – if I might call it that – was to allow a nominee to be swapped with someone who had to be verified as at least 3 years older than the original nominee. And, while an economist might still worry about the risk, it does indicate that trustee-type figures were thinking and worrying about these subtle issues long before the advent of the modern field of information economics. On a more practical and optimistic note, I would argue that yes, the tontine concept can give rise to some challenging dilemmas, but clever solutions can be found. Whether they be in Portugal, Germany, the Netherlands, or Denmark, or even Africa and Latin America, there is a wide variety of functional and legal forms in which tontines have appeared. But, the unifying theme across all tontine designs – other than the African versions mentioned above – is that the death of one member within the scheme benefits the investment returns of another surviving member, in a transparent manner and without discretion. This is the essence of the tontine element which generates an ex-post investment return that exceeds all other financial instruments, conditioned on survival of course. That is also the main argument for why some (like myself) believe they should be returned to the shelves of financial supermarkets in the 21st century. Needless to say, not everyone agrees, and the objections are not based solely on ignorance. Experts in modern-day insurance products, such as the noted Professor Joe Belth (in the U.S.), have expressed concerns – writing in his blog and in a review of the book on King William’s tontine – about resurrecting tontines or any insurance instrument with tontine-like elements. Alas, with their troubled history, bans, and occasional association with gambling, one wonders about their suitability for consumers, let alone their legality. A related question would be: what agency would regulate them? In today’s complex world, insurance policies, pension policies, and banking and financial services all have multiple and overlapping regulators in multiple jurisdictions. Who would oversee a global tontine company? Imagine that an enterprising entrepreneur develops a phone-based app that gathers premiums from ‘tontine club’ members, places the funds in trust for the group in risk-free government bills, and the algorithm (block chain) distributes cash to survivors based on a pre-determined formula. The technology would not require much in the way of ongoing actuarial expertise – other than in the original set-up algorithm – capital, or administrative overhead. Clearly, it would be a tontine-like scheme that earns interest plus mortality credits for survivors – transparent and quite easy to explain. But would it be legal? In this critical matter, one requires more than a scholar of legal history or financial mathematician.

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Jonathan Forman and Michael Sabin18 make the case – both in this volume and in prior writing – that modern day tontines should be legal, at least in the U.S. They defend their tontine and make their legal case while arguing that their ‘survivor funds’ would be ideal for modern-day defined contribution pension funds in the U.S. One might debate the best way to financially engineer modern-day tontines, and there have been many different actuarial proposals, including the group selfannuitization (GSA) schemes that are gaining traction in Australia. The key here is that the consensus appears to be that such a structure would not violate or interfere with the tontine prohibitions of the early 20 th century within the U.S. In other jurisdictions, such as the Member States of the EU, they appear already to be legal, and in France they are still offered. Of course, getting regulators around the world comfortable with this view is the great challenge. So, what does this mean for the future of tontines? As others in this volume have pointed out, with the global decline in defined benefit (DB) pension coverage and the increase in defined contribution (DC) investments, there is a growing concern among policymakers that retirees of the future will no longer have access to low-cost and efficient longevity pooling schemes, i.e. the actuarial backbone of DB plans. This problem is exacerbated by what financial economists call the annuity puzzle, which is the reluctance of older consumers to voluntarily use money or funds from their nest egg to purchase life-contingent annuities, despite their welfare enhancing properties. Either way, as Forman and Sabin have also written, generic DC schemes deprive retirees of mortality credits and the benefits of longevity risk pooling. This then reduces retirement sustainability, which is already hampered by an era of low (real) interest rates, increasing longevity, and reduced discretionary savings. The main claim here is that ‘tontine thinking’ which is inspired by – and takes lessons from – the history of tontines can provide some relevant guidance. In particular, there are four elements of 17th and 18th century tontines discussed and analysed in this volume that are worthy of consideration19 and that should help guide the design of future products. These are the lessons from the past which I summarize with four words: value, clear, real, and flexible, abbreviated as VCRF.

___________ 18

See Forman and Sabin, 329 ff., below. For a more technical and actuarially detailed study, see Moshe A. Milevsky and Thomas S. Salisbury, Optimal retirement income tontines, (2015) 64 Insurance: Mathematics and Economics 91–105. 19

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B. Value Unlike a pension plan or annuity company, the issuer of a tontine annuity does not incur much longevity risk. The borrower makes known fixed payments (the numerator in the dividend calculation), which is distributed among the survivors (the denominator in the dividend calculation). The group or syndicate incurs and absorbs the aggregate longevity risk, not the borrower or the king, or the municipality. This then reduces the need for capital – if it were an insurance company – and in theory would increase the expected payout per survivor. To put it bluntly, a tontine would be cheaper in expectation and hence would provide more discounted value and utility to the investor, compared to a life annuity. Now, just to be clear, the sponsor does face a certain modicum of risk in having to forecast whether the one last surviving nominee will live 50, 55, or perhaps 60 years. However, the discounted present value of that uncertain liability ending date pales in comparison to the longevity risk faced by pension plans of insurance companies that sell only annuities. Ergo, the lower (or non-existent) insurance capital requirements should result in better payouts for annuitants and retirees – in exchange for incurring aggregate longevity risk. For retirees who are struggling to generate a sustainable income in a (historically) low interest rate environment, the tontine would provide more value in expectation relative to the life annuity. Indeed, the extra yield provided by accepting the aggregate (and to a certain extent idiosyncratic) longevity risk in a tontine can help explain (some of its) historical popularity. Of course, the devil is always lurking in the details and obscured by the assumptions. But even in times in which tontines were fairly priced relative to prevailing interest rates, Adam Smith (1723–1790) himself argued that they should be preferable to issuing life annuities.

C. Clear Anyone who participated in the early French and English tontines – and for that matter the much broader universe we learn of in this volume – knew exactly why he or she was receiving a particular dividend in a particular year. The calculation could be done – and was actually reported – on a single sheet of paper that is still preserved today in many archives. For example, the British Library in London retains these documents for the many 17 th and 18th century tontines issued in England. Hellwege20 captures the essence of the matter when he writes that tontines were transparent to the buyer and seller alike. The cash-flow numerator was known in advance and the denominator of survivors could be easily ___________ 20

See Hellwege, 185–187, above.

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counted every year at the designated dividend date. The division of the two numbers did not require any advanced mathematics or actuarial discretion. One certainly did not require a 2,000 page legal prospectus to explain to (novice) investors the ins and outs of caps, floors, ratchets, and roll-ups. It did not leave anything to the discretion of actuaries, mathematicians, or financiers. It was clear to all.

D. Real Like all life-contingent annuities, a modern-day tontine annuity would protect investors against living longer than they had originally planned. The longer they lived the more income they received. The last few survivors – who by definition had lived a very long life – would receive larger payments. That part is clear, but on a subtle level the subjective utility of these cash flows might be higher as well in those states of nature. The increased payments at very advanced ages could serve as a hedge against uncertain medical expenses that (might) increase at a higher rate than population inflation. In some sense, nominal instruments could be used to generate real (post-inflation) returns. Moreover, one can actually demonstrate that if mortality patterns themselves are stochastic (that is, the mortality rates themselves are random) and correlated with price levels, tontines provide (economic) utility benefits above and beyond what is available from deterministically increasing annuity payments due to their statistically-skewed payout profile.

E. Flexible Finally, one of the interesting features in the design of the first English tontine issued in the year 1693 – often called the ‘King William’s Tontine’, discussed at length in my book of the same title – was the one-time reduction in interest payments to the syndicate after seven years. As pointed out by Gallais-Hamonno and Rietsch as well, for the first seven years the interest rate to the syndicate was 10%, and then in the year 1700 it was reduced to 7%. This design element differed from the original Lorenzo proposal – as well as all the other 17th-century plans – under which the interest paid to the group was constant over the entire horizon. Notice then that as the denominator (survivors) was expected to shrink the numerator would decline as well and thus level the payments. This idea can be extended from a one-time adjustment to a constant reduction in cash flows. In theory, the sponsor could construct a tontine annuity using risk-free zero-coupon government bonds in which the cash flows (numerator) decline at roughly the same rate as the denominator or any other desired cash-flow profile. In other words, even though mortality and death itself are not flexible by any stretch of

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the imagination, the tontine can be engineered to match any desired cash-flow pattern.

F. Conclusion As societies struggle with the challenges of providing a sustainable stream of income to retirees in a world of low (real) interest rates, there has been a resurrection of interest among practitioners and academics in tontine annuities, their history, and in their legal basis. As the many papers and articles in this volume can attest, tontines were first introduced as fiscal instruments of public borrowing in the late 17th century – in France, England, the Dutch Republic, and many other countries in Europe – and consequently morphed into a form of speculative insurance investment during the 18th century, which penetrated much wider than the U.S. market. More than just a financial instrument, they had a deep-reaching impact on the development of insurance law. One stumbles on references to tontines scattered around the world in regulations, directives, and legal discussions. The main claim I am making here – echoed by others such as Forman and Sabin21 – is that the retirement challenges of the 21st century leave us no choice and force us to become re-acquainted with tontine history. I am quite cognizant of the sordid fate of those who forget history – especially as it relates to financial history. This is exactly why a discussion of their possible future must begin with an examination of their past. Obviously, actuarial science has progressed considerably since tontines’ 17th- and 18th-century heyday, and nobody in their right mind would propose recycling the original scheme promoted centuries ago. Rather, it is the ‘tontine thinking’ inside retirement income products that is worthy of consideration. And whereby historically the challenges to tontines were mostly scientific in nature – with some public relations or ethical concerns – the current impediment to a viable tontine market is almost entirely a regulatory or legal one. Stated bluntly, if tontines are to be resurrected on a large scale anytime soon, they will need a very good lawyer.

___________ 21

See Forman and Sabin, 329 ff., below.

Chapter 19: Tontines in Europe Today By Jan-Hendrik Weinert A. Introduction ............................................................................................................ 317 B. Le Conservateur ..................................................................................................... 318 C. The demographic challenge and the retirement smile............................................. 321 D. The tontine as an instrument for resolving the retirement smile problem ............... 324 E. Conclusion .............................................................................................................. 326

A. Introduction Despite their success in the 17th and 18th centuries, tontines had basically disappeared by the end of the 19th century. However, more and more researchers today have begun thinking about a reintroduction of tontines1 when looking at the large number of existing problems that our pension systems are currently facing. Undeniably, tontine products would have to meet changed requirements and, as a consequence, be equipped with certain more modern characteristics. What such tontines of the 21st century should look like and which products are already on the market are the main questions addressed in this chapter. A traditional tontine is a financial instrument granting very considerable amounts of money to survivors at the expense of those who died earlier. This type of tontine is closer to a gambling instrument than to a satisfactory tool for generating an adequate level of income. To overcome this, authors such as Ralph ___________ 1 See for example Catherine Donnelly, Montserrat Guillén and Jens Perch Nielsen, Exchanging uncertain mortality for a cost, (2013) 52 Insurance: Mathematics and Economics 65–76; idem, Bringing cost transparency to the life annuity market, (2014) 56 Insurance: Mathematics and Economics 14–27; Catherine Donnelly, Actuarial fairness and solidarity in pooled annuity funds, (2015) 45 Astin Bulletin 49–74; Moshe A. Milevsky and Thomas S. Salisbury, Optimal retirement income tontines, (2015) 64 Insurance: Mathematics and Economics 91–105; idem, Equitable retirement income tontines: Mixing cohorts without discriminating, (2016) 46 Astin Bulletin 571–604; An Chen, Peter Hieber and Jakob Klein, Tonuity: A novel individual-oriented retirement plan (working paper, 2016); Michael J. Sabin, Fair tontine annuity (2010); Jonathan Barry Forman and Michael J. Sabin, Tontine pensions: A solution to the state and local pension underfunding crisis (2014); Jan-Hendrik Weinert and Helmut Gründl, The modern tontine: An innovative instrument for longevity risk management in an aging society, (2016) 22 ICIR Working Paper Series; Jan-Hendrik Weinert, The fair surrender value of a tontine, (2017) 26 ICIR Working Paper Series; idem, Comparing the cost of a tontine with a tontine replicating annuity (2017).

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Goldsticker, Moshe A. Milevsky, Thomas S. Salisbury, and Michael Z. Stamos have concentrated on financial instruments having close similarities to tontines which incorporate a pay-out smoothing mechanism: mutual funds and pooled annuity funds. Nevertheless, the European tontine market in practice does not reflect these ideas. The only tontine product found in Europe, available on the French market, pursues the idea of a traditional rather than a modernized tontine.

B. Le Conservateur The considered product is offered by the French insurer Le Conservateur. This firm has been devoted to the idea of a traditional tontine for more than 170 years. Even though Le Conservateur has made a great effort to modernize its basic idea and to transform it into an inventive savings scheme, it does not fully reflect the ideas of modern authors. Currently the scheme has approximately 133,000 subscribers.2 It is built on a fixed investment horizon of 10 to 25 years, whereby the invested amount of money cannot be withdrawn before maturity. This involves the creation of a new tontine each year on 1 January. These yearly revolving products are open for subscription until 31 December of the corresponding year. For those customers who seek a shorter capital commitment, Le Conservateur offers a running tontine. Le Conservateur has determined that a tontine pool has to comprise at least 200 members. If this number is not reached after one year, the account will be closed and the money redistributed among its investors. All corresponding costs for the set-up, management and potential write-offs are borne by Le Conservateur. For this purpose the firm charges a fee of 3.5% of the entire investment to cover the acquisition costs and 15% of each deposit to defray administrative costs. It can therefore be summarized that all fees are due on entering into the contract or, if premiums are paid in instalments, on making the investment and that a 1,000 Euros investment leads to an effective net investment of about 820 Euros. At the liquidation date, the amount of money generated is distributed among those participants who are still alive. The total amount consists of the participants’ deposits, the investment income generated, and net profits.3 However, it has to be noted that the distributed amounts of money are not equal in size but differ on the basis of the participant’s age, the timing of the investment, the invested amount, and the chosen investment horizon. In the event of a participant’s death before maturity, his/her dependents and heirs do not receive anything; ra___________ 2 The information about Le Conservateur is sourced from press-related material, annual reports, http://www.conservateur.fr/ and contractual documents of Le Conservateur. 3 In this context, the net profits are the redistributed stakes of deceased members to surviving nominees.

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ther, the entirety of deposits benefit all other participants. In order to allow tontine participants to make provision for heirs in case of their death, Le Conservateur invented a mechanism to do so: the individual investor is free to purchase an additional life insurance policy when joining the tontine pool. This policy ensures that in the event of the premature death of the insured, heirs will benefit at least from the premiums paid into the tontine. While not of great importance in practice, it is theoretically accurate to state that a tontine participant can in principle fulfil three different roles: he/she can be the tontine member who makes the deposits and chooses the beneficiaries, he/she can be the nominee whose life is the basis of the contract, and he/she can be the beneficiary who receives a payment in the event the nominee is still alive. However, it is usually the case that the member, the nominee, and the beneficiary are one and the same person. In light of the long investment horizon of up to 25 years in the Le Conservateur tontine product, the insurer is able to invest the capital in very long-term assets, which offer the chance to generate high returns. The return is maximized through a dynamic asset allocation process that focuses on high-yield bonds during the first years and that increases the share of less-risky bond investments over time. Investment decisions are made separately for each sub-tontine, whereas the portfolio is not managed individually for each participant but on a collective basis. Only at the very end of the maturity period are all purchased assets sold, with the resulting monetary amount being distributed among all survivors. Le Conservateur is obliged to do so no later than six months after the maturity date. The principle of a yearly re-emerging tontine on 1 January gives interested investors the chance to invest in any of the existing as well as the newly-set-up products. At the tontine contract’s inception, a choice needs to be made between a tontine featuring a single premium payment or periodic premium payments. Nevertheless, certain restrictions have to be kept in mind when deciding to participate in one of Le Conservateur’s tontines. Participants in the single premium tontine have to choose an investment horizon between 10 and 25 years, they have to invest at least 1,000 Euros, and they are not allowed to be older than 85 years when joining the tontine. In the case of a periodic premium tontine, the individual investor is allowed to deposit constant amounts of money over time, with either a monthly, quarterly, semi-annual, or annual payment frequency. At the same time, the investor can choose an automatic premium-increase mechanism which increases payments by 2.5% annually. This option can be cancelled at any time. However, a premium decrease is not available. Furthermore, the investment horizon has to lie between 10 and 25 years, with a minimum premium payment of 50 Euros per month corresponding to 600 Euros per annum. As in the case of the single premium tontine, the investor is not allowed to be older than 85 years when joining the tontine.

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In the event the participant runs into financial difficulties during the investment period, the question of whether he/she will receive any money at maturity depends on how long he/she has made payments: in the first two years, he/she forfeits all rights to receive anything. Afterwards he/she will receive money in proportion to the duration of his/her premium payment period. Following this line of reasoning, benefits accrue to the surviving tontine holders who have paid all premiums by maturity. They benefit not only from the share of those who died early, but also from the premiums of those who paid premiums only over a horizon of less than the first two years and have thus lost the right to receive any money at maturity. Returning to the available option of an additional term life insurance policy ensuring a bequest, a tontine member who has bought a single premium product ensures his dependants at least 100% of the premium amount paid in and may even endow his policy with a 2% premium increase annually. In the case of periodic premium payments, the policyholder can decide between three different ways of how to protect dependants on the occurrence of an early death: Dependants may receive either 100% or 150% of the amount of premiums paid in; or an amount of money which is calculated yearly based on the length of the tontine membership and the size of premium payments; or an amount which is calculated based on the individual age of the nominee and the size of the premium payment when signing the tontine contract. The first life insurance option distinguishes between either 100% or 150% of premiums based on whether or not the insured has chosen an indexation of insurance premiums. Indexation in this context is a process to adjust insurance premiums for inflation in order to guarantee constant real benefit payments. Besides Le Conservateur, which provides a form of old-age provision, there exists another tontine-style investment mechanism in French civil law, namely real estate tontines. The idea behind such contracts is that a group of people purchases a certain property in common, for example a house. All contracting parties agree that they all have a right to use the property during their lifetime. With the aid of a unique contractual term, the property will transfer to the ownership of the last survivor. It is worth noting that not all pool members can be regarded as property owners; only the last survivor becomes the owner. Even at the beginning, when all pool members are still alive, there is in theory just one single rightful claimant, namely the future last survivor. In the event of special circumstances, the unique contractual terms can be annulled only on approval of all investors. The same applies in the event the property should be sold. This short glance at the range of tontine products in Europe demonstrates its small share within the overall insurance market. However, the second part of this chapter shows why tontines may be an appropriate alternative to avoid major problems of western societies.

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C. The demographic challenge and the retirement smile One of the major problems of western societies is the aging population structure. The financial burden on society is increasing because of the rising share of elderly people in society in combination with an increasing need for financial resources for those retirees. Medical advances achieved during the last decades enable the treatment of diseases and weaknesses that would have been labelled as incurable in the middle of the 20th century. However, the costs of medical measures and treatment methods, especially for elderly people, are extremely high – either because the costs of healing severe diseases are themselves high or because elderly people frequently suffer from multiple physical handicaps. This trend is also depicted in the results of a 2013 survey taken by Standard Life,4 which shows that the capital needs of a person aged 85 are on average six times as high as the needs of a person aged 65. In general, the development of capital needs after retirement can be described by a U-shaped function known as the ‘retirement smile’. Figure 1: The retirement smile, average cost of living in Euros per month (author-created graphic based on SOEP data) 4,000

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Retirees at the beginning of their retirement phase can usually be described as people in good physical condition who want to use their enhanced leisure time to fulfill their consumption wishes. That is the reason why expenses for traveling and the costs of hobbies increase significantly as soon as people retire. The increased total expenditures associated with this initial burst of activity start declining around the age of 70 when the retiree begins to slow down and restrict ___________ 4 Standard Life, The retirement smile (2013): http://ukgroup.standardlife.com/content/ news/new_articles/2013/260613NewDrawdownTransferOption.xml (last accessed 15 June 2017).

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physical exertion. Thus the number of journeys, theatre tickets, and concert visits as well as expenses for any other leisure activities begins to decline. Figure 2: Average expenditures on leisure activities in Euros per month (author-created graphic based on SOEP data)

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Nevertheless, a retiree’s overall physical condition is on average still quite good at this age in his or her life. This fact leads to the result that total expenses decline since consumer spending goes down while at the same time medical expenses remain at a constant, low level. During the later years of life, however, serious physical ailments begin to accumulate, making expensive hospital stays and nursing care services indispensable. The demand for financial resources grows dramatically, and nursing care costs rise for out- and in-patient care. Figure 3: Average costs for in-patient care in Euros per year (author-created graphic based on SOEP data)

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Figure 4: Average costs for out-patient care in Euros per year (author-created graphic based on SOEP data)

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Ensuring independent living will often mean that an expensive renovation is needed to adapt one’s home to geriatric needs. These construction costs have to be met in addition to the high costs of in-home nursing care. Figure 5: Expected average costs of nursing care in Euros per year (author-created graphic based on SOEP data)

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Thus, the relative significance of care costs constantly increases over time beginning at retirement, while consumption spending loses significance.

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The demographic developments described in this section give rise to the question of what a retirement product capable of coping with the increased costs in later years would look like. Against this backdrop, the use of a tontine-concept could offer significant advantages.

D. The tontine as an instrument for resolving the retirement smile problem In a different publication, Helmut Gründl and I have looked at how the idea of a historic tontine can be transferred to a more modern context. 5 We assess the effects of a tontine investment on individual lifetime utility, considering increasing liquidity needs at older ages. A tontine provides a mortality driven, age-increasing payout structure. Although an insurer can easily replicate such a payout structure, the tontine has the big advantage of its simplicity and (presumably)

___________ 5

Weinert and Gründl (n. 1).

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low costs. While traditional insurance products entail large safety and administrative cost loading, a tontine can be offered at low additional costs.6 This is because a tontine is a simple redistribution mechanism for the invested funds which does not require active management. The investment strategy for tontinized wealth can be decided on an individual basis according to the individual level of risk aversion, without the issuance of guarantees. The absence of guarantees enables tontine holders’ participation in stock market developments. However, a tontine generates volatile payments, which means that the insurance character of a tontine might not be guaranteed in every situation. The costs of a tontine would also be low because of the fact that in contrast to traditional annuities, where longevity risk is transferred from the insured to the insurer (and covered by its risk management instruments), in a tontine the risk that a single participant might live longer than expected is fully borne and shared by the other tontine holders, who in this case receive less cash flows than expected. Therefore, no equity capital backing is needed to cover longevity risk, and the tontine can be offered without risk-cost loading. However, the tontine has the disadvantage that, because individual shares in the tontine as well as the occurrence of death of tontine members are random, both the amounts and timing of tontine payments are uncertain. Based on a forecast of demographic developments, which also is the basis for the composition of a fair and revolving tontine annuity, we have estimated the risk-free benefit profile of a standard annuity and compared it to the risky benefit profile of a tontine. Using this information, an optimal portfolio consisting of an annuity and a tontine is constructed that maximizes expected utility from a policyholder perspective. The aim is to design the payout pattern of the tontine and annuity such that the age-increasing liquidity needs can be served best, i.e. that in periods of high liquidity needs the available payouts generated by the tontine and annuity portfolio are sufficient. Therefore, the income stream from the portfolio is evaluated relative to the liquidity needs. The liquidity need level is considered as a reference level, which should be met by the return of the portfolio in order to provide utility. An income stream larger than the liquidity needs is considered to be utility-generating, while an income stream lower than the liquidity needs generates disutility. In this sense, the utility of the relative income stream is assessed in reference to the liquidity needs rather than the absolute level of income. Since the liquidity needs increase with age, a payout which is able to meet the demand in early years might not be sufficient to meet the demand in the later years of retirement. If the income stream is not sufficient to meet the liquidity need, the missing difference between this stream and the reference level is valued rather than the absolute level of the income stream. ___________ 6

See Weinert, Comparing the cost (n. 1).

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Perfectly suiting the growing capital need at older ages, tontine payments increase slowly in the early retirement years because of the slow increase of death probabilities in early years. In contrast, for very high ages, the tontine payments increase tremendously: a male aged 62 at contract inception will annually receive 18.73% of the initial investment at the age of 91. Every year of further survival then yields even steeper increasing returns, being for example 47.69% of the initial investment at the age of 101. Neglecting interest rate effects, a person can expect to recoup his/her initial investment after 26 years at the age of 87. In comparison, the initial investment in an immediate fair annuity can already be recouped after 21 years at the age of 82. This is because the annuity provides level payments whereas tontine payments increase with age. The results indicate that a tontine might be the preferred product for someone who expects to live long and therefore wants to hedge his individual longevity risk. The important question then is which combination of both instruments is best suited to meet old-age liquidity needs. The solution distinguishes between three different setups: First the case is considered where a person completely annuitizes his/her initial wealth. The second case is the complete tontinization of initial wealth. Whereas the liquidity needs can be met only in early years in the first case because of the low payments generated by the annuity, in the second case it is the other way round. Since tontine payments are driven by mortality, payments are very low and insufficient in the early years, but they increase with age. It can be observed that tontine and annuity payments proceed inversely, meaning that a portfolio of both would help to generate payout patterns which allow the increasing liquidity demand to be financed appropriately. Thus the third case describes a combined portfolio consisting of both a tontine and an annuity. While still being able to satisfy the demand at the early ages, the portfolio of both products is also able to provide sufficient funds in the later years. These effects result from the fact that up to the age of 80, the annuity provides a higher return than the tontine, while beyond the age of 80 the tontine outperforms the annuity. A combination of both products can optimally reproduce the targeted liquidity need structure and thus can provide the highest utility.

E. Conclusion The current problems of an aging society in conjunction with the ongoing low interest phase will call for innovations in pension products. The findings of Weinert and Gründl show that a portfolio consisting of a conventional pension product and an innovative tontine provides the maximum benefit for pensioners

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with average wealth endowment.7 Against this backdrop, one could imagine a reinvention of tontines in Europe in the upcoming decades and their growing distribution as a pension product.

___________ 7

Weinert and Gründl (n. 1).

Chapter 20: Tontines in the Western World Today By Jonathan Barry Forman and Michael J. Sabin* A. Introduction ............................................................................................................ 329 B. The history of tontines and similar financial products ............................................ 330 I. The origin of tontines ...................................................................................... 330 II. The history of tontines in the United States .................................................... 331 III. The development of tontine-style financial products in the United States ...... 331 1. Social security ............................................................................................ 332 2. Annuities .................................................................................................... 332 3. Defined benefit pension plans .................................................................... 333 a) A brief history of retirement .................................................................. 333 b) The rise and fall of defined benefit plans .............................................. 334 4. Defined contribution plans ......................................................................... 335 C. New possibilities for tontines in the western world ................................................ 336 I. Pooled annuities and similar financial products .............................................. 337 II. True tontines ................................................................................................... 339 1. Tontine annuities ........................................................................................ 339 2. Tontine pensions ........................................................................................ 340 3. Survivor funds............................................................................................ 340 D. Conclusion .............................................................................................................. 341

A. Introduction Tontines are investment vehicles that can be used to provide retirement income.1 A tontine is a financial product that combines features of an annuity and a lottery.2 In a simple tontine, a group of investors pool their money together to buy a portfolio of investments and, as investors die, their shares are forfeited, often with the entire fund going to the last surviving member. Alternatively, each ___________ *

All online resources were last accessed on 17 July 2017. Jonathan Barry Forman and Michael J. Sabin, Tontine Pensions, (2015) 163 University of Pennsylvania Law Review 755–831, 757. 2 An annuity is a financial instrument (e.g., an insurance contract) that converts a lump sum of money into a stream of income payable over a period of years, typically for life. See, e.g., U.S. Securities and Exchange Commission (SEC), Annuities, http://www.sec.gov/answers/annuity.htm (last updated 6 April 2011); Investor.gov, Annuities, http://m.investor.gov/investing-basics/investment-products/annuities; Life Annuity, Investopedia, http://www.investopedia.com/terms/l/lifeannuity.asp. The person holding an annuity is called an annuitant. See, e.g., Annuitant, Investopedia, http://www.investopedia.com/terms/a/annuitant.asp. 1

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time a member of a tontine pool dies, her account balance could be divided among the surviving members of the pool. The latter type of tontine could be used to develop new financial products that would provide reliable, pension-like income for retirees. The key point is that variations on the tontine principle – that the share of each, at death, is enjoyed by the survivors – can be used to create a variety of attractive retirement income financial products. For example, as more fully explained below, the tontine principle could be used to create tontine annuities, 3 tontine pensions,4 and survivor funds.5

B. The history of tontines and similar financial products I. The origin of tontines Tontines are named after Lorenzo Tonti (1602–1684), who allegedly came up with the idea.6 Historically, governments issued tontines instead of regular bonds.7 In those tontines, the government would keep the tontine investors’ contributions but make high annual dividend payments to the tontine, with those payments being divided among the surviving investors. When the last survivor died, the government had no further debt obligation. For example, in 1693 the English government issued a tontine as a way to raise one million British pounds to help pay for its war against France.8 At a time when the regular bond interest rate was capped at 6%, King William’s 1693-tontine, as it is known, entitled the surviving investors to share in 10% dividend payments on the tontine for the first 7 years and in 7% dividend payments thereafter. Over the years, tontines like King William’s tontine became quite popular.9 ___________ 3 Michael J. Sabin, Fair Tontine Annuity (unpublished manuscript, 26 March 2010), http://ssrn.com/abstract=1579932 (explaining how a fair tontine annuity would work); Forman and Sabin (n. 1), 790–801. 4 Forman and Sabin (n. 1), 802–807. 5 Jonathan Barry Forman and Michael J. Sabin, Survivor Funds, (2016) 37 Pace Law Review 204–291. 6 See, e.g., Moshe Milevsky, King William’s Tontine: Why the Retirement Annuity of the Future Should Resemble its Past (2015), 42; Forman and Sabin (n. 1), 758. On Tonti see Rietsch and Gallais-Hamonno, 19 ff., above. 7 Milevsky (n. 6), 1–6. 8 Milevsky (n. 6), 50–79. 9 See, e.g., Robert W. Cooper, An Historical Analysis of the Tontine Principle (1972), 6–9 (discussing the English tontine’s effect on early America); Kent McKeever, A Short History of Tontines, (2009) 15 Fordham Journal of Corporate and Financial Law 491–521 (discussing the early history of the tontine and its possible modern revival).

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II. The history of tontines in the United States At one point, Alexander Hamilton (1757–1804), the United States’ first Secretary of the Treasury, suggested that the United States could use a tontine to pay off its Revolutionary War debt.10 All in all, government tontines played an important role in government finances over a couple of centuries, but they have subsequently largely disappeared.11 After the United States Civil War ended in 1865, tontines emerged as a popular investment for individuals in the United States, but they fell out of favour at the beginning of the 20th century.12 The problem was not with the tontine form but with embezzlement and fraud by the holders of tontine funds.13 Investigations of the insurance industry in New York led to the enactment of legislation in 1906 that all but banned tontines, and they have since largely been replaced by annuities, life insurance, and similar financial products. 14 III. The development of tontine-style financial products in the United States Social Security, annuities, defined benefit pension plans, and even defined contribution pension plans have largely filled the lifetime income gap left by the demise of tontines in the United States.

___________ 10 Robert M. Jennings, Donald F. Swanson and Andrew P. Trout, Alexander Hamilton’s Tontine Proposal, (1988) 45 William and Mary Quarterly 107–115, 110 f. 11 See, e.g., Cooper (n. 9), 2–9 (tracing the early history of tontines in France, England, and the United States). 12 See, e.g., Cooper (n. 9), 10–17, 21–22 (discussing the rise of tontines in the United States, the defects inherent in the original tontine policies, and the abuses of the system that led to their demise); McKeever (n. 9), 507–511 (detailing the 19th century beginnings of tontine-style insurance policies in the United States and the legislative backlash to tontines). 13 See McKeever (n. 9), 511 (‘The contemporary assessment ... is that the tontine aspect of the standard insurance policies served as a distraction and scapegoat in coming up with remedies for the range of vices in the industry. The problem was not with the form, but with self-dealing management.’). 14 See Cooper (n. 9), 43–57 (discussing the findings of the Armstrong Committee, a committee created by the New York legislature to investigate the life insurance business, which led to legislation virtually banning tontine policies by forbidding insurance companies from deferring dividend payments beyond one year); Tom Baker and Peter Siegelman, Tontines for the Young Invincibles, (Winter 2009–2010) Regulation 20–26, 26 (describing anti-tontine regulations in New York and their effect on life and health insurance companies).

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1. Social security The United States established its Social Security program in 1935.15 Elderly Americans can generally count on Social Security benefits to cover at least a portion of their retirement income needs. For example, in January of 2017, Social Security paid retirement benefits to more than 41.3 million retired workers, and the average monthly benefit paid to a retired worker was 1,362.64 dollars.16 Another 2.2 million elderly Americans received means-tested Supplemental Security Income (SSI) benefits from the federal government, and the average monthly benefit was 438.26 dollars. 61% of elderly Americans receive at least half of their income from Social Security. 17 2. Annuities Like tontines, lifetime annuities offer a way to incorporate survivorship principles into a financial product. For example, for a 65-year-old man who purchased a 100,000 dollar immediate fixed (lifetime) annuity without inflation protection on 1 December 2016, the annual payment would be around 6,300 dollars (6.3% of the annuity’s purchase price).18 The market for annuities is well-developed in the United States, but the penetration rate is fairly low – annuities represented just 8% of retirement assets in 2015.19 When given the choice, people rarely choose to buy annuities voluntarily. 20

___________ 15

Social Security Act, Public Law No. 74-271. Social Security Administration, Monthly Statistical Snapshot (January 2017): https://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/2017-01.pdf. 17 Social Security Administration, Fast Facts & Figures About Social Security (August 2016): https://www.ssa.gov/policy/docs/chartbooks/fast_facts/2016/fast_facts16.pdf. 18 Immediate Annuities, Annuity Shopper (January 2017), 17 table 5 (6,300 dollars per year = 12 × an average payment of 525 dollars per month): https://www.immediateannui ties.com/annuity-shopper/as-archive.html. 19 The penetration rate can be estimated by dividing the Federal Reserve Board’s estimate of annuity reserves by its estimate of total retirement savings. For example, at the end of 2016, the Federal Reserve Board reported that at the end of the third quarter of 2016, there were 2.4 trillion dollars in annuities out of a total of 29.1 trillion dollars in household retirement assets, or approximately 8% (0.0825 = 2.4 trillion dollars/29.1 trillion dollars): Board of Governors of the Federal Reserve System, Financial Accounts of the United States: Flow of Funds, Balance Sheets, and Integrated Macroeconomic Accounts: Fourth Quarter 2016 (9 March 2017), table L.117: https://www.federalreserve.gov/releases/z1/20170305/z1.pdf. 20 See, e.g., Shlomo Benartzi, Alessandro Previtero and Richard H. Thaler, Annuitization Puzzles, (2011) 25 Journal of Economic Perspectives 143–164, 154–157 (discussing behavioural and institutional factors leading to the low demand for annuities). 16

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3. Defined benefit pension plans a) A brief history of retirement Since ancient times, there has always been a significant percentage of the population that lived into their 50s, 60s, and 70s, but there was no organized system of retirement.21 Instead, most people worked as long as they could; property ownership typically stayed with their parents until they died; and most ancient societies placed a high value on honouring and supporting one’s parents. Just as the ancients looked to their families for support in old age, today Americans look to institutions: employer-sponsored pension plans and government-sponsored Social Security. With the advent of the industrial revolution and urbanization, production shifted from the household level to larger and more efficient enterprises. At the same time, life expectancies increased dramatically, and an increasing number of workers lived into old age but were no longer valuable as industrial workers. In response, large employers and national governments created retirement programs, which defer income from working years to retirement years. The earliest programs were set up by large governments, followed by the railroads and public utilities, large manufacturers, and eventually the service sector. In the United States, for example, early pensions included military and civil service systems, and the American Express Company established the first formal private pension plan in 1875. By 1920, many major railroads, utilities, banks, and mining and manufacturing companies in the United States had established pensions, and in 1935 the United States established its Social Security program.22 After World War II, collective bargaining agreements greatly expanded the availability of employer-sponsored pension plans. The Welfare and Pension Plans Disclosure Act of 1958 laid the foundation for the regulatory and disclosure system that governs employer-sponsored plans today.23 Finally, after almost a decade of wrangling, Congress enacted the Employee Retirement Income Security Act of 1974 (ERISA).24 ERISA protects the pension benefits of most ___________ 21

This section follows Jonathan Barry Forman, Pensions & Retirement, in: Kenneth G. Dau-Schmidt et al. (eds.), Labor and Employment Law and Economics (2009), 539– 581, 539–540. 22 Social Security Act, Public Law No. 74-271. 23 Public Law No. 80-101. See also Welfare and Pension Disclosure Act Amendments of 1962, Public Law No. 87-420. 24 Public Law No. 93-406. See generally Staff of the Joint Committee on Taxation, Present Law And Background Relating To Tax-Favored Retirement Saving And Certain Related Legislative Proposals (2016): https://www.jct.gov/publica tions.html?func=download&id=4865&chk=4865&no_html=1.

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private-sector workers through sweeping vesting, funding, reporting, fiduciary, and disclosure rules on plans; and it established the Pension Benefit Guaranty Corporation (PBGC). More recently, the Pension Protection Act of 2006 tightened the funding rules for private pension plans, encouraged automatic enrolment in Internal Revenue Code Section 401(k) plans, and made it easier for 401(k) plan sponsors to provide investment advice to participants. 25 b) The rise and fall of defined benefit plans The United States has a ‘voluntary’ private pension system, and employers can decide whether and how to provide pension benefits for their employees.26 Overall, in March of 2017, 66% of private-sector workers in the United States had access to ERISA retirement plans, and 50% participated.27 Pension plans generally fall into two broad categories based on the nature of the benefits provided: defined benefit plans28 and defined contribution plans.29 The default benefit for defined benefit plans is a retirement income stream in the form of a lifetime annuity. 30 For example, a plan might provide that a ___________ 25

Public Law No. 109-280. See, e.g., Jonathan Barry Forman and George A. (Sandy) Mackenzie, The Cost of ‘Choice’ in a Voluntary Pension System, in: New York University Review of Employee Benefits & Executive Compensation (2013), 6-1–6-55, 6-4–6-5. 27 U.S. Department of Labor, Bureau of Labor Statistics, Employee Benefits in the United States – March 2017 (New Release No. USDL-17-1013, 21 July 2017), 6 table 1: https://www.bls.gov/news.release/archives/ebs2_07212017.pdf. 28 In a defined benefit plan, an employer promises employees a specific benefit at retirement: Staff of the Joint Committee on Taxation (n. 24), 10 f. To provide that benefit, the employer typically makes payments into a trust fund, contributed funds grow with investment returns, and eventually the employer withdraws funds from the trust fund to pay the promised benefits. Employer contributions are based on actuarial valuations, and the employer bears all of the investment risks and responsibilities. 29 Under a typical defined contribution plan, the employer simply withholds a specified percentage of the worker’s compensation, which it contributes to an individual investment account for the worker: Staff of the Joint Committee on Taxation (n. 24), 10. E.g, contributions might be set at 10% of annual compensation. Under such a plan, a worker who earned 50,000 dollars in a given year would have 5,000 dollars contributed to an individual investment account for her. Her benefit at retirement would be based on all such contributions plus investment earnings. 30 In the United States, defined benefit plans are generally designed to provide annuities, i.e., ‘definitely determinable benefits ... over a period of years, usually for life after retirement’. Treasury Regulation (Treas. Reg.) § 1.401-1(b)(1) (a/k/a 26 Code of Federal Regulations [C.F.R.] § 1.401-1(b)(1)). For married participants, defined benefit plans (and some defined contribution plans) are required to provide a qualified joint-and-survivor annuity (QJSA) as the normal benefit payment, unless the spouse consents to another form of distribution: ERISA § 205 (codified at Title 29 U.S. Code § 1055); Internal Revenue Code (I.R.C., a/k/a Title 26 of the U.S. Code [U.S.C.]) § 401(a)(11). A QJSA is an 26

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worker’s annual retirement benefit (B) is equal to 2% times the number of years of service (yos) times final average compensation (fac) (B = 2% × yos × fac). Under this traditional, final-average-pay formula, a worker who retired after 30 years of service with final average compensation of 50,000 dollars would receive a pension of 30,000 dollars a year for life (30,000 dollars = 2% × 30 yos × 50,000 dollars fac).31 Defined benefit pension plans operate a lot like tontines, as contributions are pooled and lifetime pensions are paid to those who survive until retirement and then for as long as they live in retirement. However, over the past few decades, there has been a major shift from traditional defined benefit plans to defined contribution plans.32 For example, just 20% of Fortune 500 companies offered salaried employees a defined benefit plan in 2015, down from 59% in 1998.33 4. Defined contribution plans Defined contribution plans generally do not operate like tontines. Unlike defined benefit plans, defined contribution plans usually make lump sum or periodic distributions to participants, rather than making regular distributions in the form of lifetime annuities. That is, rather than having participants pool their investments, each defined contribution plan participant has an individual account, and she is typically able to receive a lump sum distribution from her account. ___________ immediate annuity for the life of the pension plan participant and a survivor annuity for the life of the participant’s spouse. ERISA § 205(d)(1), 29 U.S.C. § 1055(d)(1); I.R.C. § 417(b). While many defined benefit plans allow for lump sum distributions, most retirees receive lifetime annuities. E.g., according to the U.S. Government Accountability Office, 67.8% of workers who left employment and retired with a defined benefit pension from 2000 through 2006 took the defined benefit plan annuity: U.S. Government Accountability Office, Retirement Income: Ensuring Income throughout Retirement Requires Difficult Choices (2011, GAO-11-400), 26, http://www.gao.gov/new.items/d11400.pdf. 31 Final average compensation is often computed by averaging the worker’s salary over the last three or five years prior to retirement. Alternatively, some plans use career-average compensation instead of final-average compensation. Under a career-average earnings formula, benefits are based on a percentage of an average of career earnings for every year of service by the employee. See, e.g., William J. Wiatrowski, The last private industry pension plans: a visual essay, (2012) 135 Monthly Labor Review 3–18, 13. 32 See, e.g., Staff of the Joint Committee on Taxation (n. 24), 54–57; William J. Wiatrowski, Changing Landscape of Employment-based Retirement Benefits, in: U.S. Bureau of Labor Statistics, Compensation and Working Conditions Online (29 September 2011): http://www.bls.gov/opub/mlr/cwc/changing-landscape-of-employment-based-re tirement-benefits.pdf; idem, (n. 31), 3. 33 Brendan McFarland, A Continuing Shift in Retirement Offerings in the Fortune 500, (2016) 26 Willis Towers Watson Insider: https://www.towerswatson.com/en-US/In sights/Newsletters/Americas/insider/2016/02/a-continuing-shift-in-retirement-offeringsin-the-fortune-500.

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More importantly, when she dies, the balance in her account goes to her designated beneficiaries rather than to bolster the lifetime pensions of surviving plan participants. To be sure, defined contribution plans can offer annuities. However, relatively few defined contribution plans even offer annuity options, and, in any event, relatively few participants elect those annuity options. 34 There are exceptions, like TIAA,35 which reports that around 75% of its beneficiaries receive annuity payments.36 Also, some public sector defined contribution plans allow their retirees to convert the balances in their individual accounts to annuities. 37

C. New possibilities for tontines in the western world Longevity risk – the risk of outliving one’s retirement savings – is probably the greatest risk facing current and future retirees.38 At present, for example, a 65-year-old man in the United States has a 50% chance of living to age 83 and a 20% chance of living to age 91, and a 65-year-old woman has a 50% chance of living to age 86 and a 20% chance of living to age 94.39 The joint life expectancy ___________ 34 In 2010, just 18% of private industry workers in defined contribution plans had annuities available to them: U.S. Bureau of Labor Statistics, National Compensation Survey: Health and Retirement Plan Provisions in Private Industry in the United States, 2010 (Bulletin 2770, 2011), table 21: http://www.bls.gov/ncs/ebs/detailedprovisions/2010/ebbl0047.pdf. 35 TIAA is a non-profit organization that serves not-for-profit employees, TIAA, Corporate governance & leadership: https://www.tiaa.org/public/about-tiaa/corporate-gover nance-leadership. 36 Josh B. McGee, Defined-Contribution Pensions Are Cost-Effective (Center for State and Local Leadership at the Manhattan Institute, Civic Report No. 100, August 2015), 13: https://www.manhattan-institute.org/download/6361/article.pdf. 37 See, e.g., Diane Oakley and Jennifer Erin Brown, Preserving Retirement Income Security for Public Sector Employees (National Institute on Retirement Security, July 2016), 14: http://www.nirsonline.org/storage/nirs/documents/Portability%20Report/preserving_security_ public_sector_web.pdf (noting that the Colorado Public Employees’ Retirement Association allows retirees to convert their defined contribution account balances into annuities ‘at the PERA assumed rate of return, which is less costly than purchasing an annuity from an insurance company’). 38 See, e.g., Youngkyun Park, Retirement Income Adequacy With Immediate and Longevity Annuities (Employee Benefit Research Institute, Issue Brief No. 357, 2011): http://www.ebri.org/pdf/briefspdf/EBRI_IB_05-2011_No357_Annuities.pdf; Diane Oakley, Retirement Security Risks: What Role Can Annuities Play in Easing Risks in Public Pension Plans? (National Institute on Retirement Security, Issue Brief, August 2015), 6 table 1: http://www.nirsonline.org/storage/nirs/documents/Annuities/annuities_ aug_2015.pdf. 39 Calculations from the Society of Actuaries, Life Expectancy Calculator: https://www.soa.org/Files/Xls/research-life-expect-calc.xls (based on the Social Security Administration’s 2010 mortality tables for the general U.S. population; an individual’s life expectancy is the average number of years until death).

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of a 65-year-old couple is even more remarkable: there is a 50% chance that at least one 65-year-old spouse will live to age 90 and a 30% chance that at least one will live to 94. In short, many individuals and couples will need to plan for the possibility of retirements that can last for 30 years or more. Consequently, the need for lifetime retirement income products to protect against longevity risk has never been greater. With the decline of defined benefit plans, new lifetime income products will need to be developed to take their place. In particular, defined contribution plan sponsors could be encouraged to offer more annuity options and encourage plan participants to elect those options. 40 In addition to promoting annuities, it could make sense to broaden the range of alternative lifetime income products. In particular, it could make sense to develop more low-fee, tontine-style products that pool risk among participants, as opposed to annuity products that require participants and investors to pay high premiums to compensate insurance companies for their guarantees and profits. I. Pooled annuities and similar financial products Pertinent here, TIAA’s College Retirement Equities Fund (CREF) has been offering a tontine-style product since 1952.41 Basically, CREF offers a variety of low-cost variable annuities that pool risk among participants. Participants choose among various investment funds; and later on, participants choose from among a variety of distribution options, including one-life and two-life annuities. When a retiree selects a lifetime annuity, the annuity payments depend on both the investment experience of the chosen funds and on the mortality experience of the other participants, but the way these annuities are designed, the mortality risk falls entirely on the annuitants and is not guaranteed by TIAA. While CREF annuities are generally available only to employees of non-profit organizations, similar variable-annuity products could be developed for the rest of the workforce.

___________ 40

See, e.g., Jonathan Barry Forman, Removing the Legal Impediments to Offering Lifetime Annuities in Pension Plans, (2016) 22 Connecticut Insurance Law Journal 31–141. 41 TIAA (n. 35); Forman and Sabin (n. 1), 798; James M. Poterba and Mark Warshawsky, The Costs of Annuitizing Retirement Payouts from Individual Accounts, in: John B. Shoven (ed.), Administrative Aspects of Investment-Based Social Security Reform (2000), 173– 206, 191–198 (discussing the history and development of individual annuities offered by TIAA); Roman L. Weil and Lawrence Fisher, TIAA/CREF: Who Gets What? An Analysis of Wealth Transfers in a Variable Annuity, (1974) 47 Journal of Business 67–87. See, e.g., TIAA Global Asset Management, College Retirement Equities Fund (Prospectus 1 May 2017), 26: https://www.tiaa.org/public/pdf/cref_prospectus.pdf.

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There are many other ideas for lifetime income products that could share longevity risk among participants. 42 For example, so-called ‘defined-ambition plans’ – like those in operation in the Netherlands – offer a way to share risk among plan participants.43 Also, so-called ‘variable annuity pension plans’ are

___________ 42 See, e.g., Catherine Donnelly, Actuarial Fairness and Solidarity in Pooled Annuity Funds, (2015) 45 Astin Bulletin 49–74; Catherine Donnelly, Montserrat Guillén and Jens Perch Nielsen, Bringing cost transparency to the life annuity market, (2014) 56 Insurance: Mathematics and Economics 14–27; Raimond Maurer, Olivia S. Mitchell, Ralph Rogalla and Vasily Kartashov, Lifecycle Portfolio Choice with Stochastic and Systematic Longevity Risk, and Variable Investment-Linked Deferred Annuities, (2013) 80 Journal of Risk and Insurance 649–676; Raimond Maurer, Ralph Rogalla and Ivonne Siegelin, Participating Payout Life Annuities: Lessons from Germany, (2013) 43 Astin Bulletin 159–187 (noting that participating life annuities can offer guaranteed minimum benefits for life and an additional non-guaranteed surplus based on investment return, mortality, and costs); Catherine Donnelly, Montserrat Guillén and Jens Perch Nielsen, Exchanging uncertain mortality for a cost, (2013) 52 Insurance: Mathematics and Economics 65–76; Chao Qiao and Michael Sherris, Managing Systematic Mortality Risk With Group Self-Pooling and Annuitization Schemes, (2013) 80 Journal of Risk and Insurance 949–974; Robert L. Brown and Tyler Meredith, Pooled Target-Benefit Pension Plans (Institute for Research on Public Policy, Study No. 27, March 2012): http://irpp.org/wp-content/uploads/as sets/research/faces-of-aging/new-research-article-2/IRPP-Study-no27.pdf; Andreas Richter and Frederik Weber, Mortality-Indexed Annuities: Managing Longevity Risk via Product Design, (2011) 15 North American Actuarial Journal 212–236; Michel Denuit, Steven Haberman and Arthur Renshaw, Longevity-Indexed Life Annuities, (2012) 15 North American Actuarial Journal 97–111; Roberto Rocha and Dimitri Vittas, Designing the Payout Phase of Pension Systems: Policy Issues, Constraints and Options (World Bank, Policy Research Working Paper No. WPS5289, 2010): http://wwwwds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2010/05/04/000158349_2010 0504092303/Rendered/PDF/WPS5289.pdf; Justin van de Ven and Martin Weale, Risk and Mortality-adjusted annuities (National Institute Discussion Paper No. 322, 29 August 2008), http://www.niesr.ac.uk/sites/default/files/publications/DP322_2008.pdf (explaining how pooled annuities can be used to transfer aggregate mortality risk from the seller of the annuities to the annuitants); Michael Z. Stamos, Optimal consumption and portfolio choice for pooled annuity funds, (2008) 43 Insurance: Mathematics and Economics 56– 68; John Piggott, Emiliano A. Valdez and Bettina Detzel, The Simple Analytics of a Pooled Annuity Fund, (2005) 72 Journal of Risk and Insurance 497–520. 43 See, e.g., Niels Kortleve, The ‘Defined Ambition’ Pension Plan: A Dutch Interpretation, (2013) 6 Rotman International Journal of Pension Management 6–11; Bart van Riel and Eduard Ponds, Sharing Risk: The Netherlands’ New Approach to Pensions (Boston College Center for Retirement Research, Issue in Brief No. 7-5, 2007): http://crr.bc.edu/wp-content/uploads/2007/04/ib_2007-5-508.pdf; A. Lans Bovenberg, Roel Mehlkopf and Theo Nijman, The Promise of Defined Ambition Plans: Lessons for the United States, in: Olivia S. Mitchell and Richard C. Shea (eds.), Reimagining Pensions: The Next 40 Years (2016), 215–246; John A. Turner, Hybrid Pensions: Risk Sharing Arrangements for Pension Plan Sponsors and Participants (February 2014): https://www.soa.org/files/research/projects/research-2014-hybrid-risk-sharing.pdf; Martin Bauer, Enhanced Risk Sharing Savings Accounts, in: Society of Actuaries, Diverse Risks: 2016 Call for Essays (April 2016), 31–34.

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another tontine-style product that could help promote retirement income security.44 II. True tontines Moreover, workers and retirees could pool risk with true tontine annuities, tontine pensions, and survivor funds. 1. Tontine annuities In a tontine annuity, mortality-gains would not be paid out immediately when other members die.45 Instead, mortality-gains would be accrued within the individual accounts of the surviving members. If a member is alive at the end of the month, she would be paid the accrued mortality-gains in her account as a monthly mortality-gain distribution. If she is not alive at the end of the month, she would receive nothing, as the balance in her account, including any mortality-gains that accrued that month, will have been distributed to surviving members when she died during the month. Thus, a member would receive payments on a monthly schedule just as she would if she had instead purchased a variable annuity from an insurance company. In addition to receiving a monthly mortality-gain distribution, each surviving member would also receive a portion of her original contribution at the end of each month that she is alive. The resulting tontine annuities could be designed to have monthly benefits that are level throughout retirement (like an immediate, level-payment annuity), or alternatively, that increase gradually throughout retirement (like an immediate, inflation-adjusted annuity). In theory, a tontine annuity could be managed by a discount broker, and no money would have to be set aside for insurance agent commissions or insurance company reserves, risk-taking, or profits. Moreover, unlike traditional tontines, tontine annuities would solicit new investors to replace those that have died. Structured in this way, a tontine annuity could operate in perpetuity. ___________ 44

Grant Camp, Kelly S. Coffing and Ladd E. Preppernau, Making the case for Milliman Sustainable Income Plans (SIPs) (7 October 2014): http://www.milliman.com/tran sition-vapp-design/ (‘A VAPP is a defined benefit (DB) pension plan where the benefits adjust each year based on the return of the plan’s assets, resulting in stable funding requirements.’). See also William Most and Zorast Wadia, Longevity Plans: An Answer to the Decline of the Defined Benefit Plan, (2015) 28 Benefits Law Journal 23–28 (suggesting that ERISA be modified to permit employers to offer longevity plans – supplemental defined benefit plans where participation begins at age 45 or later and benefits commence at age 75 or later). 45 This section follows Forman and Sabin (n. 1), 790–801.

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2. Tontine pensions While tontine annuities would be attractive investments in their own right, they are likely to be as underutilized as traditional annuities and other lifetime income products.46 Individual investors generally underestimate their life expectancies and shy away from annuities and other lifetime income products. That is where tontine pensions could be beneficial. In effect, a tontine pension would be like a defined contribution plan that only pays benefits in the form of an actuarially-fair life annuity. At retirement, the balance in each participant’s tontine pension account would be paid out to her in the same manner as if she had purchased her own tontine annuity with the employer contributions made on her behalf. For example, an employer that wanted to provide a tontine pension for its employees would set up a defined-contribution-style pension plan, only instead of investing its contributions in stocks and bonds, the employer would invest in a tontine annuity for its employees. Each year, an employer could make contributions of, perhaps, 10% of its employees’ salaries. Those contributions would be invested in a tontine annuity and allocated to the individual tontine pension accounts of the participants. The difference is largely in the payouts. Rather than being able to receive lump sum distributions (or periodic payments), each tontine pension plan participant would receive benefits based on the tontine principle. That is, the employer contributions for each participant, and the investment earnings on those contributions, would be held in a tontine annuity, and these ‘monthly tontine-pension distributions’ would be the only kind of distributions made to retirees. 3. Survivor funds Survivor funds would work like short-term tontines.47 Basically, survivor funds are short-term investment funds that would pay more to those investors who live until the end of the fund’s term than to those who die before then. For example, instead of just investing in a 10-year zero coupon bond and dividing the proceeds among the investors at the end of the bond term, a survivor fund would invest in that 10-year zero coupon bond but divide the proceeds only among those who survived the full ten years. For example, imagine that ten 65-year-old male participants each invest 8,000 dollars in a pool that buys 10-year U.S. Treasury bonds. At the current Treasury ___________ 46 47

This section follows Forman and Sabin (n. 1), 802–804. This section follows Forman and Sabin (n. 5).

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interest rate, that 80,000 dollar investment would return about 100,000 dollars in ten years, and each participant – or the heirs – will get 10,000 dollars, reflecting a pitiful 2.3% yield. But what if we instead divided that 100,000 dollars only among the participants who survived ten years to reach age 75? Say eight of our ten participants lived to 75. With a survivor fund, those eight survivors would divide the 100,000 dollars, and the two participants who died would get nothing. In short, in ten years, each of the eight survivors would get 12,500 dollars on an 8,000 dollars investment, which works out to be a 4.6% return, double the meagre 2.3% return on the underlying bond.48 Survivor funds would be attractive investments because the survivors would get a greater return on their investments, while the decedents, for obvious reasons, would not care. And even if no other investors die during the term of the fund, the survivors would never get less than the return on the underlying investment. Administrative fees would be low, and the returns for survivors would be high; and that would deliver exactly what today’s retirees want.

D. Conclusion Tontines were popular in the United States in the latter part of the 19th century, but they have since disappeared. To a certain extent, lifetime annuities and traditional defined benefit pension plans took the place of tontines. Unfortunately, traditional pensions have also all but disappeared, and annuities have never really been very popular. At the same time, with increasing longevity, there is an even greater need for low-cost lifetime income products, and the authors believe that new low-cost, tontine-style products will soon find popularity where high-premium retail annuities have not.

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Moreover, the returns could be even higher when a survivor fund invests in stocks instead of bonds. For example, if our hypothetical survivor fund had instead invested in a Standard & Poor’s 500 index-fund that earned say 7%, the survivors would get 9.4%. If that S&P 500 index-fund earned 10%, the survivors would get 12.5%.

Chapter 21: Tontines and other Forms of Rotating Credit Associations in Africa By Salvatore Mancuso A. The informal sector and the law in Africa .............................................................. 343 B. Informal finance ..................................................................................................... 345 C. Tontines in Africa ................................................................................................... 347 I. Mutual tontines (tontines mutuelles) ............................................................... 348 II. Commercial tontines (tontines commerciales) ................................................ 351 III. Relationship between the two main forms of tontines..................................... 354 D. Some other forms of rotating credit associations in Africa ..................................... 357 E. Conclusion .............................................................................................................. 363

A. The informal sector and the law The informal sector in Africa is fluid and usually resists a stable categorization. To a lawyer, who is always seeking a taxonomical approach, the exercise is complicated even further by the fact that the informal sector tends to avoid formalization and operate in a quasi-legal or, even more, an extra-legal environment. A definition that captures its main characteristics identifies the informal sector as the ‘… semi-organised and unregulated activities largely undertaken by self-employed persons in the open markets, in market stalls, in undeveloped plots of street pavements within urban centres. They may or may not have licenses from local authorities for carrying out such activities.’1 Thus, the informal sector includes activities usually, but not exclusively, conducted in open or temporary structures both in urban and rural areas. The size of businesses is extremely small, with extremely low capital involved, without bookkeeping, and without, or with an extremely low number of, employees.2 Therefore, the informal sector embraces the part of the economy which is not documented for purposes of the official calculation of gross domestic product (GDP).3 ___________ 1 Central Bureau of Statistics of Kenya, cited in Kivutha Kibwana, Critical aspects regarding the legal regulation of the informal sector, (1989) 5 Lesotho Law Journal 357–387, 362. 2 Kibwana (n. 1), 361, 363. 3 Friedrich Schneider, Size and Measurement of the Informal Economy in 110 Countries around the World, Discussion Paper Australian National Tax Centre (2002).

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Academic literature has recognized that the informal sector suffers from a negative public image, even if it has many positive characteristics and has a vital role in contributing to the economic growth of the African continent. Informal sector activities require little capital to create jobs, work essentially on family savings, are a fundamental source of new jobs for the increasing labour force in Africa, and are the main business activities in town markets and small urban centres.4 In general, the dynamism of the informal sector in creating employment and added value is particularly strong, representing about 80% of the total labour force5 and amounting to 55% of sub-Saharan Africa’s GDP.6 The informal sector tends to escape the rigidity of legal regulation, and informal entrepreneurs do not pursue registration pursuant to the relevant laws. The existence of a gap between the ‘official’ and the ‘unofficial’ law has now been recognized, and it is striking that it is the ‘official’ law that tends to be adapted to the informal reality. The Organisation pour l’harmonisation en Afrique du droit des affaires (OHADA) introduced the concept entreprenant into the new edition of the Uniform Act on Commercial Law. It is expected that this concept will ensure that entrepreneurs of the informal sector fall within the scope of application of the act and that, thereby, the ‘official’ law will gain recognition in informal commerce.7 OHADA’s attempt to take notice of informal commerce is surely praiseworthy, but the unavoidable vagueness of the rules provided clearly shows how difficult it is for the law to deal with the flexible and ‘slippery’ institutions of the informal sector. Due to their small size, businesses of the informal sector cannot access formal channels to obtain credit when they need it, since credit institutions are unlikely to have relations with unregistered businesses. Therefore, most of these businesses rely on family savings or other sources of financing. The formal legal sector is not helping in this respect. The OHADA Uniform Act on Securities, for example, identifies mortgages as the only available security in connection with ___________ 4 Republic of Kenya, National Assembly, Sessional Paper No. 1: Economic Management for Renewed Growth (1986), 54. 5 The International Labour Organization reported that, depending on the country, in sub-Saharan Africa the informal sector employed between 39% and 71% of all non-agricultural workers: International Labour Organisation, Women and Men in the Informal Economy: a Statistical Picture (2nd edn., 2013). 6 African Development Bank, Recognizing Africa’s Informal Sector (2013). 7 See Art. 30 of the revised OHADA Uniform Act on General Commercial Law. On the ‘entreprenant’ see Sylvain Sorel Kuate Tameghe, Entreprenant, in: Paul-Gérard Pougoué (ed.), Encyclopédie du droit OHADA (2011); Joseph Issa-Sayegh, L’entreprenant, un nouvel acteur économique en droit OHADA: ambiguïtés et ambivalence, (2012) 878 Revue Penant 5; Paul-Gérard Pougoué, L’entreprenant OHADA (2013); Salvatore Mancuso, Analyse historique et comparée de la figure de l’entreprenant en droit OHADA, in: Justine Diffo Tchunkam (ed.), L’OHADA au service de l’économie et de l’entreprise (2014), 178–187.

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immovable property, but a survey on land in the 17 OHADA member countries showed that less than 5% of the land is registered,8 rendering therefore mortgages substantially impracticable and consequently pushing those in need of money to find alternative sources. Situations like this make access to credit extremely difficult (if not impossible) and can cause a high number of insolvencies in the informal sector; therefore, informal entrepreneurs resort to informal finance and access alternative sources of credit. Of course, assuming the existence of a specific informal sector inevitably means simplifying reality. It is well known how the boundaries between the formal and the informal sectors are extremely flexible and even porous. Many informal sector actors operate also in the formal sector at the same time, often even at different levels of the same chain. Thus, reference to the informal sector as some kind of monolithic reality has to be made merely to facilitate discussion.9

B. Informal finance Informal finance10 can be defined as the set of those original mechanisms that allow the circulation of money in exchange for a temporary accumulation of credits and debts.11 Therefore, informal finance includes all those unofficial mechanisms that enable temporary circulation of credits and debts.12 The notion of informal finance thus makes reference to the informal ways of financing – including those of borrowing, loans, or the building up of savings – which take place outside of official circuits.13 This understanding represents an operational approach to the phenomenon, while the notion of the informal financial sector as including all the unofficial institutions granting loans to those left out by the formal financial sector represents a more institutional approach to the ___________ 8 Paul Dima Ehongo, L’intégration juridique du droit des affaires en Afrique: les pièges d’un droit uniforme et hégémonique dans le droit de l’OHADA, in: Étienne Le Roy (ed.), Juridicités: témoignages réunis à l’occasion du quarantième anniversaire du LAJP (2006), 137. 9 Claire Moore Dickerson, OHADA’s Proposed Uniform Act on Contract Law. Formal Law for the Informal Sector, (2011) 13 European Journal of Law Reform 462–478. 10 Literature on the informal financial sector is extremely vast and includes studies ranging from legal to economic and sociological studies. Here I am providing a circumscribed amount of general information as necessary to frame the institution of tontines in the more general ambit of informal finance. 11 Michel Lelart, Les circuits parallèles de financement: l’état de la question, in: Georges Henault and R. M’Rabet (eds.), Communication avec Actes aux Journées Scientifiques du Réseau Entrepreneuriat de l’UREF (1990), 45–63, 50. 12 Célestin Mayoukou, Le système des tontines en Afrique. Un système bancaire informel (1994), 21. 13 Mohamed El Abdaimi, La finance informelle au Maroc (1991), 158.

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same phenomenon.14 Informal finance becomes therefore a broad concept that encompasses that wide range of financial activities and services that take place beyond the scope of a country’s formalized financial institutions and that are not subject to financial sector regulations. Informal finance is common in both urban and rural contexts and normally relies on personal relationships and socio-economic proximity. In contrast to formal finance, most informal providers focus on one service rather than offering a bundle of services. The existence and role played by informal financial systems, especially in developing economies, has been generally recognized. Informal financial institutions are considered those playing a role complementary to the formal financial system by servicing the lower end of the market. With informal financial institutions reference is made to loans from moneylenders, landlords, and families who base the financial transaction on business or personal relationships, as well as loans from institutions such as credit cooperatives and savings and credit associations that provide financial intermediation between savers and borrowers but do not rely on the state to enforce contractual legal obligations. They consist of small, unsecured, short-term loans restricted to rural areas, agricultural contracts, households, individuals, or small entrepreneurial ventures. These loans rely on relationships and reputation, and as such lenders can more efficiently monitor and enforce repayment than commercial banks and other formal financial institutions.15 The informal financial system has experienced a stunning development in Africa due to the operation of different factors, namely the rigidity of the formal banking system and its inability to adapt itself to the population’s needs. The official financial system has been unable to adapt financing channels to the African reality so as to reach the informal sector and – more in general – most of the people. Actors in the informal sector rarely have collateral acceptable to banks: their creditworthiness resides in their human capital, which is difficult for formal intermediaries to consider. Often the cost to formal institutions of opening branches in villages and small towns is not justified by the business that can be generated. The informal financial system is in these cases the only accessible option, as it plays a role supplementary to that of the formal financial system. Informal financial arrangements reduce transaction costs and risk using instruments not available to formal institutions. Those running informal financial activities can operate out of their own homes or on the street, maintain only the simplest accounts, and mix finances with other business. Freedom from oversight ___________ 14

Mayoukou, (n. 12), 22 ff. Meghana Ayyagari, Asli Demirguc-Kunt and Vojislav Maksimovic, Formal versus Informal Finance: Evidence from China, (2010) 23/8 Review of Financial Studies 3048– 3097, 3048 ff. 15

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by the official financial authorities allows informal finance greater flexibility. However, such freedom also does not allow the use of many of the legal remedies available to formal intermediaries. Unlike formal legal mechanisms, informal finance relies on the knowledge of one another and on local sanctions to reduce the risk of lending. Social standing, personal reputation, and the ability to obtain future financial services are often at stake in the market for informal financial services, and these sanctions show themselves as effective. All the above are the reasons why African savings frequently do not adopt the forms normally used in the Western world, but rather follow mainly informal channels. Tontines can perhaps be considered as the most representative example, and definitely the most known and researched.

C. Tontines in Africa The word tontine identifies a phenomenon based on exchange and solidarity that takes place in West Africa and in French-speaking African countries in particular. In practice countless different variations of the original concept of tontines in Africa have developed, but they all present some essential elements, namely a number of participants, periodicity, and the contribution. They operate in a standard way of paying fixed sums at regular intervals; members in turn withdraw money from the raised capital. The pressure created by the other members, whose ties may be multiple (inhabitants of the same neighbourhood, inhabitants having the same sex or age, family relations, or individuals belonging to the same ethnic group), ensures the participation of each member. Each group also has a leader or a recognized organizer of the tontine. As far as participation in terms of membership is concerned, there is no ‘ideal’ size: it varies according to the task and character of its members or group leaders, but also by gender or age. The tontines, as a group of people, do not fall under the application of the official law as they are not based on any contract: these associations have no legal status, and in the event of conflict everything is settled amicably among the members, otherwise reference is made to rules of informal law.16 In most of the sub-Saharan African countries we find, indeed, different financial instruments under the same name. Some, which are the most widespread and original, are linked with a group of people with close relations where the money circulates; while the others are closer to the Western banking practices, being more oriented on the accumulation of money.17 Therefore, all these variations ___________ 16 Augustin Ependa, Typologie et aspects organisationnels des tontines dans le contexte d’une économie sociale informelle à Kinshasa (2002). 17 Michel Lelart, L’épargne informelle en Afrique. Les tontines béninoises, (1989) 30/118 Revue Tiers-Monde 271–298, 272.

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(that often also have other names in the local languages) can, in any case, be grouped around two main types of tontines: mutual tontines and commercial (or banking) tontines. I. Mutual tontines (tontines mutuelles) Mutual tontines can be identified in those rotating savings funds where the fundraisers work to benefit each of the members in a predetermined, but revisable, order: everyone can loan, borrow, and replace a credit with a debit, and these operations do not involve the payment of any interest. They can have a person managing the tontine or not. In its simplest form the mutual tontine is an institution where a certain number of people pay a given contribution at a fixed date (called periodicity) in a way that an amount equal to the sum of all contributions is available at each periodicity to be collected by each member according to the pre-determined order of distribution.18 Thus, the mutual tontine can be defined as an association of people (called tontiniers) who meet at regular intervals and each pay a contribution whose total is given to each member in turn.19 When each tontinier has collected a sum of the contributions once, the tontine ends its cycle; the cyclic flux is then the sum of all individual withdrawals. If the tontine restarts again after the end of each cycle it is possible to identify a number of cyclic fluxes. The mutual aspect, as said, rests on the fact this type of tontine is a technique to collect savings that is strongly based on the close personal relations existing among the participants.20 This form of tontine favours savings, since regularity of contributions is considered by each member as an extremely strong obligation that is necessarily to be fulfilled.21 It also adapts credit to the needs of the participants: the order of withdrawals is often determined by consensus, and the member who is most in need will be the one authorized to withdraw the funds, with a decision taken directly by the same members, the chair of the group, or the management committee. The order of withdrawals can also be determined by lot, but the beneficiary can always pass its turn to another member for free, with the agreement that ___________ 18

Lelart (n. 17), 274. Christian E. Rietsch, La modernité chez le tontineur à Niamey, (1992) 5/3-4 Revue internationale P.M.E. 117–139, 119. 20 Mayoukou (n. 12), 32. 21 K.G. Gbogblenou, La tontine en République populaire du Bénin – Adaptation des garanties bancaires pour la protection des participants, in: Mémoire Faculté des Sciences Juridiques, Économiques et Politiques, Université Nationale du Bénin (1983), 37 (as cited in Lelart (n. 17), 275 n. 13), points out that in the countryside, where people know each other very well, the worst misfortunes can transpire to a non-paying member. 19

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the same favour will be rendered in a future tontine in exchange for a compensation whose amount is agreed by the parties involved or fixed in advance; two members having the same need of money can share the available funds, and they will do the same subsequently.22 The continuous payment of the contributions during the cyclic flux coupled with the withdrawals occurring at the same time results in a continuous change in the position of each member within the tontine, this person being a creditor until he withdraws the contributions and thereafter becoming a debtor up to the end of the cycle. When serious difficulties linked to an unforeseen event arise, a member may receive supplementary aid financed by the tontine funds or through a special payment made by each member. In this case some of the members receive more than what they have paid and others less, and the equilibrium of the tontine is broken since some members receive more money more quickly without being necessarily asked to reimburse more than the normal contributions. Obviously, this different form of support goes beyond the normal rotation of the funds during the cycle – which is the main characteristic of the tontine – but it pairs with the social dimension of this financial instrument that is its main feature.23 Here the financial flexibility of the mutual tontine serves its social dimension. Savings is a general need, and in Africa this need is felt collectively since traditionally surviving is possible only within a group. This explains why efforts aimed at saving have more sense within the relationship that a member has with the other members of the group rather than as an isolated effort. This is the reason why the social dimension of the tontine is based on the personal relations linking the participants. When the tontine is created all members will already know each other, as they belong to the same social environment or have links by friendship, family, clan, tribe, village, activity, or religion; subsequent decisions to accept new members depend on their reputation or solvency. The members determine the rules of the association, choose a manager and, depending on the number of members, a deputy manager, a secretary, and a treasurer;24 in the event of non-fulfilment of the obligations by one of the members, the other members determine the sanction or refer to the village or community chief, if necessary.25

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Lelart (n. 17), 276. Lelart (n. 17), 277. 24 Normally the members appoint the elders, those having more wisdom, or those in whom they have more trust. 25 Lelart (n. 17), 278. 23

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The mutual tontine is the instrument most used by women in Africa for the administration of their finances and the family budget. Tontines constitute for women spaces for expression, exchange of experiences, and mutual socialization which would be distorted by the participation of men who embody a certain authority and a certain influence over women. It might happen that some men participate indirectly in the mutual tontines of neighbourhoods through a wife, a sister, a cousin or a friend. Here women are intermediaries who allow for the indirect participation of men in the mutual tontines: in this case, the intermediate woman receives the periodic contributions from the man and gives him the amount of the withdrawal when it comes his turn to dispose over it. She can request a financial commission for the intermediary role. Such form of indirect participation of men in mutual tontines does not hinder women, especially since it is done without the knowledge of the other members, and men are not allowed to attend the periodic meetings.26 Members meet every time a contribution is due and give the money to the member who is entitled to receive all the contributions at that time. Meetings can be held where the manager lives, but normally they are held each time at the place where each member lives, since knowing where members live is of great importance for the tontiniers. These meetings are very important for the members since they represent not only the opportunity to spend some time together, but also to exchange information, talk about their respective businesses, projects, or problems; the youngest have here the opportunity to obtain the advice of the oldest, and the newest in the group can also seek assistance. These meetings are also useful for settling any disputes and maintaining the agreement within the group; when women form the tontine, all members should be party to any lucky or unlucky event affecting one of them. The final meeting of the cycle is normally the opportunity for a feast,27 since the end of a tontine is normally the beginning of a new one, and on this occasion the members agree on the terms according to which the group will continue to operate.28 The centrality of the personal relations gives the tontine great flexibility. The principle is always the same, but the arrangements can be countless since there is no pre-determined model. The number of members is extremely variable; contributions can be made at any fixed deadline (daily, weekly, monthly, etc.) or linked to the market cycles. The duration can go from a few days to some years, and a tontine can end at the expiration date or be renewed with the same members or with new ones. Tontines can be used to satisfy the most different range of ___________ 26

Abdoulaye Kane, Tontines, casses de solidarité et banquiers ambulants (2010), 67. This happens especially when the association has been made in preparation for a ceremony and local traditions lead people to seek prestige by making ostentatious expenditures. 28 Lelart (n. 17), 278; Ependa (n. 16), 11. 27

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needs. The rules are normally established verbally, but they can be written if the tontine is of great dimension.29 Such great flexibility is accompanied by a great simplicity in the management: no human resources or fixed place is necessary since the tontine is strictly linked with the daily life of its members, and their actions as tontiniers are part of their daily activities. Issues are resolved within the organization, the main being the non-fulfilment of the obligations by a member, for which sanctions may be very different. These mutual tontines that have been discussed thus far are so-called monetary tontines (tontines d’argent). Using an approach that focuses on the mutuality of this form more than on the money that is involved, some scholars include within such form of tontines also what they call labour tontines (tontines de travail), therefore not considering the involvement of money as a fundamental aspect of the tontines.30 Labour tontines were developed in the ancient rural societies where members of the community used to group and work on a rotating basis in each of the fields of the members.31 These forms of reciprocal work were in most cases organized by the chief of the village or of the group. Other forms of tontines involving working activities have been identified as workforce tontines (tontines de force de travail), where some people group together to offer their working services in exchange for remuneration: the earnings of the working activities are distributed among the tontine members or are placed in a common fund for a later distribution at a previously agreed deadline.32 II. Commercial tontines (tontines commerciales) Commercial tontines can be considered as an individual savings fund managed by a manager – also called a tontinier – who receives contributions from clients and who may allow withdrawals within the limits of the contributions made. Such tontines appeared at a relatively later date when money had begun to circulate through local societies. The procedure is once again very simple. A person well known in the market or his neighbourhood who has time available every day decides to become a tontinier. He proposes to the people he knows well to entrust him with an amount ___________ 29

Lelart (n. 17), 279. See, e.g., Mayoukou (n. 12), 24. 31 Lelart (n. 17) considers such form of a working tontine as the one from which the present mutual tontine developed. 32 Mayoukou (n. 12), 24. 30

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of money on given dates, and he undertakes to reimburse each of them at a deadline fixed in advance; he delivers to each client a card with the tontinier’s name (sometimes with an address and photo) and a quantity of numbered boxes. The initiator also has a notebook: each page of this booklet contains an individual record on which he will register all the transactions and contact details of each of his clients. Every day the tontinier goes around his neighbourhoods or in the market, and every time a client contributes he ticks a box on the client’s card. Additionally, the client must not lose or falsify the card, as it is proof of deposit; in the event of a permanent loss of the card reference is made to the manager’s notebook. After the last contribution, the tontinier repays to the client the sum of the contributions received less one, which represents the remuneration of his service.33 The fact that the tontinier on a number of given days goes around to collect the money from his clients is the reason why this form of tontine is named commercial. A tontinier can have a small or large number of clients, and in the latter case he seeks the help of a friend or a relative to collect the contributions and to keep an elementary accounting. Contributions can be always of the same amount or of different amounts. The duration can be extremely variable. Such great flexibility does not undermine the great difference of this form of tontine with the mutual tontine. There is no social dimension in the commercial tontine as there are no personal relations between the different clients, and this sort of tontine does not aim at solidarity; the clients of the tontinier do not necessarily know each other, there are no meetings, and where some of them know each other or meet regularly, this can derive from reasons not related to the tontine or from a simple coincidence. All clients know the tontinier since they give him their money; at the outset, they may know him by reputation, but they will not enter into ongoing business relations with him until they fully trust him. They can choose to inform him as to what they intend to do with their money and can direct him to assume a gatekeeper function and return the money only where it is to be used for such project; the client can also request the tontinier to show the money he owes so as to be assured that he has the necessary funds to reimburse the client.34 Whatever the level of trust the client has with the tontinier, he has a sense of being legally protected: the card he received which contains the tontinier’s name and on which the tontinier has annotated all contributions made by the client is a valid title that proves the credit and which can be used before the traditional authorities or the courts. In the event of a lack of repayment of the money by the tontinier, the fact that the money has been collected in the ambit ___________ 33 34

Lelart (n. 17), 281; Ependa (n. 16), 14 ff. (calling this form of tontine ‘à la carte’). Lelart (n. 17), 282.

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of a tontine can be considered an aggravating circumstance constituting breach of trust.35 Every time a contribution is made, the credit of the client and the debit of the tontinier increase according to a regular and already pre-determined timeline, at the end of which the accumulation of money ceases and the tontinier is to give back the money received,36 keeping the equivalent of one contribution for his service. The client can also choose to keep his card at the end of his contributions and recover the money later when he really needs it. Contributions can be made all at the same time in a single payment, they can be made regularly on the basis of a schedule which has been agreed between the client and the tontinier, or the client may make his contributions whenever he is in the position to do so. A client can pay nothing one day or make payments additional to his regular payment to make up for what he has not paid or so as to make advance payments. If it reflects the agreement with the tontinier, he can start and continue to contribute when he wants (or when he can), and in this case the tontine loses its regularity. In such a case the equilibrium between the funds collected and those reimbursed may be lost since the amount of money received by the tontinier has fluctuated continuously.37 A client may decide to stop his contributions before the expected end date and request reimbursement of what he contributed up to that time. The tontinier can accept the request and repay the client immediately, subject to the deduction of what is to be paid to him for the tontine services, or he can reject the request and pay back the money to the client only at the date previously agreed. The tontinier may also reimburse a client before the expected date up to the amount of the contributions he already received, and in this case he will write down on the card what he has repaid and he will reimburse him on the last day based on the other contributions subsequently received. The tontinier can agree to make prepayments based on his cash balance, which can reduce fluctuations, but he cannot keep clients always waiting or anticipate their needs.38 The tontinier does not accord credit since he reimburses only what he has received, and withdrawals cannot exceed the deposits: his role is to secure his clients’ money, and he himself may need to place such money in a safe place (bank, ___________ 35 O.A. Singbo and Y. Kpongnonhou, Contribution à la réglementation des opérations de tontine, in: Mémoire Faculté des Sciences Juridiques, Économiques et Politiques, Université Nationale du Bénin (1982), 26 ff. (cited in Lelart (n. 17), 283 n. 31). 36 A tontine may follow another that has just finished, but they are considered totally separate and no relation exists between them. 37 To reduce the risks connected to such fluctuation, sometimes the tontiniers may set up different tontines in different areas of the neighbourhoods or in different markets at the same time. 38 Lelart (n. 17), 284.

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post office, or similar).39 The remuneration kept by the tontinier – the equivalent of a single contribution or a percentage on the entire amount of the contributions made by each client – represents the payment for the service he renders to his clients, namely that of properly securing their money, and for the risk he consequently bears. All the above-mentioned features clearly emphasize the commercial character of this form of tontine, making it more similar to what we understand to be an official banking service.40 III. Relationship between the two main forms of tontines The differences between the two forms of tontines we have just examined are great, but at least on one point the differences are less detectable. In the commercial tontine, the money is used for trade when the tontinier operates in the market and his clients give him every evening the earnings of the day, but such money can also be used to finance capital expenditures related to work or family life, as well as consumer spending. On the other side, the funds raised by members of a mutual tontine are often intended for consumption, but they can help in the construction of the house or the extension of a small business. Accordingly, the distinction between the two main forms of tontines cannot be taken too far: the two forms have countless variations, and it is very easy to find mutual tontines having more financial aspects and commercial tontines including some aspects of the mutual ones.41 As we have seen, the mutual tontine is an association of people who know each other well. When there are many participants, one of them is designated as the manager; it also happens that the group does not appoint such manager, and in this case the manager is the one who took the initiative to organize the tontine and to renew it with the same people and often with others, and he will be the tontinier. Having the person who organizes the tontine as its manager goes clearly in the direction of the commercial tontine. Where women establish the tontine, the manager is named the tontiniere, and a deputy manager or a treasurer can assist her if necessary. The tontiniere gathers

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It may also happen, and the case is not uncommon, that the tontinier uses the money received from his customers in his own trade and finances in this way his business or that of his wife. But in any case, since he agreed to return the money received, he must keep it. 40 The tontinier is often called the banker of the poor (banquier du pauvre), and in some countries he is called a money-keeper (garde d’argent or garde-monnaie). 41 Lelart (n. 17), 288.

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women she knows well but who do not necessarily know each other,42 and she can accept new members presented by her friends. She determines the turns to accommodate the needs of each member, putting usually herself first, then the treasurer followed by her best friends; she puts the last arrived that are not fully known at the end, and can give a preferential place to those who in the previous tontine received their funds late. The tontiniere gets a small commission which reimburses her for the expenses incurred in maintaining accounts or for paying out a mandate sent by a member living elsewhere; each member who is reimbursed gives her a small sum that can be fixed in advance or left to her discretion.43 Here again the presence of elements typical of the commercial tontine is very clear. As stated, it easy to find a tontine managed by an organizer (man or woman). In this case it is no longer a group of people who know each other, who will meet regularly, and who will save together to benefit each other for a while. It is instead a number of people who are familiar with the tontinier or the tontiniere and who are willing to be part of the tontine to avoid spending their money too quickly. The higher the number of the members, the longer the tontine should generally last, as the number of rounds is equal to the number of participants. But since the social dimension in this case is no longer central, it is possible to increase the number of participants without increasing the number of turns, and several participants can be reimbursed at the same time at each turn. In this case each round can form a separate group or tontine, each with its own manager. The modalities can be countless: when the number of the participants increases, the managers of each group can meet regularly both to divide the turns and to discuss any problems that may arise. It is also possible to have a waiting list including those people willing to get in but who cannot do it since the minimum number necessary to add a further round has not yet been reached.44 A variation of this model is the Congolese likelemba, where a person can hold more than one share. Meetings are not necessary, except at the end of a cycle when members meet to celebrate their success, if any. It is only one person who assumes all functions: so the person in charge of a likelemba collects the funds ___________ 42 She may take her colleagues at work, neighbours from her area of residence, her own friends, sisters, or nieces, or other people she knows well. 43 Lelart (n. 17), 289. 44 Lelart (n. 17), 290. These are only a couple of examples showing how the mutual tontine approximates the commercial one. Lelart (n. 17), 291, discusses other examples: that of a tontine in which the first payment is not immediately redistributed but used to create a fund that the manager can use and which must be replenished before the last round so as to allow the last member to receive the same amount of money as the others; that of a tontine in which each participant, when his turn comes, withdraws half or three quarters of the available funds, the remainder being left in the hands of the manager, with the balance at the end being redistributed equally among all members.

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and then, after individual consultations, sets a schedule detailing the withdrawals and the amounts deposited and the members will collect their money from him.45 The mutual tontine proceeds are used first to meet the expenses necessary for the organization of the periodic meetings, especially the last that is usually a festive event. The cost of management is largely a social cost. The same proceeds also help some members who encounter unforeseen personal problems or who are in need of money to finance purchases or to grow their business. Upon agreement of the participants, it also may happen that the same proceeds, as well as the contributions of the participants, are distributed (i.e. lent) not only to members but also to people who are not members of the group, with an interest rate being fixed in advance and remaining unvaried up to the end. Although the financial aspect becomes important, mutual tontines remain an institution made by people who pay their contributions regularly for a pre-determined period.46 Another form of tontine creates the possibility to combine credit and savings. This is what has been termed a financial tontine, which represents a variety featuring elements of both commercial and mutual tontines. Here the same participants can also loan the funds paid by the participants, either at a fixed rate that is still lower than for loans taken outside of the group, or at a rate that varies at every turn as the money is auctioned and given to the one that makes the highest bid. Such bid represents the interest offered to dispose over the other participants’ money during the remaining time: the fee paid decreases as time passes, since the term of the loan is shorter and competition is less fierce.47 This interest can be subsequently allocated in different ways. At each turn, when exceeding the value of a set of contributions, it can be lent, at a fixed rate or as determined through a new auction; while if it is below such a threshold, it is retained until the next turn and added to contributions paid by each participant. This interest can also be kept to increase the funds, and at the end of the tontine it can be divided equally between members, regardless of their position in the cycle or taking into account the average debt of each: several calculation methods, even extremely complex ones, are possible.48 The interest can also be used to start a new tontine. Here, the amount is only partially distributed among the members, and the balance is retained to initiate the next tontine. Members leaving the group are reimbursed for their part; entering members are requested to pay an ‘entrance fee’ of the same amount.49 ___________ 45

Ependa (n. 16), 19. Lelart (n. 17), 292. 47 Lelart (n. 17), 292. 48 P.H. Azande, Un instrument traditionnel et moderne de crédit en Afrique: la tontine, (1981) 1 Droit africain 23–26 (cited in Lelart (n. 17), 293). 49 Gbogblenou (n. 21), 34. 46

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In a fixed tontine, customers begin their payments on a given day and all are reimbursed at the same time; in a so-called mobile tontine by contrast, where a member can enter and exit each day, the tontinier can accept clients more frequently. The tontinier can even use the contributions of all clients to pay one of them, and if this can be done daily, the commercial tontine becomes a mutual tontine in which capital flows and no longer accumulates. The tontinier may agree to repay before the due date all or a part of the funds received from a client: this is normally called an advance, but it is actually an early (partial) redemption that leaves no room for credit. Again here, the commercial tontine becomes increasingly similar to the mutual tontine.50 But at the same time the commercial tontine is shaped as a financial tontine, where people participate more to borrow money from the others than to save. The tontiniers do not simply take deposits, they grant credit; they do more than keeping the money of their clients, they manage the fund’s liquidity. At times they can maintain some liquidity and do not run great risks, but at other times they may pay out more than what they have received and thus run a new risk. The commission they receive no longer pays for such a service, and therefore they demand a higher commission when an advance is paid: here the tontiniers’ activity broadens and becomes similar to that of commercial banks. It is not therefore surprising how the exceptional flexibility of the tontine has allowed them to evolve permanently.51

D. Some other forms of rotating credit associations in Africa Tontines are the most known example (and probably most widespread example, if we consider all their possible variations) of rotating credit associations in sub-Saharan Africa. But they are not the only ones. The expression ‘rotating credit associations’ identifies all those institutions focusing on thrift, the granting of loans, and providing benevolent support to other members of the group. It has been noted that ‘[t]he basic principle upon which rotating credit associations is founded is everywhere the same: a lump sum composed of fixed contributions from each member of the associations is distributed, at fixed intervals and as a whole, to each member in turn’.52 Such definition has met with two fundamental criticisms: first, the fact that the contributions may not necessarily be fixed; and, secondly, that the use of the word ‘sum’ might exclude those forms of rotating credit associations – present in particular in the ___________ 50

Lelart (n. 17), 294. Lelart (n. 17), 296. 52 Clifford Geertz, The Rotating Credit Association: a ‘Middle Rung’ in Development, (1962) 10/3 Economic Development and Cultural Change 241–263, 243. 51

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Far East – where contributions are made in kind.53 Whereas the first criticism is arguably relevant, the second loses most of its value in the sub-Saharan African context where the phenomenon is linked to savings and grants of financial support such that the use of the word ‘sum’ retains its pertinence. The definition proposed by one author, identifying rotating credit associations as those entities ‘formed upon a core of participants who agree to make regular contributions to a fund which is given, in whole or in part, to each contributor in rotation’ seems to be satisfactory, considering also, as that author underlines, that it ‘includes also the notion of regularity’.54 The phenomenon of rotating credit associations is present in different parts of sub-Saharan Africa. Different anthropological studies give us various examples of these institutions. In Nigeria, the term esusu identifies rotating credit associations among the Yoruba;55 oha is the term used by the Ibo,56 while the adashi used by the Tiv refers to men who meet at regular intervals at the houses of the members in rotation, and each time every man makes a contribution which is at the disposal of the host. The Tiv regard this as an instrument to periodically obtain a sum of money large enough to be used for special activities (generally dowry payments for a bride).57 Other forms of rotating credit associations are found in various parts of Cameroon and Ghana, and other examples can be identified in many other countries, such as Zambia, Zimbabwe, Malawi, and Uganda.58 In Sudan rotating credit associations are known as sanduk (‘box’) or, especially among women, as khatta (‘putting down’). They seem to have started among women in the central townships willing to collect sums to purchase gold ornaments for their daughters’ weddings.59 In South Africa two types of rotating credit associations are found in the urban areas. The first, named mahodisana, is composed of only women, and the name is said to be of Sotho origin and to mean ‘make pay back to each other’; the second type, called stokfel, is open to men ___________ 53 Shirley Ardener, The Comparative Study of Rotating Credit Associations, (1964) 94/2 The Journal of the Royal Anthropological Institute of Great Britain and Ireland 201– 229, 201. 54 Ardener (n. 54), 202. 55 William R. Bascom, The Esusu: A Credit Institution of the Yoruba, (1952) 82/1 The Journal of the Royal Anthropological Institute of Great Britain and Ireland 63–69. 56 Shirley Ardener, The Social and Economic Significance of the Contributions Club among a Section of the Southern Ibo, in: Conference Proceedings, West African Institute of Social and Economic Research (1953) (cited in idem (n. 54), 204). 57 Paul Bohannan and Laura Bohannan, The Tiv of Central Nigeria (1953), 49. 58 Ardener (n. 54), 205 ff. 59 Ardener (n. 54), 207 ff.

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and women and is a group of small sub-associations, each with its own structure.60 In the Democratic Republic of Congo the moziki is a form of tontine that must have twelve members because each member must be entitled to collect the money once a year, and these organizations mobilize significant funds and human resources in order to carry out projects targeted by members.61 All these forms of rotating credit association present features that are extremely similar to those examined above with reference to the tontines. As far as membership is concerned, the total number of participants may vary from being small to having several hundred participants; membership may be based on different criteria, among which are sex, age, kinship, ethnic affiliation, locality, occupation, status, and religion. Membership in another association may sometimes determine the eligibility of some or all of the participants to a rotating association; in these cases, the requirements for membership of the parent associations indirectly determine the eligibility for membership of the subsidiaries, and, in some instances, the subsidiary associations appear to outshine the activities of the main association.62 With reference to the organization, it has already been noted how an association may have one or more organizers as well as people with other duties, and the membership may sometimes be divided into groups, each having separate bodies in addition to the bodies of the main association. Other characteristics may include the keeping of records and the issuing of receipts, written rules, and regulations.63 In the moziki, for example, two persons are appointed: the first deals with the security of the financial or material assets of the group, the coordination of meetings and speeches during meetings, and, where appropriate, the settlement of conflicts that may arise in the group; the second person acts as councilor and treasurer, often it is a woman whose dynamism, sense of responsibility, and neutrality are approved of by the other members.64 Individual contributions are generally in cash but may also be in kind or a combination of both; contributions in kind are normally treated in the same way as cash contributions, being collected and handed over to members in rotation, the regularity in the payment of contributions being the main feature of this kind of association. At the completion of the rotation, an association may or may not ___________ 60

Hilda Kuper and Selma Kaplan, Voluntary Associations in an Urban Township, (1944) 3 African Studies 178–186. 61 Ependa (n. 16), 16, who underlines that the moziki can be used also as labour tontines. 62 Ardener (n. 54), 210. 63 Kuper and Kaplan (n. 61), 181; Ardener (n. 54), 210. 64 Ependa (n. 16), 17.

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be continued. In some associations a participant can be allowed to make more than one contribution and receive more than one allocation of the fund. The payment of the contributions may occur in a special meeting; alternatively, they may be collected by one of the organizers or taken to the organizer’s house or office; or they may be made elsewhere, such as in the market-place or at the participant’s workplace.65 The size of the fund, the amount of the individual contributions, and the number of members are obviously connected. The method by which the order of allocation is determined is therefore extremely important. When possible (especially in small associations), the participants determine the order by general consensus, with those participants having more need of cash being put first. Sometimes, the order is determined by the organizer (or organizers), who could take into account a member’s needs (whether he will offer a gift or bribe) or a series of other considerations. In other cases the order of allocation may be set up using pre-determined criteria, such as those incorporating age and kinship seniority.66 The order of rotation may also be decided by lot; more rarely, it may be determined by recourse to divination.67 It is in any event clear that the size of contributions,68 the method by which such size is determined, the method by which the fund is allocated, whether or not interest is paid, and whether or not the contributions are fixed in advance are all related. The right to receive the fund in the future may or may not be transferable by the member of a rotating credit association. When transferability is allowed, a member may arrange (with the fund holder to whom he pays his contributions) for such right to be transferred to another person. An association may have a wide number of members, and a contributor may have to wait a long time before having access to the fund; if he urgently needs money, it is possible for him to borrow from someone (not necessarily a member) to whom he transfers in settlement his right to the fund when his turn arrives, and by continuing to pay his contributions to the association he gradually divests himself of his debt. When it is his turn to get the fund, payment is made to the lender of the money. Interest is normally allowed for in such transactions; the interest amount mostly depends on the chance of the money-lender to have access to the fund quickly, but it is often

___________ 65

Ardener (n. 54), 211. Ardener (n. 54), 211 ff. 67 Bascom (n. 56), 67. 68 Ardener (n. 54), 213, indicates that contributions and funds may both fluctuate in size. Thus, a member who has not yet received any distribution may make contributions to any fund at whatever magnitude he wishes. After having received a fund, however, he must return to the subsequent recipients contributions equal to those received from them. 66

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lower than the normally practised rate in the community. Debts, like those for a bride’s dowry, may also be settled by the transfer of a right to a fund.69 There are associations where the whole of the fund is kept by each member in turn, while in others deductions are allowed: such deductions create a special fund for lending out, and high rates of interest are charged for loans from this fund. At the end of the rotation the money allocated to this special fund is usually divided among the participants if it has not been used.70 All members must regularly fulfill their obligations to keep the rotating credit association functioning. The pressure exercised on the participants as a result of their membership in the community is considered enough to ensure this, since a great importance is placed upon these obligations in most communities; the payment of contributions is normally considered a ‘solemn duty’,71 and it is considered normal to incur other debts to secure the regular flow of the contributions. In some communities the rotating credit associations became so significantly attached to the economic and social system that a member who failed in one association might not be accepted as a participant of any other: such exclusion can be regarded as a serious deprivation.72 In any event, associations have developed different measures to minimize default: a member whose reliability is uncertain may be placed towards the end of the rotation, and sometimes he may receive only half of his share at once, being forced to wait until later for the remaining part;73 a member may be required to enter into a contract, either when becoming a member of the association or when receiving the fund; and sometimes a member must provide some form of security or a guarantor. A defaulter may be fined by the association, and court proceedings may be taken against him, if necessary.74 The main scope of these associations is to support small-scale capital formation or, more simply, to create savings. Participants could save their contribu___________ 69

Ardener (n. 54), 215 ff. Ardener (n. 54), 216, notes that deductions may also be made for payment of officials or for the provision of entertainment, and the amounts may be fixed or left to the discretion of the recipient of the fund. Ardener further observes that they may also sometimes be necessary for gifts or bribes to be given overtly or surreptitiously to organizers, in order to compensate them for their pains, or to receive preferential treatment in the allocation of the fund. To a contributor, these deductions may be regarded essentially as interest charges or administrative costs, and they may substantially reduce the value of his fund. 71 Kuper and Kaplan (n. 61), 181. 72 Ardener (n. 54), 216, points out that a member may go to great lengths, such as stealing or selling a daughter into prostitution, in order to fulfil his obligations to his association and that failure to meet obligations can even lead to suicide. 73 Bascom (n. 56), 65. 74 Ardener (n. 54), 217. 70

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tions by themselves and accumulate their money, but this would affect the circulation of such money; in a rotating credit association the capital always circulates, since giving money to a treasurer allows such money to be put into circulation until it is transferred back to the subscriber. Obviously, savings can be made using post offices or (other) savings banks, where deposits are totally secure. But for their part, rotating credit associations may also provide small scale credit, a financial sector in which official banks are not normally interested. In rotating credit associations interest rates are normally very low, when charged, and this might be due the strong sanctions applied to induce a member to repay his loan in an association: whereas a person may prefer not to destroy his reputation before a large circle of friends or relatives, he might have less hesitation about ruining it with a money-lender. Other forms of groupings where financial support is involved include village associations, family and friendship aid, and other hybrid forms. Village associations group together people coming from the same village, clan, or tribe, but they can also be made by people practising the same activity or by vendors of the same product in a market. Being rooted to the clan or by ancestry, the members of these associations know each other and reflect village life as transposed in the cities.75 Their role is both economic and social since they support the members in need. A pre-determined internal regulation sets the rules about membership, the goals of the association, contributions due by each member, and the structure and status of the organization. In a reality where a social security system is normally absent, the primary function of these associations is to financially and morally support a member in need when an unfortunate event occurs; such associations therefore play both a financial and a social role.76 Variations on this kind of association more oriented towards its economic aspect have also been produced in situations where contributions are made by people practising the same commercial activity who receive their money at the end of a period normally not more than a year from the beginning of the grouping; contributions may vary and are paid at the end of the week when members meet in a social gathering. Family and friendship aid involve the collection of contributions aimed at supporting the establishment of a micro-enterprise by a member who does not have stable financial resources but who is willing to set up a small business. Further, African creativity has developed different hybrid forms of informal finance to give financing opportunities to those (and they are the majority) who cannot access the formal financial channels. These forms are so large in number ___________ 75 Meetings of the members are normally held where the member representing the tribe or the clan in the city lives. 76 Mayoukou (n. 12), 27.

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that it is impossible to enumerate all of them. Just to give an idea of such creativity, that of the credit-marchandise can be an example. Here a young seller who wants to start his own small business and does not have the necessary financial resources asks a relative or a friend to introduce him to an older seller who has the necessary funds. If he agrees to support the young seller, he gives him part of his stock to be sold, fixing a minimum sale price; if the young seller is able to sell the stock at a higher price, he keeps the difference from the minimum price requested, and this gives him the possibility to become a small vendor and acquire a new stock to sell – even from the same supplier – as he now can post a small escrow.77

E. Conclusion Through a tontine, an individual can save money either for short or mediumterm investment, to have enough resources for an anticipated event, or to deal with the unpredictable, collectively or individually. Moreover, tontines allow citizens having extremely low purchasing power to have a sort of pension fund to which people adhere in anticipation of difficulties that may arise, for example at the family level. Originally, in France, tontines developed as a form of life insurance, and they have been used in France and beyond to reach this objective. The raised funds and the accrued interest were allocated among the survivors at the agreed date of maturity. Throughout the developing world (and particularly in Africa), the word now identifies and characterizes a completely different operation. It seems that some French jurists at the beginning of the century labelled as a tontine a contract practised in Indochina (the houei) by which several people decide to save together and lend each other money.78 The word was then used to make reference to a similar practice observed not only in other Asian countries but also in Africa.79 The main finding that emerges from this brief analysis is the extraordinary flexibility of these forms of informal financial instruments – a finding that does not come as a surprise considering that an informal phenomenon is involved. It is this flexibility that allows a constant adaptation and makes informal finance ___________ 77

Mayoukou (n. 12), 29 ff. Thierry Pairault, Approches tontinières (première partie) – De la France à la Chine par la Cochinchine et autres lieux, (1990) 9/1 Etudes chinoises 7–34; Frédéric Rocheteau and Chung-Wu Chen, Analyse juridique des groupements rotatifs d’épargne et de crédit en Asie: la ‘houei’, (2001) 1 Revue internationale de droit comparé 83–124. 79 Michel Lelart, La diversité au cœur de la finance: la finance informelle, in: Roland Granier and Martine Robert (eds.), Culture et structures économiques (2002), 151–165, 157. 78

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never a fixed reality; this development creates constantly new varieties of instruments to address specific needs. The mutual tontine based on community relationships allows rapid movements of money, of limited duration, between members of an association, and it has been described as approaching a welfare society. The commercial tontine based on a personal relationship with the promoter aims at saving money, allowing some accumulation. The financial tontine is not a new type but a variety of the previous two: the need for credit is essential, and it is satisfied at a fixed price among all members through the bidding procedure, or it is granted by the tontinier, who takes into account the evolution of the fund’s own liquidity. The extreme familiarity of African people with this financial instrument has led them to replicate it also outside of the continent.80 What is called a tontine in a certain geographical area of sub-Saharan Africa is given other labels in the local languages and different names elsewhere, but the philosophy behind all of them is the same: giving people not able to access the formal credit system the possibility to obtain alternative sources of funding, mostly based on their group relationships.

___________ 80 Seydi Ababacar Dieng, Le comportement financier des migrants maliens et sénégalais de France, (1998) 49/5 Revue d’économie financière 103–134; Kane (n. 26), chapter 4.

Part 4: Comparative Analyses

Chapter 22: A Comparative Analysis from the Perspective of Economic History By Jerònia Pons Pons A. The evolution of tontines: from public debt to private life insurance ..................... 367 B. Private tontine societies and life insurance in the 19th century ............................... 370 C. Modernization in the late 19th century: deferred dividend policies ......................... 377 D. Conclusions ............................................................................................................ 381

A. The evolution of tontines: from public debt to private life insurance As McKeever states in his article entitled ‘A Short History of Tontines’, the tontine is perhaps the most discredited financial instrument in history. 1 We could also add that it is a financial instrument that has been readily adapted to different functions as well as social and economic contexts. This ability to flexibly adapt to the socio-economic environment which could be found during the 17th, 18th and 19th centuries can be corroborated above in the chapter written by Robin Pearson.2 Tontines were introduced by different countries as a tool for obtaining credit and thus as an element of their public debt in the 17th and 18th centuries.3 During the 19th century the use of tontines became widespread as a non-scientific form of life insurance, and in the latter part of that century and in the early 20th century large companies offering scientific life insurance modified this type of policy and adapted it as a supplement to life insurance policies from 1866 onwards (those known as deferred dividend policies). This sparked controversy in the insurance sector itself and aroused suspicion among policyholders and heads of state. They were prohibited in a number of countries in the last decade of the 19th century, and especially in the first third of the 20 th century after the investi-

___________ 1 For a broad review of the role of tontines in the history of insurance from a legal point of view, see Kent McKeever, A Short History of Tontines, (2015) 15 Fordham Journal of Corporate and Financial Law 491–521. McKeever shares this assessment as stated by Edward Chancellor, Live Long and Prosper, Spectator 24 March 2001, 14. 2 See Pearson, 79 ff., above. 3 Morton Keller, The Life Insurance Enterprise, 1885–1910: A Study in the Limits of Corporate Power (1963), 3.

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gations of the Armstrong Commission in 1905 in the United States. They seemingly fell into terminal decline during the 20 th century, but recently the financial world has renewed its interest in their use. 4 In the 17th century, Lorenzo Tonti promoted this type of instrument as a way of helping to remedy the public finance problems of European states, especially France.5 Tonti put himself under the direction of Cardinal Mazarin during the reign of Louis XIV, specifically in 1652, in order to propose a redeemable loan, with fixed interest and nominative subscriptions. 6 With these subscriptions, and while there were still surviving subscribers, the state would pay the same overall amount as interest, so that survivors could end up receiving an ever increasing income. On the death of the last subscriber, the operation would be terminated, without the state ever returning the capital it had raised. Mazarin was convinced, but he did not manage to get the project approved. It was not until 1689 that Louis XIV authorized a loan with the characteristics devised by Tonti. The tontine, in its version relating to the creation and management of public debt, was used from 1650 to 1820 by different European countries, and a tontine was also planned in the newly independent United States. The most-studied tontine phenomena are those of France and England, examined in this work by Georges GallaisHamonno and Christian Rietsch, by Sophie Delbrel, and by John MacLeod.7 France revived Tonti’s failed project in view of the need for new revenue and issued the first French royal tontine in 1689. From this year to 1759, different French tontines were created at regular intervals and were fully subscribed. The British experiment was not so successful. In England, after the great fiscal pressures created by the wars of William III, Parliament adopted a series of innovative financial measures intended to mobilize the nation’s wealth on a large scale. The financial mechanisms outlined included the sale of annuities by instalments, ___________ 4 Andreas Lange, John A. List and Michael K. Price, Using Tontines to Finance Public Goods: Back to the Future?, National Bureau of Economic Research, Working Paper No. 10958 (December 2004). They discuss the possibility of states once again issuing tontines as a product similar to lotteries. 5 On Tonti, see Rietsch and Gallais-Hamonno, 19 ff., above. 6 Gabriel Tortella et al., Historia del Seguro en España (2014), 93. 7 See Gallais-Hamonno and Rietsch, 49; Delbrel, 109 ff.; MacLeod, 143 ff., above. For more information on the experiences of tontines as public debt, see Julien Coudy, La tontine Royalle sous le Regne de Luis XIV, (1957) 34 Revue Historique de droit français et étranger 127–147; David R. Weir, Tontines, public finance, and revolution in France and England, 1688–1789, (1989) 49 Journal of Economic History 95–124; Lange, List and Price (n. 4). The historiography is not very clear about aspects such as the age groups of the subscribers to these tontines, or whether the same groups were always established, whether in all the subscriptions there was an annual distribution of dividends or the capital and the dividends were only shared out among the survivors, or whether there were other beneficiaries different to the subscribers. There was a diverse and wide range of different cases.

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lotteries, and also tontine subscriptions. 8 The first English tontine was adopted by Parliament in 1692. The English planned a total of four tontines up until 1789; of these, the tontine of 1757 was cancelled due to a lack of subscriptions. 9 According to David R. Weir, who compares the history of tontines in France and England, the former were more successful for various reasons.10 Their success is reflected in the fact that the French tontines achieved the objective of increasing government revenue while the English tontines did not. Furthermore, the former attracted many more participants. 11 In his study, Weir points out that England offered tontines at market rates of return but found the demand to be low. The French government, however, successfully raised money, which he attributes to the high level of interest rates offered, especially for older subscribers. In the late 18th century, the U.S. tax authorities copied a good many ideas from England, including a plan to issue tontines. In 1790, Alexander Hamilton (1757– 1804), in his ‘Report Relative to a Provision for the Support of Public Credit’, proposed a tontine similar to that authorized in England by Prime Minister William Pitt (1759–1806) in 1789. His objective was to reduce the interest burden of the public debt and eventually reduce the principal. It was a matter of converting old debt into new debt and thereby reducing the capital. The proposal, however, was never implemented.12 These national tontine projects were followed by other public tontine plans in France, England, Germany, and the Netherlands.13 During the 17th and 18th centuries, European nations and the United States applied restrictions to life insurance or prohibited it due to the moral doubt as to whether it was legitimate to gamble on the lives of others. Nevertheless, these countries supported tontines. And it was used as a financial tool, along with lotteries and other forms of public

___________ 8 Geoffrey Clark, Betting on Lives: the Culture of Life Insurance in England 1695– 1775 (1999), 8. 9 In contrast to the English experience, it should be noted that the Irish Parliament established three tontines, in 1773, 1775, 1777, all of which were fully subscribed. See McKeever (n. 1), 493 f.; Gallais-Hamonno and Rietsch, 56–61, above. 10 The same conclusion is reached by Gallais-Hamonno and Rietsch, 66, above. 11 Weir (n. 7), 105, compares all subscriptions. 12 Robert M. Jennings, Donald F. Swanson and Andrew P. Trout, Alexander Hamilton’s Tontine Proposal (1988), 107–115. 13 Geoffrey Clark mentions that tontines were floated in various towns in the Netherlands between 1670 and 1680 with the aim of filling the municipal coffers. There are proposals on record in England, such as those made by Thomas Wagstaffe in 1674 and 1675 for the City of London. Also, in the 1680s, another tontine was proposed by John Houghton to solve the problems of the finances of London. All of these proposals failed: Clark (n. 8), 77–79.

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debt, to finance state expenditure, especially military expenditure, which was constantly increasing.14 However, as the present volume is part of a project on the history of insurance, I will focus on the use of tontines as a form of private insurance. Several nations continued to back and authorize mutual societies and commercial companies for the purpose of issuing tontines. The raised capital was invested in public debt. This was again in the interest of the governments of these nations. The main objective of the present analysis is to compare, from an economic history perspective, the tontine initiatives of these societies and companies within the sphere of private insurance from the 19th century onwards. I will first examine the persistence of the classic forms of tontines through the creation of mutual societies and commercial companies that offered tontine products in Europe until well into the 20th century. In a second step, I will focus on the impact of deferred dividend tontine policies as a supplement to life insurance policies that were disseminated by American insurance companies during the period of the first globalization of insurance.

B. Private tontine societies and life insurance in the 19th century Before the introduction of scientific life insurance, tontine-based products were widespread in France, Spain, Great Britain, and the United States. Apart from public tontines, private tontines were also introduced from the beginning of the 18th century.15 The model that was made available was based on the classic tontine policy. This type of policy was issued by insurance companies; alternatively, mutual societies were created that administrated the tontine subscriptions. Moreover, these policies fitted in well with the prevailing liberal economic thought of the time, as they stressed foresight and individual savings as a means of preparing for future contingencies such as old age, sickness, and disability, especially among the working class. The respective governments supported and approved their creation due to their own interest in finding creditors for their ___________ 14 Robin Pearson, Organizational Forms in Insurance. A Comparison of the USA and Germany during Industrialization, in: idem and Takau Yoneyama (eds.), Corporate Forms and Organizational Choice in International Insurance (2015), 114–141, 124 f. Tontines and lotteries were the resources most used by the small German states to finance their military expenditures. 15 According to Clark, the lack of success of the British public tontine plans discouraged the creation of private plans. He mentions the case of Matthew West’s proposal in 1716, announcing the formation of a tontine, although there is no evidence that it ever came to anything. There is also no evidence of other proposals for private tontines in the period from 1692 to 1720. This, according to Clark, shows their enduring unpopularity in England during that time frame: Clark (n. 8), 77–79. By contrast, McKeever, 242–244, above, identifies numerous examples in the United States.

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public debt, which was the primary, if not sole, investment of the subscribed capital.16 As regards the British Isles, Pearson speaks of a wave of private tontines in the early 18th century that coexisted with the speculative wagers that were later banned. The tontine was a popular product that was sold alongside other forms of life insurance during the 19th century.17 Geoffrey Clark detected a large number of mortuary tontines in Dublin around 1705 and asserts that there can be no doubt that they were a modification of the simple tontine devised by Tonti. With mortuary tontines, members paid a previously established fee on a quarterly basis. At the end of the year, the beneficiaries of all those members who had died in the preceding year shared the accumulated fund equally. 18 According to Clark, unlike the classic tontine, the mortuary tontine enjoyed considerable success within British culture. Some authors, however, do not classify this product as a tontine.19 In the case of France, the development of scientific life insurance was constrained in the first decades of the 19th century by the success of the tontines aimed at raising capital. Life insurance companies were founded in the 1840s (La France in 1843, Le Phénix in 1845, La Providence in 1844, and L’Urbaine and La Mélusines in 1845), attracted by the demand that existed for tontines. Their initial objective was life insurance, but with the added intention of issuing tontine subscriptions. To do so, they had to obtain government approval. Numerous authorizations were granted between 1841 and 1845 that followed the example of the pioneer, La Royale, which had received authorization to issue tontines in 1837. Only the life insurance companies Compagnie d’Assurances Générales and L’Union remained apart from this trend. 20 In Spain, the period of greatest development of tontine societies was from 1857 to 1872.21 Most of the tontine societies were mutual societies that offered non-scientific life insurance. These tontine subscriptions consisted in an opera___________ 16 There are other forms in different cities linked to real estate investment, that is, the creation of a tontine to raise capital for building projects where the corresponding rents or other income would be shared among survivors: McKeever (n. 1), 499 f., cites the case of the city of Limerick in Ireland from 1834 to 1838, and also the Tontine Coffee House in New York between 1790 and 1792. 17 Pearson and Yoneyama (n. 14), 8. 18 Clark (n. 8), 74–77. 19 See McKeever (n. 1), 506 n. 52. 20 André Straus, France: Insurance and the French financial networks, in: Peter Borscheid and Niels Viggo Haueter (eds.), World Insurance. The Evolution of a Global Risk Network (2012), 118–142, 125 21 Angel Bahamonde Magro, El horizonte económico de la burguesía isabelina, 1856– 1866 (unpublished PhD Thesis, 1981), 138–171.

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tion where participants contributed capital for a period of time, which the society’s managers invested in securities, very often public debt, and which had to be distributed among the surviving participants, along with the accrued interest, on a pre-determined date. The main characteristics of these mutual societies and companies included the lack of share capital, their administration by commercial insurance companies, and their management in the hands of all-powerful boards of directors that were subject to little control. These boards were composed of members of the nobility and the high bourgeoisie, who generated allure and provided ostensible guarantees for the entity’s operations. In an initial period, which lasted until 1860, there were three tontine companies operating in Madrid: La Tutelar, El Porvenir de las Familias, and El Montepío Universal. Two more were founded in 1861: La Nacional and La Caja Universal de Capitales. They were immediately successful. The subscribed capital of these companies was 316 million reales at the end of 1856, and by 1862 it had reached 1,375 million. La Peninsular, La Beneficiosa, El Banco de Economías, and La Caja Universal de Ahorros were added to these.22 Many of these insurance companies supplemented tontine subscriptions with insurance operations known as quintas. Quintas insurance was a type of insurance already known in France in the late 17th century, but which was most successful in countries such as France and Spain in the 19th century. It referred to the subscriptions of the families of young people from the age of sixteen to the age of twenty, paid on a monthly basis, so that they would be exempt from military service if they were selected in the ordinary military conscription by lottery. This was possible because the 19th-century legislation on military service in many countries, including Spain, allowed for an exemption from military service by means of a voluntary payment, which served to pay a substitute. 23 The mutual societies offering tontines did not have their own capital guaranteeing the capital subscribed by members. Their only guarantee was based on the illustrious names that promoted these societies and assumed management positions: members of the nobility, politicians, and important members of the Madrid ___________ 22 José Carlos Rueda Laffond, El aprendizaje empresarial. Apuntes sobre las actividades financieras en el Madrid del siglo XIX, (2006) 5 Revista CES Felipe II 492–497. 23 Nuria Sales, Sociedades de seguros contra las quintas, 1865–1868, in: Clara E. Lida and Iris M. Zavala (eds.), La Revolución de 1868 (1970), 109–125, documented several quintas in Spain that also suffered from the financial crisis of 1866–1867. By 1821, between 12,000 and 15,000 quintas insurance policies existed in France for a total value of between 9 and 10 million francs. There were more than 266 companies of this nature in France in 1841 and 2,000 quintas companies in 1855. These companies took different legal forms, including joint-stock companies, limited partnerships, sole traders, tontines, and mutuals. See Nuria Sales, Marchands d’Hommes et Societes d’assurance contre le service militaire, (1968) 46 Revue d’Histoire Economique et Sociale 339–380. These companies also proliferated in Spain throughout the entire 19th century, in both rural and urban areas.

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bourgeoisie were linked to speculative ventures of the time.24 A general meeting was held annually, but only the partners who subscribed to the most capital were entitled to speak and vote at these meetings. The directors of these entities, along with the supervisory board or inspection board elected by the general meeting, had almost absolute power in the decision making related to investments. There was a royal commissioner, but his role was almost entirely symbolic. Large amounts of savings flowed to these societies during this period, which were mainly invested in public debt.25 One of the exceptions to this trend was La Peninsular, which concentrated its investment in the real estate sector.26 La Tutelar was authorized by a Royal Order of 23 August 1850 and confirmed on 10 June 1857. It was the oldest of these societies and also the one with the largest volume of business. Its advisory board was made up of members of the nobility, bankers, and colonial traders. The society’s activity can be divided into three periods that date from 1851 to 1855, from 1856 to 1858, and from 1859 until its disappearance in 1867. The stage from 1856 to 1858 was the one of greatest activity, when it was operating with 50% more capital than in the five preceding years. At the time of its liquidation, occurring after seventeen years of activity and undoubtedly due to the severe depression of the 1860s, La Tutelar had acquired 97,781 depositors (subscribers), obtained 734,539 reales of subscribed capital, and invested 745,539 reales in 3% consolidated debt.27 Montepío Universal was authorized by the Royal Orders of 15 November and 15 December 1856. As with the other tontine societies, its board of directors was composed of members of the nobility, as well as members of the high bourgeoisie and prestigious intellectuals. As in the case of La Tutelar, Montepío’s greatest growth took place between 1857 and 1859. The society specialized in 3% deferred debt securities and attracted some of its depositors from the Cuban and Puerto Rican markets. However, there was a reduction in the volume of incoming savings already in the period from 1860 to 1862. In 1864, faced with the onset of the banking and railway crisis and with the drop in value of the public debt, Montepío Universal requested and received authorization to reform its statutes so as ___________ 24 The most notable directors of La Peninsular included aristocrats such as the Duke of Alba, the Duke of Veragua, the Count of Moctezuma, and the Marquises of Heredia and Peralta; politicians such as Pascual Madoz and Laureano Figuerola; writers such as Ramón de Campoamor; and the painter Madrazo. Leading figures of the Spanish banking sector also participated, such as the Girona family, José Salamanca and, at the end of the century, the Güell and Comillas families. The Catalan general insurance companies of the late 19th century, such as La Previsión and then Banco Vitalicio de España, also engaged in this business: Sales, Marchands (n. 23), 380. 25 Bahamonde (n. 21), 146, explains that the state had prohibited tontine societies from investing in other sectors apart from public debt. 26 Rueda Laffond (n. 22), 497. 27 Bahamonde (n. 21), 151–156.

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to be able to invest in other types of securities. At the end of that year it began to invest in public works and mortgage loans, but in order to do so it had to sell the 3% deferred debt, the price of which was in free fall. The diminished income from the sale of these securities was invested in railway bonds just when these were also entering their own crisis period. The two final disastrous business deals were the purchase of the Cordoba railway from Espiel and Bélmez railways for 26 million reales and a mortgage loan in 1866 to the railway company Compañía del Ferrocarril de Zaragoza a Escatrón in the midst of the crisis. In 1869, Montepío Universal owed its subscribers 53 million reales, a debt that it could not settle due to the decline in value of its investments. El Porvenir de las Familias was authorized by a Royal Order of 25 November 1851. Like the above tontine societies, its board of directors was composed of members of the nobility together with two lawyers, an army general, and a landowner. The management of the company was in the hands of its director Ramón López de Tejada, who was linked to two fixed premium insurance companies, La Unión and La Unión Española. The company’s heyday was from 1857 to 1859, a period which concentrated almost 50% of the society’s operations. As in the case of the two other societies mentioned above, El Porvenir de las Familias invested its capital in public debt, which it acquired at a time when the price of such debt was rising, and it was unable to meet its obligations when the price started to fall as from 1864. Table 1: Evolution of the main tontine societies in Madrid (1851–1866)28 (the first column refers to the number of subscribers, the second to the subscribed capital) Year 1851 1852 1853 1854 1855 1856 1857 1858 1859 1860 1861 1862 1863 1864 1865 1866

La Tutelar 1,882 10,320,469 3,423 21,254,385 6,908 37,985,112 6,544 41,996,996 6,082 62,414,485 8,600 77,352,035 11,160 85,396,306 11,116 71,509,037 7,579 58,545,032 6,093 39,394,238 8,615 44,446,507 7,000 60,000,000 6,264 61,143,500 4,384 42,800,450 1,879 18,342,986 191 2,253,051

Montepío Universal 3,273 17,715,490 20,297 18,190,455 15,890 80,470,016 6,260 47,084,119 9,462 43,040,344 11,970 49,160,000 4,960 18,100,000 3,440 12,211,325 1,445 3,528,261 -

___________ 28 29

Bahamonde (n. 21), 153, 159, 167. Between 1851 and 1856.

El Porvenir 11,44929 65,341,52029 10,500 57,462,860 13,430 65,159,260 11,162 50,225,354 9,950 38,100,000 9,792 31,376,432 9,217 26,152,284 7,400 19,182,290 6,300 18,000,000 -

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According to Angel Bahamonde Magro, the crisis of the tontine societies started in 1863, before the onset of the general crisis, due to the growing distrust regarding these societies. As from this date, capital, which had been channelled into real estate investments, stopped coming in steadily, and the amount of subscribed capital went into decline. The decrease in the number of subscribers to La Tutelar, Montepío Universal, and El Porvenir de las Familias from 1863 onwards can be seen in Table 1. The reduction in subscribed capital was accompanied by critical voices in the press that warned that the growth of the public debt could not go on indefinitely and that the almost exclusive investment of the tontine societies in this type of security exposed them to a great risk. The state, for its part, favoured the creation of these entities in order to foster the trading of public debt securities. For this reason, it was reluctant to comply with the demands of the tontine societies to be permitted to acquire other types of bonds. When the government finally allowed investment in other securities in 1864 it was already too late to prevent the crisis of the tontine societies, precipitated to a large extent due to the fall in value of public debt securities and other securities traded on the stock exchange (Bank of Spain shares). 30 The depreciation of the tontine societies’ securities portfolios prevented them from meeting their obligations from then on. With some 1,500 million reales invested in 3% consolidated debt, the tontine societies were incapable of meeting their obligations and had to suspend payment of matured policies; in the best case scenario, some depositors could recover a small part of the capital that they had invested. The most important consequences of these failures for the insurance world was that the Spanish population, hurt and scared off by these losses, remained suspicious of life insurance operations during the subsequent years, which delayed the creation and establishment of life insurance entities in Spain and created unfavourable conditions inhibiting an increased demand for this type of insurance.31 In the decades that followed, the crisis of the tontine societies, bad management, and the government’s responsibility as regards tontines continued to provoke debates in society. 32 Nevertheless, although the tontine societies had succumbed to the crisis of the 1860s, insurance ___________ 30 The 3% consolidated public debt fell to an average rate of fifty-one reales in July 1864, to forty-one in 1865, and to thirty-five in July 1866, before reaching an average rate of thirty-one reales in October 1867: Bahamonde (n. 21), 147 f. 31 Manuel Maestro, Barcelona cuna del seguro español (1991), 109. 32 An example of this controversy is the accusation lodged by Gabriel Rodríguez, an injured party in the bankruptcy of La Tutelar, administered by the Sociedad Española de Crédito Comercial, blaming the government and its representatives in the entity. The representatives replied to this criticism by denying their responsibility with a piece published in Madrid in 1872 and titled: ‘Reply by the Honorable Representatives of the Government to Mr Gabriel Rodríguez with regard to the Insurance Company La Tutelar’.

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companies continued offering products similar to the tontines throughout the remainder of the 19th century in the form of what were termed annuities. In Spain, the system of classic tontines based on the model created by Tonti continued, in spite of this crisis, until the 20 th century, although the success of these two earlier decades was never repeated. From 1900 onwards, new tontine societies were created, and also Chatelusian entities, on whose boards of directors once again sat politicians, members of the nobility, or prestigious professionals, but they still had the same actuarial weakness as in the previous century. In line with the 19th-century liberal ideology, the mutuals that implemented these financial products continued to advocate the tontine formula as the best possible way of saving:33 Diversas son las formas dque ha dado al ahorro la previsión humana, y esto facilita su práctica, porque permite seleccionar antes de dedidirse por la que responda mejor a los gustos o aspiraciones de cada cual. Sin embargo, puede asegurarse que el sistema Tonti es el mejor de todos los existentes, en atención a que el ahorro colectivo permite repartir entre los tenedores de pólizas crecidos beneficios, razón por la cual las Sociedades constituídas en todos los países para darlo a conocer y difundirlo entre las clases más modestas, que son precisamente las más necesitadas de que se les dé una orientación y se les marque una ruta para mejorar su situación económica, han tenido la acogida más favorable, realizando rápidos progresos. Human foresight has brought about diverse forms of saving, and this facilitates its practice because it allows a choice to be made when deciding which responds better to the preferences or aspirations of each individual. However, it is certain that the Tonti system is the best of all those available, given that collective saving enables greater benefits to be shared among policyholders. For this reason, the societies that have been constituted in all countries to make this system known and to promote it among the more modest classes – precisely those who are in greater need of receiving guidance and having a path set out for them to improve their economic situation – have had the most favourable reception, making rapid progress.

In the first two decades of the 20th century, there was an upturn in the collection of premiums in this branch; in the middle of World War I, in 1917, it reached 14.5% of the premiums of the Spanish insurance market (Table 2).34 In that year, the tontine branch raised a total of 13.2 million pesetas among ten companies, nine being Spanish and one being French: La Mutual Franco-Española, La Mutual Latina, La Mundial, La Mutuelle de France et des Colonies, La Mutualidad Hispano-Francesa, La Mutual Vascongada, La Mutualidad Española, El Banco de Cataluña, and El Ahorro Mutuo. The first alone collected ___________ 33 An extract from the advertisement published by La Mutual Franco-Española in the magazine Ferrocarriles, industria y seguros, 25 January 1917, 235. 34 On the legislative changes in the regulation of insurance, which included tontines, see Laura Pilar Duque Santamaría, Evolución de la supervisión de la documentación contractual y técnica de los productos de seguro en España, (2006) 833 Revista de Economía. Información Comercial Española (ICE) 139–151, 143.

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6.5% of the total premiums in the private insurance sector, which accounted for 49% of the income within the tontine branch.35 Table 2: Percentage of premiums of the tontine branch with respect to total premiums collected in the private insurance sector 36 Year 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921

Market share (%) 9.8 11.2 12.9 13.3 14.0 14.5 14.4 13.7 12.3 10.8

Year 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931

Market share (%) 9.9 9.2 8.8 8.4 8.0 7.2 6.9 5.8 6.1 5.3

Year 1932 1933 1934 1935 1936 1937 1938 1939 1940

Market share (%) 4.9 3.8 3.5 2.7 0.3 0.5 0.7 0.7

After World War I, the pure tontine system went into decline and governments began to impose restrictions on them.37 In Spain, a Decree Law of 9 April 1926, which called for the registration and inspection of savings institutions, capital funds and similar entities, indicated in its Chapter 4 that it was forbidden to constitute new tontines or Chatelusian schemes in Spain.38 Furthermore, the establishment of new corresponding schemes of foreign companies was also prohibited. Finally, the 1954 law on the supervision of the insurance market confirmed the prohibition of all Chatelusian schemes and added a ban of tontines.

C. Modernization in the late 19th century: deferred dividend policies The classic tontine entities based on Tonti’s traditional model started to languish after their heyday around the middle of the 19th century, especially in those countries where the accumulated capital had been invested in weak or unstable ___________ 35

Boletín Oficial de Seguros (1918). Boletín Oficial de Seguros (1913–1926); Boletín Oficial de la Inspección Mercantil y de Seguros (1927–1928); Revista de Previsión (1929–1934); Boletín Oficial de Seguros y Ahorro (1934–1941); Anuario Estadístico de España (1919). In 1937, only the premiums in the part of Spain controlled by the Nationalists were taken into account. 37 Tontines were still being created at the start of the 20th century in different parts of the world. In the case of South Africa, Grietjie Verhoef documented the creation of an insurance company founded in Johannesburg in 1904. The policies it issued until 1909 were based almost exclusively on the tontine system and were called ‘accumulative surplus plans’, Grietjie Verhoef, South Africa: Leading African Insurance, in: Borscheid and Haueter (n. 20), 325–348, 328. For the Maghreb see Samir Saul, Maghreb: Naturalizing insurance in Algeria, Morocco and Tunisia, in: Borscheid and Haueter (n. 20), 373–390, 376: La Asistencia Mutua de Tunez (1901) used the tontine insurance system. 38 For the scant previous regulation, see Illescas, 234-236, above. 36

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public debt. However, other products based on the Tonti system were adapted by industrialized insurance companies and combined with the scientific life insurance they offered. In the last third of the 19th century, the three large American insurance companies (the New York Life Insurance Company, the Equitable Life Assurance Society of New York, and the Mutual Life Insurance Company of New York) introduced the concept of deferred dividend policies, which brought them large profits and drove their international business. This type of policy had some clear differences from the type of policy invented by Tonti.39 This contract required the life insurance policyholder to renounce receiving dividends for five, ten or twenty years. In exchange, the policyholder benefited from the investment of this capital by the insurance company in remunerative securities, as well as benefiting from the accumulated capital of other policyholders who failed to keep up premium payments.40 Once the established period had elapsed, the dividends were divided up among the survivors. This type of policy was introduced into the American insurance market by Metropolitan Life in 1866. One year later, Equitable Life approved a subscription of this type. The deferred dividend policies were issued for periods of ten, fifteen and twenty years, during which time policyholders would not receive any dividends, and if they failed to keep up premium payments they would not receive anything. If the policy ended with the death of the beneficiary, the heirs received the nominal value of the policy. Finally, the policyholders who survived to the end of the set period (endowment period) shared the accumulated dividends. The loss of the reserves in the event of death or non-payment that was inherent in this first type of policy, however, diminished the enthusiasm of potential policyholders. This handicap prompted Equitable Life to present a modified version of deferred dividend policies in 1871, which included the possibility of a surrender value. It was precisely this new policy that gave this company a product with a comparative advantage, one which was soon to become the best-selling product of the American insurance companies. 41 In 1873, the Germania Life Assurance Society of New York joined this trend, and its board of directors voted in favour of adopting a tontine plan.42 This new product combined with scientific life insurance enabled the three large American insurers to break into European markets and led to enormous protests by the national companies that could not match the high degree of competition that the American companies brought to these markets. Pearson explains ___________ 39 Douglas North, Life Insurance and Investment Banking at The Armstrong Investigation of 1905–1906, (1954) 14 Journal of Economic History 209–228. 40 Keller (n. 3), 56. 41 Anita Rapone, The Guardian Life Insurance Company, 1860–1920: A History of a German-American Enterprise (1987), 86 f. 42 Rapone (n. 41), 86 f.

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how they imposed themselves on the market in the United Kingdom thanks to their successful sales strategies for cheap tontine-type products, with the promise of profits from high interest funds and mortgages. These insurers soon obtained an important share in the British market and competed aggressively with British companies. The British companies and the local press accused the American companies of offering very low premiums combined with the promise of great future benefits as the result of calculations based on doubtful mortality rates and exaggerated estimates of the yield of the investments made.43 In France, despite the scant presence of foreign companies, there were also protests in the 1890s against the practices of the American mutuals engaged in the tontine business. Mutual Life, The Equitable, New York and Mutual Reserve all entered this market. In 1907, New York Life alone accounted for 43% of the life insurance premiums of all the foreign companies in this branch. However, their importance started to wane due to the press campaign against the practices of the American life insurance companies, which accused them of offering highly-unrealistic assurances of profits. 44 The American companies (The Equitable, New York Life and Mutual Life) also used aggressive advertising strategies in Germany. They sold their tontine policies on the basis of questionable mortality calculations and exaggerated profits while delaying the distribution of dividends for a period of ten or twenty years. The press throughout continental Europe criticized their exaggerated forecasts. This reaction persuaded some governments to intervene. One of the first to do so was the Prussian government, which in 1891 obliged insurers to account for their tontine business separately from other insurance activity and increased the deposits required as a guarantee of solvency for foreign companies. The three American companies naturally opposed the measure. Nevertheless, Prussia expelled New York Life and Mutual Life in 1895, and Equitable Life had already withdrawn from the Prussian market in 1894. New York Life returned in 1899 when it had adapted to the Prussian government’s demands. 45 In the case of Russia, just as in other European markets, national companies suffered from the competition of the American life companies, although they

___________ 43 Robin Pearson, United Kingdom: Pioneering insurance internationally, in: Borscheid and Haueter (n. 20), 67–97, 82. For the adoption of tontines by the Standard Life Assurance Company, see William Schooling, The Standard Life Assurance Company (1925), 78. 44 Straus (n. 20), 125 f. 45 Peter Borscheid, Germany: Insurance, expansion, and setbacks, in: Borscheid and Haueter (n. 20), 98–117, 104.

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managed to bring pressure to bear on the government, which consequently banned tontine insurance in 1894.46 The American companies established themselves in Spain during the 1880s. New York Life set up in Madrid in 1881 and its rival Equitable Life in 1882. These multinationals were attracted by a potential growth market which, moreover, did not require them to provide either reserves or deposits. They had a clear advantage in the Spanish market due to their superiority with respect to management, marketing, and actuarial techniques. Their star product comprised life insurance with a deferred dividend policy and situated them in a dominant position in the Spanish market. In the statistics for 1912, three American companies accounted for 40% of market share in the branch of life insurance. Equitable Life controlled 21.28% of premiums in the life branch, New York Life 17.45% and Germania Life 1.37%. The controversy surrounding the deferred dividend policies popularized by the American companies drove some European countries to regulate or prohibit them under pressure from their national insurers. However, the event that had the greatest impact on the decline of this type of policy was instigated by the American regulators themselves. In 1905, an investigative committee called the Armstrong Commission was organized in the State of New York.47 According to Morton Keller, the American companies’ difficulties with foreign governments started in 1905, after the Armstrong Commission investigation was concluded in the United States. This investigation instilled a mistrust of American companies that led European states to regulate the life insurance sector. 48 The Armstrong Commission related tontine policies to corruption and extravagance. In 1906, following its recommendations, New York State prohibited deferred dividend policies, limited new business, and imposed more government control over life insurers’ investments, which triggered the reduction of the American companies’ business activities in Europe.49

___________ 46 Yuri A. Petrov, Early expansion, state involvement, and re-emergence of the insurance industry, in: Borscheid and Haueter (n. 20), 213–238, 221. 47 North (n.39), 209–228. 48 ‘Everywhere, for all the companies, the post-Armstrong years were a time of difficulty. With foreign governments hostile, regulatory activity took on new or renewed life from the 1905 revelations’, Keller (n. 3), 277. For the American companies’ problems in the case of Spain and their withdrawal from the market, see Jerònia Pons, Multinational Enterprises and Institutional Regulation in the Life-Insurance Market in Spain, 1880– 1935, (2008) 82 Business History Review 87–114. 49 Roger L. Ransom and Richard Sutch, Tontine Insurance and the Armstrong Investigation: A Case of Stifled Innovation, 1868–1905, (1987) 47 Journal of Economic History 388–390.

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Roger L. Ransom and Richard Sutch consider that the prohibition of this type of policy was unnecessary, despite the cases of corruption among American insurers detected by the committee, as at this time tontine insurance fulfilled an important function due to the lack of private pension plans or social insurance. 50 Nevertheless, the American companies started their withdrawal from the European life insurance markets, and they were followed by the British companies after World War I. The consequences of the regulatory changes in the United States sparked the process, but it was the currency imbalances and the climate of economic nationalism in the post-war period that put an end to the first phase of globalization of the insurance industry, in this case a phase of life insurance linked to the popularity of deferred dividend policies. 51

D. Conclusions From the perspective of economic history, the historiography has focused on the experiences of the tontine societies of the late 18th and 19th centuries as forms of life insurance, with elements of annuities and lotteries. In most cases they failed due to their inadequate actuarial basis, terrible management, and the poor investment of the capital contributed by subscribers. These businesses developed in important European cities and were linked to the new urban and financial bourgeoisie, who sought speculative business dealings in order to make a quick profit from their capital. Many of them developed on the basis of mutual typologies, managed by the political and economic elites of these cities, without any reserves to guarantee solvency. The subscribed capital was invested in the real estate sector and, above all, in unstable public debt, which in some countries led to the bankruptcy of many societies, with heavy losses for many clients. The fall in the value of investments and these bankruptcies weakened the classic model of tontine societies, which languished in the last third of the 19th century. However, the American life insurance companies created deferred dividend policies by combining the tontine mechanism with life insurance policies. In this way they created a product that was attractive for potential customers. Their international expansion was based on this type of policy. They did not encounter serious competition in European countries and acquired a substantial share of the market. National competitors put pressure on their respective governments to limit and control the activities of the American insurers, accusing them of promising overestimated prospective dividends. Nevertheless, it was actually the U.S. administrative agencies itself which, after the Armstrong Investigation in 1905, ___________ 50

Ransom and Sutch (n. 49), 388–390. For a description and the consequences of the withdrawal of American companies from the Spanish market, see Pons (n. 48). 51

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prohibited this type of policy and regulated the investment of reserves. From 1910 onwards, this form was replaced by new products in the life insurance market. As has been demonstrated through the contributions in this volume, tontines – both as an instrument for financing public debt and as a form of insurance – spread internationally and with great ease and rapidity in different social and economic contexts. Their versatility, low actuarial complexity, and complementarity with other forms of insurance afforded them significant longevity. However, this ease of development and the limited control over their growth allowed for an inadequate of control over operations at certain times, which led to major bankruptcies of tontine societies or condemnation by the authorities and their prohibition from insurance practice.

Chapter 23: A Comparative Analysis from the Perspective of Legal History By Phillip Hellwege A. Lorenzo Tonti: the inventor of tontines? ................................................................ 383 B. The practical importance, designs and purposes of tontines ................................... 388 I. The first phase: public finance ........................................................................ 388 II. The second phase: property development, pension products, and savings products .............................................................................................. 390 III. The third phase: tontine life insurance products .............................................. 391 C. Misnomers .............................................................................................................. 392 D. The impact of tontines on insurance law ................................................................ 393 E. The future of tontines ............................................................................................. 394 F. Conclusion .............................................................................................................. 396

A. Lorenzo Tonti: the inventor of tontines? Lorenzo Tonti (1602–1684) is often referred to as the inventor of tontines. However, what exactly was Tonti’s innovation? Since the early 18 th century, the literature has conceded that Tonti was at a minimum able to rely on precursors for his purported invention. Paul Jacob Marperger (1656–1730) even claimed in 1715 that tontines had already been proposed to Louis XIII, who was born in 1601 and reigned from 1610 to 1643.1 However, Marperger does not give any references in support of his contention. Other authors argued – or, more cautiously formulated: suspected – that tontines were invented by the Venetians or – more generally – that they were already known of in Italy.2 Tonti only brought them with him to France. Many authors refer in this context to the institutions of ___________ 1 Paul Jacob Marperger, Montes Pietatis (Leipzig 1715), 259. Similarly Hans SchmittLermann, Der Versicherungsgedanke im deutschen Geistesleben des Barock und der Aufklärung (1954), 64. 2 Johann Heinrich Zedler (ed.), Grosses vollständiges Universal-Lexicon aller Wissenschaften und Künste, vol. 44 (Leipzig 1745), 1250; Philipp Heinrich Seyberth, De reditu annuo praesertim vitali tontina et fiscis viduarum (Frankfurt and Leipzig, 1768), 18 f.; Johann Heinrich Ludwig Bergius, Policey- und Cameral-Magazin, vol. 6 (Frankfurt am Main 1771), 149; ‘Leib-Renten, Jahr-Renten und Tontinen’, in: Johann Georg Krünitz (ed.), Oekonomisch-technologische Encyclopädie, vol. 71 (Berlin 1796), 1–426, 214; Wilhelm August Friederich Danz, Handbuch des heutigen deutschen Privatrechts. Nach dem Systeme des Herrn Hofraths Runde, vol. 2 (Stuttgart 1797), 328.

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Montes pietatis, Monte delle doti, and Monte del matrimonio as models for tontines.3 Again others argue that tontines had also been known in Germany prior to Tonti’s proposal, at least since the 16th century and, indeed, Montes pietatis had been discussed during that century in Germany. 4 Others argue that tontines are nothing but a variation on the life annuity schemes which had long existed in the Netherlands.5 And many conclude that it is an open question just what Tonti’s innovation was.6 It is beyond the scope of the present volume to develop a conclusive answer to this question. Rather, the present volume focuses on the Wirkungsgeschichte of tontines – i.e. the history of the impact which tontines had, especially on the development of life insurance (law). 7 Nevertheless, the present volume is able to add some further aspects that help to piece together an answer to the raised question. It seems unlikely that tontines in the design of Tonti’s plan of 1653 had already been proposed to Louis XIII. Cardinal Mazarin (1602–1661) finally settled in Paris in 1640, worked for Cardinal Richelieu (1585–1642), and became Richelieu’s successor.8 It seems unlikely that Mazarin would have considered paying Tonti for a proposal which in fact had already been known to the French administration under Louis XIII, an administration which he was a part of. Furthermore, Christian Rietsch and Georges Gallais-Hamonno rightly point to the differences between Montes pietatis and Monte delle doti, on the one hand, and

___________ 3 Meno Pöhls, Das Recht der Actiengesellschaften (1842), 68; Peter Koch, Zum Tontinengeschäft in versicherungshistorischer Sicht, in: Verlag Versicherungswirtschaft (ed.), Beiträge zur Geschichte des deutschen Versicherungswesens, vol. 2 (2005), 27–30, 28; Marita Roloff, Die Entwicklung der Lebensversicherung in Österreich zwischen 1873 und 1936, in: Wolfgang Rohrbach (ed.), Versicherungsgeschichte Österreichs, vol. 2 (1988), 283–608, 294; Hans-Martin Oberholzer, Zur Rechts- und Gründungsgeschichte der Privatversicherung (1992), 84; Clemens von Zedtwitz, Die rechtsgeschichtliche Entwicklung der Versicherung (1999), 142. See also Fortunati, 205, above. 4 Compare Julius Lehr and Max von Heckel, Tontinen, in: Johannes Conrad et al. (eds.), Handwörterbuch der Staatswissenschaften, vol. 7 (2nd edn. 1901), 125–129, 128; L. Gustav Du Pasquier, Die Entwicklung der Tontinen bis auf die Gegenwart, (1910) 46 Zeitschrift für Schweizerische Statistik 484–513, 485, discussing Georg Obrecht (1547– 1612) and Berthold Holzschuher (1511–1582). 5 Peter Ulrich Lehner, Zur Entstehung des Versicherungswesens. Versuch einer gesellschaftlichen Begründung, in: Wolfgang Rohrbach (ed.), Versicherungsgeschichte in Österreich, vol. 1 (1988), 1–44, 18. 6 L. Gustav Du Pasquier, Leonhard Eulers Verdienste um das Versicherungswesen, (1909) 54 Vierteljahresschrift der naturforschenden Gesellschaft in Zürich 217–243, 217. 7 See Hellwege, 13 f., above. 8 Michaela Knäble, in: Biographisch-Bibliographisches Kirchenlexikon, vol. 14 (1998), 1241–1245.

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tontines on the other hand.9 However, I still hesitate to follow them in their conclusion that Tonti must have been the inventor of tontines, and so does Moshe A. Milevsky.10 One should keep in mind the proposal developed by Nicholas Bourey in 1641 in Portugal, which Kent McKeever discusses.11 It is striking that Bourey is said to have come from Antwerp given that life annuity schemes were widely used in the Netherlands. It is also striking that Duarte de Lima came, according to Martin Sunnqvist, from Portugal.12 In 1653 Poul Klingenberg (1615–1690) proposed the idea of a tontine in Denmark. Rietsch and Gallais-Hamonno as well as Sunnqvist mention that a similar project was suggested by de Lima at the same time and this proposal included a lottery element.13 En passant it may be noted that Sunnqvist convincingly refutes the often-read proposition that Tonti and Klingenberg had met in Amsterdam. 14 Furthermore, the German poet Georg Philipp Harsdörffer (1607–1658) discussed a Venetian tontine-type transaction.15 He also observed that the Venetians had already added a lottery-element to these transactions.16 Finally, Maura Fortunati mentions a tontine plan in the Duchy of Savoy in the 1630s or 1640s and Boudewijn Sirks a scheme in Naples in the 1630s.17 Thus, if we define a tontine simply as a pooled life annuity scheme,18 it seems that we have to concede that it is unlikely that Tonti was its inventor. Such schemes had already been known. Nevertheless, it seems that large-scale tontines as proposed by Bourey and as reported by Harsdörffer were an innovation, or at least not widely known at their time. Otherwise it would not have been necessary for people like Bourey, de Lima, and Tonti to propose such schemes to public officials. Otherwise Harsdörffer would not have reported them. And otherwise it would have been foolish of Tonti to believe that he would be able to turn his proposal into money for himself. Tonti perhaps had a sense that he had an informational advantage in France, and he simply wanted to convert this advantage into money. This explanation would be in line with Tonti’s biography. Rietsch ___________ 9

See Rietsch and Gallais-Hamonno, 27 f., above. See Milevsky, 307 ff., above. 11 See McKeever, 193 ff., above. 12 See Sunnqvist, 157, above. 13 See Rietsch and Gallais-Hamonno, 36 f., above; Sunnqvist, 157, above. 14 See Sunnqvist, 158–160, above. 15 Georg Philipp Harsdörffer, Der Grosse Schau-Platz Lust- und Lehrreicher Geschichte, vol. 2 (Hamburg 1651), 279 f. 16 Harsdörffer (n. 15), 280. 17 See Fortunati, 213, above; Sirks, 125 f., above. 18 See Hellwege, 9, above. 10

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and Gallais-Hamonno bring to light many forgotten details of Tonti’s vita. 19 His biography reads rather as that of a swindler than that of a respectable financial innovator. His standard practice had always been to try and make a living out of trading information. And this may explain why we find discussions immediately following Tonti’s proposal only in France and in Denmark. Rietsch and GallaisHamonno mention that Klingenberg thought about proposing the idea of a tontine in 1653 in Hamburg.20 However, Harsdörffer’s account had been published in 1651 in Hamburg. Thus, Tonti and Klingenberg did not have the informational advantage in Hamburg which Tonti wanted to turn into money. There are no traces of a proposal in Hamburg beyond the letter cited by Rietsch and GallaisHamonno. And it is generally thought that Tonti was, in 1652, in Amsterdam. Nevertheless, it seems that Tonti did not make his proposal there. At least there are no traces of any immediate discussions. Again, it might be that Tonti noticed that he did not have an informational advantage in Amsterdam which could be transformed into money. If we view as the distinguishing feature of tontines the hereditary principle according to which the annuities of the deceased accrued to surviving members, we have to concede that this principle had been known for a much longer time than those large-scale schemes proposed by Bourey and Tonti and reported by Harsdörffer. Since the Middle Ages it had been possible for life annuity contracts to have more than one annuitant and for the annuity of a deceased annuitant to accrue to the surviving annuitants. 21 In a different publication I discuss a late 17th-century Bremen loan contract that applied a hereditary clause which was akin to that found in tontines.22 Moshe A. Milevsky discusses in a different publication the application of the hereditary principle to a will in the late 16 th century.23 These examples confirm John MacLeod’s proposition that these clauses were widely known and applied to different kinds of contracts.24 This leaves us with two potential elements which Tonti might have added to financial schemes which had already been known: (1) Sirks argues that Tonti’s innovation was that he ‘separated the functions of investor, nominee, and payee’.25 Yet Bourey’s proposal suggests as well that the investor, on the one ___________ 19

See Rietsch and Gallais-Hamonno, 19 ff., above. See Rietsch and Gallais-Hamonno, 37, above. 21 See Hellwege, 170, above referring to Otto Stobbe, Beiträge zur Geschichte des deutschen Rechts (1865), 33. 22 Phillip Hellwege, A History of Tontines in Germany. From a multi-purpose financial product to a single purpose pension product (2018), 40 f. 23 Moshe A Milevsky, King Williams Tontine: Why the Annuity of the Future Should Resemble Its Past (2015), 37–39. 24 See MacLeod, 144 f., 150 f., above. 25 Sirks, 126, above. 20

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hand, and the nominee payee, on the other, did not have to be the same person. Did Tonti simply introduce the possibility that the investor could name two different persons as payee and nominee? (2) Tonti may have introduced the idea of age-based classes to pooled life annuities. McKeever suggests that Bourey’s proposal of 1641 did not have age-based classes, but the proposal hints that Bourey was aware of the problem of drawing nominees of different ages together. 26 Equally, in his 1651 report on the Venetian scheme, Harsdörffer did not describe it as having any age-based classes. According to Sirks, the Kampen scheme of 1670 similarly did not have any classes. 27 And the Prussian tontine of 1698, even though it mentioned Tonti in its preamble, did not have any age-based classes either. In this respect, these schemes differed from Tonti’s proposal. In contrast, the Danish tontine plan of 1653 and the Gdańsk tontine of 1657 were class tontines.28 According to Herman Wagenvoort, as Sirks mentions, the brochure of the Kampen tontine simply referred to ‘the intelligent Italians’. 29 Wagenvoort concludes that the idea of tontines came from Tonti via Klingenberg to the Netherlands. However, there is also a different possibility: Bourey’s plan of 1641, the Venetian scheme which Harsdörffer identifies in 1651, the Kampen scheme of 1670, and the Prussian tontine of 1698 have more in common than only the absence of any age-based classes. In fact, they all had similar and simple numbers: 1,00(0) shares at a cost of 100, a total capital of 100,000, and an interest rate of 5% (Venetian and Prussian schemes); 10,000 shares at a cost of 100, a total capital of 1,000,000 and an interest rate of 5% (Bourey); and 400 shares at a cost of 250, a total capital of 100,000, and an interest rate of 4% (Kampen). By comparison, Tonti’s proposal was much more complex. Thus, it may be that the Prussian and the Kampen scheme took the Venetian scheme rather than Tonti’s proposal as an immediate model. Indeed, for the Prussian scheme there is an undated document in the Brandenburgisches Landeshauptarchiv (Brandenburg Main State Archive):30 it refers to a tontine in Venice, to the French tontine of 1689, to the English tontine of 1692, and to a French tontine of 1698. In addition, Bourey might have also heard of the Venetian scheme. However, all of this is speculation. Definitively identifying Tonti’s innovation – or settling on the conclusion that he merely tried to sell an elsewhere developed scheme that was unknown in France – will be possible only on the basis ___________ 26

See McKeever, 200, above. See Sirks, 124, above. 28 See Sunnqvist, 160, above; Hellwege, 171, above. 29 See Sirks, 125, above. 30 Brandenburgisches Landeshauptarchiv, No. 23A C.2720: Forderung Kurfürst Friedrichs III. zur Aufbringung von 200 000 Reichstalern als eine sogenannte Tontine oder Leibrente und Genehmigung zur Errichtung einer Tontine von 30 000 Talern Kapital zum Wiederaufbau der Schloß-, Oberpfarr- und Domkirche, 1698–1747, fol. 10r. 27

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of a comprehensive analysis of the financial products offered and discussed in 17th-century Europe.

B. The practical importance, designs and purposes of tontines After having read the contributions to the present volume, a hostile reader might reach the conclusion that these contributions are linked together only by a specific term; a term which is used to label a number of very distinct financial products; financial products which have nothing more in common than their name: tontines. Indeed, tontines had very different designs – the term tontine is a so-called ‘false friend’ – and were of different practical importance in Europe and beyond. Yet, the different contributions to this volume suggest that it is possible to distinguish three phases in their history. Using such a periodization allows to present a historical development. In each phase tontines were used by different entities and for different purposes, and these purposes were reflected in different designs. Furthermore, such periodization allows to identify misnomers. And most importantly, such periodization allows to clearly address the question of the relationship between tontines and insurance and the question as to the future of tontines. I. The first phase: public finance The fluid history of tontines underwent its first phase in the context of public finance. Accordingly they were offered by the public hand. Robin Pearson has put this development into the context of the rise of the fiscal-military state.31 In the 17th and 18th centuries, the public hand had different means to raise money: they could offer life annuities, initiate lotteries, raise taxes or introduce new taxes, take out loans, or issue a tontine. It was often the case that a tontine was chosen at a time when, during or after a war, neither the public hand nor the population had any money left. This explains why there were so many tontine plans ultimately not realized. The inhabitants of a given territory had, after a war, simply no money left to invest. Rietsch and Gallais-Hamonno argue that this was actually the reason why the lottery of 1656 failed. 32 Furthermore, this may explain why tontines were often sold on an international level. 33 Finally, the shortage of local money may explain the often unusual designs of tontines of the first phase. They were designed to make these schemes as attractive as possible: lottery elements were added and the interest rates offered were substantial. This ___________ 31

See Pearson, 79 ff., above. See Rietsch and Gallais-Hamonno, 33 ff., above. 33 See Hellwege, 176, above. 32

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raises, of course, the question whether one should describe the French-issued tontines, in comparison to the English tontines, true successes.34 Indeed they successfully raised the projected capital; however, they did so at the expense of offering very high interest rates. These tontines of the first phase, which were used by the public hand to raise capital, seem to have been issued, or there were at least plans to issue such tontines, in France, England, Ireland, the Netherlands, Denmark, Germany, Portugal, Spain, and the U.S.A.35 However, the importance of tontines differed greatly in these countries. In Spain there was only one traceable scheme which is regularly referred to as a tontine; but it seems that the term tontine was a misnomer. 36 In the U.S.A. there was one plan for a public tontine in the late 18th century which was not implemented.37 It seems that the Netherlands had the highest number of tontines and tontine plans, followed by Germany. With respect to Germany this is explainable by reference to its structure in the 18 th century. It consisted of a large number of principalities which all had the right to issue tontines. And within Prussia it seems that the different provinces had the right to issue tontines, too. Thus, I am not convinced that one should qualify all of them simply as municipal tontines. It seems that the issuers of tontines looked to the innovations made in other countries when designing and planning a new tontine. Three examples may suffice to support this conclusion: Rietsch and Gallais-Hamonno describe both the Danish tontine plan of 1653 and the tontine plan of 1667 for the States of Languedoc as containing a provision according to which the purchasers of a very high number of shares were to be ennobled;38 later, under the East Frisian tontine plan of 1755 the last three survivors were to be ennobled. 39 The Zeeland tontine of 1755, as reported by Sirks, reminds me of the design of the Gotha tontine of 1752.40 Finally, the Italian tontine of 1793 seems to have adopted an innovation introduced by the Nuremberg tontine of 1777.41 The tontines of the first phase were multi-purpose financial products. The issuer wanted to raise money. Investors, by contrast, might have used their investments as a pension product; they might have used the investment to provide for dependants; they might have used their investment as a speculative device with ___________ 34

See Gallais-Hamonno and Rietsch, 66, above. See Gallais-Hamonno and Rietsch, 56 ff.; Delbrel, 109 ff.; Sirks, 126 ff., above. 36 See Illescas, 229 f., above. 37 See McKeever, 240, above. 38 See Rietsch and Gallais-Hamonno, 37 f., above. 39 Hellwege (n. 22), 59. 40 See Sirks, 136, above and Hellwege (n. 22), 56 f. 41 See Fortunati, 215, above; Hellwege, 175, above. 35

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the idea of reselling their share; or they might have invested simply for the purpose of gambling, especially when tontines involved a lottery element. The public hand, which was in need of money, was eager to attend to the diverse wishes of potential investors. There were three innovations which tontines experienced in the first phase which paved the ground for their second phase: 42 (1) The Nuremberg tontine of 1777 was a compound tontine. In the event of a nominee’s death, half of his or her annuity was divided between the surviving members of that class. The other half benefited a fund. The purpose of the fund was primarily to compensate the heirs of deceased tontine members: if the total sum of annuity payments which a deceased member had received did not amount to his or her invested capital plus 4% interest per annum, then the difference between the two sums was to be paid in instalments to his or her heirs. Thus, every investor (or his or her heirs) received back annuities worth his or her original investment plus 4% interest. (2) A number of tontines introduced a cap, and the Prussian tontine of 1788 introduced a system which made the increase in annuities foreseeable to investors: the increase was implemented in a pre-determined way. Gallais-Hamonno and Rietsch point out that the introduction of a cap made investment unattractive.43 However, if tontines were to be used as a pension insurance product, it needed to be safeguarded that the annuities of the last surviving members were not exorbitant and that they were not disproportionate to the original investment. (3) The possibility to make partial contributions was introduced in the course of the 18 th century. Accordingly, investors did not have to make the full investment in a lump sum but were instead able to pay their contributions in instalments. This opened tontines to more social classes. II. The second phase: property development, pension products, and savings products The second phase started in the late 18th century and was marked by private tontines and tontines issued by private entities. These existed in England, France, the Netherlands, Germany, Italy, and other countries.44 Although these tontines were in each case initiated for a single purpose, this purpose differed from one tontine to the next. And the issuers differed, too. It is possible to distinguish three distinct forms of tontines which all have in common that they applied the clause that only surviving members will benefit from the scheme – a clause which was ___________ 42

Hellwege, 175, above. Gallais-Hamonno and Rietsch, 54. 44 See Pearson, 91 ff., above; Delbrel, 111, above; Sirks, 127, above; Hellwege, 176, above; Fortunati, 216 ff., above. 43

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at the heart of tontines of the first phase, but which is much older and which had already before been applied to numerous other transactions. (1) In England and in the U.S. tontines were primarily issued for the purpose of property development.45 Typically, the surviving tontine investors shared the income generated by the property and, at the termination of the tontine, the proceeds of selling the property. (2) In Germany, we find two different types of tontines. Foremost, tontines were issued as a pension insurance product by the numerous pension funds which were established in the late 18th and early 19th centuries throughout Germany. And it seems that tontines were an important pension product throughout the 19th century. The payee received, as with the tontine products of the first phase, periodic payments in the form of an increasing annuity. (3) Germany also had Sparkassen Tontinen, which were savings products that imitated the structure of the dowry assurances which had long been known: the investment plus the dividends were divided between the surviving members after a fixed period of time, usually 10, 15 or 20 years. Of course, these products could also be utilized to save money for the time after retirement. However, they could be used also for different purposes. Looking beyond Germany, it seems that only tontines as savings products made appearance, for example, in Italy, Spain, Latin America, Poland, and Hungary. Yet, their importance seems to have differed in the individual countries. 46 III. The third phase: tontine life insurance products The last phase was marked by tontine life insurance products, especially those of U.S. life insurance companies. These were introduced to European markets in the 1870s. In these tontine life insurance products the tontine element was only an add-on to a normal life insurance policy. Here, the surpluses flowing from the invested premiums were not paid out to the insured as dividends; instead, they were accumulated in a tontine and paid out after a fixed period of time (again usually between 5 and 20 years) to the surviving insured and to those insured who had not defaulted. The tontine element was, thus, the long known savings scheme, but in this instance it was added to a life insurance policy. These products were criticized in most but apparently not all European countries: they were thought to be non-transparent and the returns were much lower than promised. In Germany they seem to have been a test case for existing ideas about insurance ___________ 45

See Pearson, , 91 ff., above; McKeever, 242 ff., above. See Fortunati, 216 ff., above; Illescas, 229 ff., above; Nasser, 265 ff., above; Halberda, 281 ff., above; Tőkey, 292 ff., above. 46

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regulation and insurance supervision.47 In other countries tontines were forbidden. This was, for example, the case in Italy, Russia, and Poland.48 Tamara Korchagina establishes that in Russia the regulators relied on the discussions occurring outside Russia, for example in Prussia.49 There is indeed a certain irony in how the history of tontine life insurance products unfolded. When Prussia stiffened the regulatory measures against the U.S. life insurers offering tontine life insurance products, but stopped short of banning them entirely, the State of New York tried to intervene; yet only a little over ten years later, in 1906, the State of New York itself outlawed such tontine products. This prohibition of tontines was subsequently exported to Latin America.50 Since the beginning of the 20th century tontines have fallen out of practice, and they exist only as a financial niche product in some countries.51

C. Misnomers The term tontine was not used exclusively to denote pooled life annuity schemes issued by the public hand in the 17th and 18th centuries, and then pension products and savings products in the 19th century. Rather, the term was widely applied, or one could say: misapplied. Rafael Illescas argues that the 18th-century scheme in Murcia was not a tontine,52 even though it is often referred to as a tontine in the contemporary literature. Most importantly, lotteries were commonly called tontines.53 Rietsch and Gallais-Hamonno as well as Delbrel give a convincing explanation for this use of the word tontine.54 In addition, Pearson refers to the example of mortuary tontines, 55 and McKeever argues ‘that tontine was also simply used as a commercially attractive name’. 56 In the present-day context, we see a renewed example of this misnomer quality when the rotating credit associations found in the informal sector in Africa are referred to as tontines.57 Often the term tontine was applied to label these products because they had some aspect in common with tontines of the first, second, or third phase of their development. ___________ 47

See Hellwege, 187, above. See Fortunati, 225, above; Halberda, 284, above; Korchagina, 304, above. 49 See Korchagina, 302, above. 50 See McKeever, 251, above; Nasser, 267 f., above; 51 See the example provided by Weinert, 318 ff., above. 52 See Illescas, 229, above. 53 See, for example, Hellwege, 173 f., above. 54 See Rietsch and Gallais-Hamonno, 33 ff., above; Delbrel, 109–112, above. 55 See Pearson, 93, above. 56 See McKeever, 244 n. 21, above. 57 See Mancuso, 343 ff., above. 48

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D. The impact of tontines on insurance law The overall objective of the present volume was to assess the impact which tontines had on the development of life insurance and life insurance law in Europe.58 It seems that tontines often had no or only very little impact on legal discourse and no or only very little impact on the development of life insurance.59 Germany seems to have been an exception. On the basis of the distinction of the different phases in the development of tontines and on the basis of the distinction of the different designs and purposes of tontines 60 it is possible to develop an answer why tontines had such diverse impact on the development of life insurance and life insurance law. To legal historians from countries, in which tontines have been used in the second phase of their development as a tool for financing property developments, the answer to question as to the impact of tontines on the development of insurance law is evident: they had no influence. Similarly, to legal historians from countries, which only knew tontine life insurance products of the third phase, the answer to the question seems to be equally evident: tontines were banned as a consequence of the bad reputation which tontine life insurance products had. To a legal historian coming from a country like Germany in which tontines have been turned into pension insurance products in the second phase of their development the answer is much more interesting. In Germany, it is within the context of insurance supervision and insurance regulation that tontines had a lasting impact. 61 In the 17th and 18th centuries tontines were issued by the public hand as a way of raising capital. Three mechanisms were developed by the public hand in order to guaranty the trustworthiness of the products which it offered to the general public: (1) the public hand pledged securities; (2) the public hand introduced measures to guarantee transparency: financial reports had to be published and sent to all annuitants and often investors had the right to inspect the books; (3) measures of self-administration were introduced. These means were not new and they were not restricted to Germany.62 However, it seems that it was primarily in Germany where these regulatory controls were, in the late 18th and then throughout the 19th century, imposed on those private pension funds which offered tontines as pension insurance products. Thus, the rules which the public hand had placed on itself when offering tontines in the context of public lending were transformed into rules on the supervision and regulation of pension funds. ___________ 58

See Hellwege, 13 f., above. See MacLeod, 144, above; Sunnqvist, 164, above; Fortunati, 203, above. 60 See Hellwege, 388, above. 61 See Hellwege, 185 ff., above. 62 See Gallais-Hamonno and Rietsch, 61 ff., 72 f., above; Sirks, 130 f., above; Sunnqvist, 160 f., above. 59

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By contrast, in the U.S. the insured had no right to examine the books.63 Furthermore, there were different accounting practices. These differences were the true reason why the U.S. tontine life insurance products were so heavily criticized in Prussia. In France, the rules on tontine supervision and regulation started to be developed beginning in the early 19th century, and these rules, of course, influenced developments in the Netherlands, too. 64 However, it is unclear whether there are any lines of continuity with earlier developments in the 17 th and 18th centuries in the context of tontines. And in again other countries the regulatory discussions started only in the second half of the 19 th century.65

E. The future of tontines The current low interest phase on the financial markets has stimulated debates on a resurgence of tontines as pension products of the future.66 Will tontines thus enter a fourth67 phase of their history? A re-introduction of tontines raises questions as to their legality in those countries in which they have been banned. And in many other countries they are discredited as even today tontines are often characterized as a form of immoral betting on lives or a kind of lottery. A historical analysis can help in overcoming these reservations. In the 17th and 18th centuries, when it was mostly the public hand which issued tontines, the legal characterization of tontines did not raise any problems: the public hand had the right to issue lotteries. Thus, even if tontines had been characterized as lotteries this would not have put their legality into question. Nevertheless, tontines were characterized as life annuity contracts. Yet, many tontines included lottery elements, and the term tontine was in the past often used to refer to pure lotteries. This loose use of the word tontine might have had a negative impact on the reputation of tontines as an investment product. However, tontine pension products do not necessarily need to include such a lottery element. Furthermore, whereas early examples of tontines allowed the last payees to collect exorbitant annuities which were disproportionate to their original investment, this problem had already been remedied in the course of the 18th century: classes contained a smaller number of individuals or the increase in the annuities was capped. As an additional original shortcoming, those nominees who died in the first year of the tontine would have lost their investment without receiving any ___________ 63

See McKeever, 248 f., above. See Delbrel, 115 ff., above; Sirks, 140, above. 65 See Fortunati, 221 ff., above; Korchagina, 298 ff., above. 66 See Milevsky, 307 ff., above; Weinert, 317 ff., above; Forman and Sabine, 329 ff., above. 67 If one considers tontines as rotating credit associations (see Mancuso, 343 ff., above) as the fourth phase of their history one might even speak of a fifth phase. 64

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payments as annuities. Here again, this problem was already remedied in the course of the 18th century – by the Nuremberg tontine of 1777. On the basis of these innovation tontines evolved in Germany into pension products of the 19th century. They were looked upon as insurance products. The risk against which the insured seeked coverage was that his or her assets would turn out not to be sufficient in case the insured lived longer than anticipated. It was, however, accepted that tontines were – just like lottery contracts, life annuity contracts, and insurance contracts – aleatory contracts. It was at the end of the 19th century, and in the context of the highly criticized U.S. tontine life insurance products, that tontines were widely condemned. Foremost, they raised regulatory problems: insurers promised unrealistic profits; the products were not transparent; the insurers did not maintain separate accounts for their tontines and for the different tontine classes. The problem with the late 19th-century and modern discourses is that they do not distinguish the different forms of tontines in the different phases of their development when criticising tontines. If at all the argument that tontines are a form of gambling could be raised against Sparkassen Tontinen, against tontines as savings products, against tontines as a means for financing property development, and against the tontine life insurance products of the late 19 th century. With these the invested capital or, in the case of tontine life insurance products, the accumulated dividends were paid out to the surviving investors or insured after a fixed period of time – usually between 5 and 20 years. There is no risk involved with these products against which the insured seeks insurance coverage. And in the case of tontine life insurance products the insured risk does not concern the tontine element which is simply added to a life insurance policy. If at all it is these products which may be looked upon as a means of gambling or of speculating on other peoples’ lives. By contrast, tontines as pension insurance products do not raise these concerns. In the words of Gunter Kürble:68 Wird eine Tontine auf versicherungsmathematischer Basis berechnet, so kann sie eine Form der Rentenversicherung darstellen, bei der das versicherungstechnische Risiko zwischen Veranstalter (Versicherer) und Teilnehmer aufgeteilt wird. Die Teilnehmer wird seinen Teil des ‘Risikos’ als Chance begreifen, im Falle eines überdurchschnittlich langen Lebens eine höhere Rente zu erhalten. If a tontine is based on sound actuarial calculations, then it will be a form of pension insurance. The insurable interest is split between the issuer and the annuitant. The annuitant will understand his part of the ‘risk’ as the chance that he will receive a high annuity if he reaches an age which is above the average.

___________ 68 Gunter Kürble, Der Exodus der amerikanischen Lebensversicherer aus Deutschland – die Tontine und die Vorgeschichte des Jahres 1894, (1990) 79 Zeitschrift für die gesamte Versicherungswissenschaft 581–623, 593.

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And with respect to those countries which have banned tontines in the late 19 th century or early 20th century one may argue that this ban extends only to the tontine life insurance products of this time, but not to tontines as pension insurance products.

F. Conclusion The present volume is part of a research project on a comparative history of insurance law in Europe. The starting point of that project was the observation that research on the history of insurance has to this point had a clear focus on maritime insurance and on insurance operated on a commercial basis. Furthermore, the research has been led by economic historians and, consequently, legal developments have largely been neglected. Finally, research on the history of insurance has developed distinct national narratives. The research project on a comparative history of insurance law in Europe strives to go beyond these national narratives and analyse the history of insurance law in Europe from comparative perspectives. It aims to do so by focusing on possible points of interaction between the different national legal developments. For a number of reasons tontines seemed to be a perfect candidate for commencing implementation of this research agenda. (1) They have existed and have been known in all parts of Europe. (2) German literature claims that they were of great importance for the development of life insurance and life insurance law. (3) And tontines indeed existed during the formative era of life insurance and life insurance law. Thus, the overall objective of the present volume was to assess the impact which tontines had on the development of life insurance and life insurance law in Europe. At first sight, the results of the present volume perhaps seem meagre for the project on a comparative history of insurance law: the practical importance of tontines was diverse in the various European countries. And in many countries they have not have left any traceable impact on legal developments apart from the debates in the late 19th century leading to their ban. Beyond these discussions, tontines seem to have entered the legal discourse only in the Netherlands and in Germany. Nevertheless, there are three findings which are worthy of being highlighted in conclusion. (1) The present volume furthers our understanding of tontines, a financial product which has been neglected in historical research. And it is the first volume which has considered tontines from comparative perspectives. (2) The discourse on the history of insurance is often dominated by Anglo-American authors. Given the background and experiences of tontines in England and the U.S., it is clear why the history of tontines has largely been under-researched by authors in these two countries. In their first phase, tontines were in both countries of only minor importance as a means for the public hand to raise capital. In

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their second phase, tontines were used in both countries primarily for the purpose of property development. In their third phase, they caused severe trouble in the U.S. However, while the story of U.S. life insurance companies offering tontine life insurance products at the end of the 19 th century seems to be quickly told, what has in the past not been appreciated is that in other countries, foremost in Germany, tontines developed in the late 18th century into true pension insurance products and that they were offered throughout the 19 th century. Thus, they are indeed an important part of insurance history in Europe. (3) Finally, tontines had an important impact on the discourse concerning insurance regulation and insurance supervision in Germany. Against these findings it is necessary to reassess the development of the law of insurance regulation and insurance supervision in a comparative context.

List of Contributors Sophie Delbrel is Associate Professor of Legal History at the University of Bordeaux, France. Georges Gallais-Hamonno is emeritus Professor in Finance at the University of Orléans, France. Jonathan Barry Forman is the Kenneth E. McAfee Centennial Chair in Law at the University of Oklahoma, U.S.A. Maura Fortunati is Associate Professor of Medieval and Modern Legal History at the University of Genoa, Italy. Jan Halberda is Assistant Professor at the Chair of General History of Law and State at the Jagiellonian University in Krakow, Poland. Phillip Hellwege is Professor of Private Law, Commercial Law, and Legal History at the University of Augsburg, Germany. Rafael Illescas is Professor of Mercantile Law at the Universidad Carlos III de Madrid, Spain. Tamara Korchagina is a Junior Researcher at the Lab of Social and Legal Studies and Comparative Law at the Lomonosov Moscow State University, Russia. John MacLeod is Senior Lecturer in Private Law at the University of Edinburgh, Scotland. Salvatore Mancuso is Professor of Comparative Law and African Law; Honorary Professor of African law, Centre of African Law and Societies, Xiangtan University, China; Former Chair at the Centre of Comparative Law in Africa, University of Cape Town, South Africa. Kent McKeever is the Director of the Arthur W. Diamond Law Library at Columbia Law School, New York, U.S.A. Moshe A. Milevsky is Professor of Finance, Schulich School of Business, and member of the graduate faculty in Mathematics and Statistics, York University, Toronto, Canada. Marcelo Nasser is Professor of Civil Law and Insurance Law at the Universidad de los Andes and Director of the Diploma on Insurance Law at the Insurance School of Chile, Santiago, Chile.

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Robin Pearson is Professor of Economic History at the University of Hull, England. Jerònia Pons Pons is Professor of Economic History at the University of Seville, Spain. Christian Rietsch is emeritus Associate Professor at the University of Orléans, France. Michael J. Sabin is an independent consultant in Sunnyvale, California, U.S.A. Boudewijn Sirks is emeritus Regius Professor of Civil Law and emeritus Fellow of All Souls College at the University of Oxford, England. Martin Sunnqvist is an Adjunct Senior Lecturer in Legal History and Civil Procedural Law at the University of Lund, Sweden. Balázs Tőkey is a Lecturer in Private Law at the Eötvös Loránd University of Budapest, Hungary. Jan-Hendrik Weinert is a Researcher in Insurance and Regulation at the International Center for Insurance Regulation, Goethe University Frankfurt, Germany.

Index A Providenca 271 Acebo, Joaquín 271 Adashi (Nigeria) 358 Africa 13, 16, 312, 343–82, 392 Albany 91 Albany, New York 243 Albertine Codice di commercio of 1837 (Italy) 210 Aleatory contract 110, 183, 212, 295, 395 Alexander VII 40 Alexandra Palace Tontine 92 Allgemeine Freywillige Wittwen- und Waysen-Cassa (Württemberg) 188 Allgemeine Versorgungsanstalt (Austria) 177 Allianz 275 Alloa 91 American Civil War (1861–1865) 239 American Revolution (1765–1783) 240 American War of Independence 52 Amicable Society for a Perpetual Assurance 93, 95 Amsterdam 10, 37, 83, 90, 125, 127, 129, 386 Anchorena, Juan (1829–1895) 266 Anker 284 Annese, Gennaro (1604–1648) 20, 25 Antwerp 385 Arcos, Duke of, Rodrigo Ponce de León (1602–1658) 20, 22 Argentina 262, 267, 270 Arlington, Henry Bennet, 1st Earl of (1618–1685) 83 Armstrong Commission 251, 368 Armstrong Report 268 Armstrong, William W. (1864–1944) 105 Arnauld, Henri Abbot (1597–1692) 23, 25

Arrieta, José (1833–1911) 265, 267, 268 Assicurazioni Generali 218, 219, 221 Associazione per l’incremento della scienza degli attuari 224 attestatum vitae 190 Augsburg 174 Austria 10, 167, 174, 177, 273, 278, 280, 284, 289 Austria-Hungary 251 Bååt, Seved (1615–1669) 163 Bahamondes, Ángel 264 Balbo, Prospero (1762–1837) 215 Balzac, Honoré de (1799–1850) 28 Ban of life insurance 115, 116 Ban of tontines 10, 15, 113, 143, 146, 183, 225, 231, 232, 251, 263, 267, 269, 270, 298, 377 Banco de la Provincia de Buenos Aires 261 Banco de Pensiones 272 Banco del Perú 262 Banco del Traffico nella città di Torino 213 Banco do Brasil 261 Banco Nacional de Chile 262 Bank of South Carolina 242 Banquier du pauvre (Africa) 354 Barazzuoli, Augusto (1830–1896 224 Baron de Limay 155, 165 Baroncini, Alessandra 21 Baroncini, Lorenzo (1602–1684) 21, 308 Baroncini, Simon 21 Bastille 20 Bath 90 Becher, Johann Joachim (1635–1682) 83 Bellavita, Paolo Antonio 213 Bergius, Johann Heinrich Ludwig (1718–1781) 176, 181, 186 Berlin 172, 177

402 Bernini, Gian Lorenzo (1598–1680) 26 Besmaus, François de Montlezun de 44 Betting 204, 207, 309 Birmingham 91 Biskupski, Ignacy 279 Black Friars Society, New York 242 Blackburn 91 Blanque 109 Blest Gana, Guillermo (1829–1904) 269 Blodget, Samuel (1757–1814) 242 Boccardo, Gerolamo (1829–1904) 207 Bodin, Jean (1530–1596) 27 Boey, Thymon 134 Bologna 205, 212 Bolzano 10, 167, 172, 310 Bond 123 Bonde, Gustav (1620–1667) 163 Borsari, Luigi (1804–1887) 206 Boselli, Paolo (1838–1932) 224 Boston 240, 241, 256 Bourey, Nicolas 193, 309 Bracciano, Duca di, Paolo Giordano II Orsini (1591–1656) 21 Bragelone 35 Brazil 262, 271 Breda 154 Bremen 79, 171, 172, 190, 386 Breslau 83, 173, 174 Briceño Trujillo, Moises 266 Bristol 91, 94, 97 Britain 87, 91, 92, 94, 97, 99 Brittany 20, 37 Brunswick, Maine 243, 244 Bruslons, Jacques Savary des (1657– 1716) 26, 113 Bubble Act 1720 148 Building Lottery Society (Hungary) 295 Bulfinch, Charles (1763–1844) 241 Bürgerliches Gesetzbuch (Germany) 183 Burial fund 93 Caisse de Survivance et d’Accroissement 117 Caisse des Employés et Artisans 117 Caisse Lafarge 111, 113, 117 Caisse mutuelle d’épargne 118 Caisse Paternelle 219, 220

Index Caixa Mutua de Pensões 271 Caja Universal de Capitales 270 Cameroon 311 Canon law 79 Cardinal de Retz (Jean-François Paul de Gondi, 1613–1679) 44 Cassa de’ censi, prestiti ed annualità 215 Cassa di Risparmio 208 Cassa Mutua Cooperativa italiana per le pensioni 226 Cassa nazionale di previdenza 226 Cassa nazionale mutua cooperativa per le pensioni 221 Castel Gandolfo 40 Castile 229 Castleconnell 91 Cavour, Camillo Benso conte di (1810–1861) 212, 218, 222 Censo 206 Charles Albert 218 Charles II 86 Charles XI, King of Sweden 163 Charleston Tontine Society 242 Charleston, South Carolina 242 Chatelusian tontine 231, 264 Chile 262, 263, 264, 265 Cirencester 91 Civil War (U.S.) 331 Claproth, Justus (1728–1805) 180, 188 Claremont, New Hampshire 244 Clark, Geoffrey 371 Clergyman 94 Cleves 171, 190 Code de commerce of 1807 (France) 210 Codice delle assicurazioni private of 2005 227 Código Civil of 1855 (Chile) 268 Código Civil of 1870 (Mexico) 271 Código Civil of 1873 (Colombia) 268 Código de Comercio of 1829 (Spain) 230, 260, 261, 269 Código de Comercio of 1853 (Peru) 269 Código de Comercio of 1884 (Mexico) 271 Código de Comercio of 1885 (Spain) 230, 231, 260, 269

Index Código de Comercio of 1902 (Peru) 269 Codony, Henry de 29 Colbert, Jean-Baptiste (1619–1683) 26, 33, 37, 39, 40, 41, 42, 44, 45, 84 College Retirement Equities Fund (U.S.) 337 Colombia 265, 267, 268 Commercial Code of 1842 (Sardinia) 221 Commercial Code of 1865 (Italy) 223 Commercial Code of 1882 (Italy) 204, 223 Commercial tontine (Africa) 351, 364 Commission for the Establishment of Governmental Supervision of Insurance Companies (Russia) 303 Compagnia di Milano 203 Compagnie d’Assurance Tontine Americaine sur la Vie et les Economies (rentes viagères) 252 Compagnie d’Assurances Générales 371 Comte de Brienne (Louis-Henri de Loménie, 1635–1698) 34 Condorcet, Marie Jean Antoine Nicolas Caritat, Marquis de (1743– 1794) 112 Congress of Vienna (1815) 273, 277 Conti, Prince de 47 Copenhagen 36 Cork 91 Courcy, Alfred de (1816–1888) 113 Couteau, Emile 113 Cracow 275, 278 Creel, Enrique (1854–1931) 271 Cuba 270, 373 Danielewicz, Adam (1846–1935) 275 Danish Royal Mail 154 Darmstadt 177 de Coriolis, Honoré 155, 165 de Grey, William (1719–1781) 59 de Lima, Duarte 157 De Margherita, Luigi (1783–1856) 212 de Witt, Johan (1625–1672) 83, 125, 161, 267 Décret Impérial rélatif aux associations de la nature des Tontins qui ont existé à Paris et dans les autres villes de l’Empire of 1810 140

403 Defined benefit pension plan 331, 333, 334 Defined contribution pension plan 331, 334, 335 Defined-ambition plan 338 Delfshaven 92 Delft 90 Demonferrand, Jean Baptiste Firmin (1795–1844) 292 Denmark 10, 20, 36, 154, 159, 162, 163, 164, 165, 310, 312, 385, 386, 387, 389 Deparcieux, Antoine (1703–1768) 27, 64, 67, 68, 263, 267, 292 Desmarest, Nicolas (1648–1721) 63 Desperrières, Gabriel Adrien Marie Poissonier (1763–1852) 28 Det Frugtbringende Selskab 36, 153, 159, 160, 163, 165 Det Høegholmske Participantskab 162 Det Private Livrenteselskab 162 Di Castagneto, Cesare Trabucco (1802–1888) 212 Diamond scheme 253 Diatto, Giovanni Battista 221 Dickson, Peter G.M. 49 Doerman, Antoni (1879–1931) 274 Domain state 85 Doncaster Universal Tontine 148 Dowry insurance 178, 205 Drew’s Tontine, Jamaica 245 Dry Sugar Work, Jamaica 244 Du Pasquier, L. Gustav 11, 158, 159, 168 Duchy of Warsaw 276, 277 Dyrekcja Ubezpieczeń Królestwa Polskiego 277 East Frisia 171, 389 Ecuador 261, 267, 269 Eichstaedt, Ignacy 274 El Ahorro Mutuo 376 El Banco de Cataluña 376 El Banco de Economías 372 El Montepío Universal 230, 263, 372 El Porvenir de las Familias 230, 263, 265, 266, 267, 268, 269, 270, 372, 374 El Progreso de Chile 266, 268 Employee Retirement Income Security Act of 1974 (U.S.) 333 Emptio spei 123, 138

404 Endowment insurance 285 England 10, 14, 49–77, 84, 86, 87, 88, 92, 94, 95, 143–51, 159, 169, 170, 176, 206, 240, 247, 262, 307, 310, 316, 330, 368, 387, 389, 390, 391 English Provident Life Assurance and Tontine Society 247 Equitable Assurances on Lives and Survivorships 95, 100 Equitable Life Assurance Society of New York 102, 178, 284, 298, 299, 300, 302, 303, 378 Equitable Life Assurance Society of the United States 246, 249, 250, 251 Esusu (Nigeria) 358 Euler, Leonard (1707–1783) 310 Far East 13 Farkas, Ferencz Farkasfalvi (1785– after 1844) 290 Federal Street Theatre, Boston 241 Filippi, Guiseppe 216 Financial revolution 49, 79 Financial tontine (Africa) 356, 364 Finlaison, Alexander Glen (1806– 1892) 61 Finlaison, John (1783–1860) 61 Finland 163 Fire insurance 218, 230, 261, 279, 289 Fire Insurance Mutual Society in Cracow see Towarzystwo Wzajemnych Ubezpieczeń od Ognia w Krakowie Fire Society for the Grand Duchy of Poznań see Towarzystwo Ogniowe dla Wielkiego Księstwa Poznańskiego Fire Society for Towns and Villages see Towarzystwo Ogniowe dla Miast i Wsi Fire Society in the Kingdom of Poland see Towarzystwo Ogniowe w Królestwie Polskim First Anglo-Dutch War (1652–1654) 160 Fiscal-military state 84, 86, 388 Flanco de Pensiones 272 Florence 205, 211 Florianka 274, 279, 280, 281, 282, 283, 285, 286, 287 Florida 255

Index Foljanty, Lena 165 Folkestone 91 Fontenay-Mareuil, François Du Val (1594?-1665) 23, 24, 25 Foramiti, Francesco (ca 1760–1843) 207 Forbonnais, François Véron Duverger de (1722–1800) 115 Forquet, Carlo (1774–1838) 216 Fourier, Jean Baptiste Joseph (1768– 1830) 112 France 10, 14, 23, 49–77, 84, 88, 89, 49–77, 159, 163, 164, 165, 169, 170, 176, 200, 206, 210, 211, 213, 217, 219, 251, 252, 262, 263, 310, 313, 316, 330, 368, 370, 371, 379, 385, 387, 389, 390 Francischino, Don Gioseppe, Archpriest of Cerignola 24 Frederick III, King of Denmark 153, 165 Frederick William III of Prussia 275, 276 Freemasonry 175 Freimaurer 175 French Revolution 131 Friars Tontine 242 Fronde 28, 35 Funeral funds 297 Gaeta 19, 308 Galicia 274, 275, 278, 280 Galicia Insurance Stock-Society see Galicyjskie Akcyjne Towarzystwo Ubezpieczeń Galicyjskie Akcyjne Towarzystwo Ubezpieczeń 274, 279, 280, 281, 282, 283 Galluppi, Enrico (1849–1915) 209 Gambarotta, Marco Aurelio 213 Gambling 10, 95, 146, 168, 179, 180, 187, 254, 257, 311, 317 Gambling Act 1774 95 Garde d’argent (Africa) 354 Garde-monnaie (Africa) 354 GATU see Galicyjskie Akcyjne Towarzystwo Ubezpieczeń Gaunt, John (1620–1674) 309 Gdańsk 90, 169, 171, 185, 189, 310, 387 Generali 289, 292 Geneva 89, 96

Index Genoa 210 Gentile, Giuscaro 21 Germania Life Assurance Society of New York 178, 378 German-speaking territories 167–92 Germany 10, 16, 79, 156, 159, 165, 251, 262, 267, 274, 278, 279, 309, 312, 379, 389, 390, 391 Gesetz über den Versicherungsvertrag of 1908 184 Ghana 311 Gibalinus, Josephus (1592–1671) 126 Giolitti, Giovanni (1842–1928) 224, 225 Giulio, Carlo Ignazio (1803–1859) 220 Giuseppe II (Emperor) 213 Glasgow 91, 97 Glorious Revolution 49 Goes 37 Goethe, Johann Wolfgang von (1749– 1832) 167, 310 Goldsticker, Ralph 318 Gotha 10, 167, 173, 310, 389 Grand Alliance 52, 61, 62, 169, 200, 330 Graunt, John (1620–1674) 83 Great Britain 262, 370 Greek War of Independence (1821– 1832) 245 Greenock 91 Gregory XVI 217 Groningen 10, 37, 90, 126, 128 Gründl, Helmut 324, 326 Gueffier 25 Guénégaud (Henri du PlessisGuénégaud, 1609–1676) 32 Guilds 289 Guilford, Vermont 244 Guise, 5th Duke of, Henry II de Lorraine (1614–1664) 19, 20, 22, 23, 25 Guzman, Fabio Ortiz 268 Habsburg Empire 289 Halberstadt 174 Halley, Edmond (1656–1741/42) 83, 267, 309 Hamburg 10, 36, 91, 154, 167, 169, 172, 173, 186, 189, 310, 386 Hamburgische Allgemeine Versorgungs-Tontine 177

405 Hamilton, Alexander (1757–1804) 240, 331, 369 Hanley 92 Hannover 177 Hanover, New Hampshire 243 Harderwijk 130 Harsdörffer, Georg Philipp (1607– 1658) 170, 385, 386, 387 Hébrard, Pierre 45, 68 Hereditary principle 134 Herrfurth, Ernst Ludwig (1830–1900) 302 Hertzsprung, S. 158, 159 Hesse-Kassel 171, 173 Heusch, Gerard 155, 165 Holland 10, 86, 88, 121–41, 169, 176, 309 Hôpitaux généraux 90 Hornsey Freehold Estate Tontine Company 92 Houei (Indochina) 363 Houghton, Alexander 145, 386 Houghton, John (1640–1705) 98 Houses of correction 90 Hudde, Johannes (1628–1704) 83, 125 Huguenots 169, 170 Hungary 177, 289–96, 311, 391 Huygens, Christiaan (1629–1695) 83 Huygens, Lodewijk (1631–1699) 83 Hyde, Henry Baldwin (1834–1899) 102, 246, 247 Hyde, James (1876–1959) 104 Industrial revolution 49, 298, 333 Informal finance 345 Informal sector 13, 16, 343, 392 Inheritance tax 128 Inland Mutual Insurance Fire Society in Cracow see Wzajemne ubezpieczające krajowe Towarzystwo Ogniowe w Krakowie Insurance Company of North America 241 Insurance regulation 185, 192, 223, 234, 257, 264, 304 Insurance supervision 185, 192, 223, 304 Ireland 10, 14, 16, 49–77, 87, 94, 389 Ironbridge 91 Istituto Nazionale di Assicurazioni 221

406 Italy 79, 110, 112, 159, 203–27, 289, 308, 309, 383, 389, 390, 391, 392 Jakor 284 Jamaica 244, 245 Joseph II (Emperor) 213 Jung-Stilling, Johann Heinrich (1740– 1817) 181 Justi, Johann Heinrich Gottlob von (1717–1771) 83, 176, 182, 186 Kaiserliche Franciscischen Akademie der freyen Künste und Wissenschaften 174 Kameralismus 83, 180 Kampen 10, 37, 90, 124, 155, 161, 310, 387 Karlsruhe 177 Keller, Morton 380 Kemmerer, Edwin Walter (1875–1945) 267 Kent Mutual Assurance Society, England 247 Kentish Tontine Society 94 Kersseboom, Willem (1691–1771) 137, 267 Khatta (Sudan) 358 Kieszkowski, Henryk (1821–1905) 274 Kingdom of Poland Board of Insurance see Dyrekcja Ubezpieczeń Królestwa Polskiego Klingenberg, Poul (1615–1690) 36, 37, 126, 153, 154–55, 158, 160, 163, 165, 310, 385 Koch, Christian Friedrich (1798–1872) 186 Krestyanskaya Reforma of 1861 (Russia) 298 Kürble, Gunter 11, 395 L’Équitable 217 L’Union 371 L’Urbaine 284, 371 La Beneficiosa 372 La Bienhechora del Plata 270 La Caja Universal de Ahorros 372 La Caja Universal de Capitales 372 La Chilena Seguros 266 La France 371 La Guerra del Pacífico (1879–1883) 269 La Mélusines 371 La Mexicana 271

Index La misión Kemmerer 267, 269 La Mundial 376 La Mutual Franco-Española 376 La Mutual Latina 376 La Mutual Vascongada 376 La Mutualidad Española 376 La Mutualidad Hispano-Francesa 376 La Mutuelle de France et des Colonies 376 La Nacional 372 La Patronal 268 La Peninsular 372, 373 La Providence 371 La Salle, François De, Lord of Chastelux 20, 38, 45, 46 La Salle, René Robert Cavelier de (1643–1687) 45 La Tutelar Compañía General Española de Seguros Mutuos sobre la Vida 230, 263, 265, 266, 267, 268, 270, 372, 373 Labour tontines (Africa) 351 Lafarge, Joachim (1748–1839) 111, 114, 116 Lancashire 97 Lange, Willem (1624–1684) 157 Langie, Kazimierz (1839–1897) 274 Languedoc 20, 37, 389 Laplace, Pierre-Simon (1749–1827) 112 Latin America 259–72, 311, 312, 391 Laverdy, Clément Charles François de (1723–1793) 116 Le Conservateur 318 Le Phénix 371 Le Tellier (Michel Le Tellier, 1603– 1685) 26, 32, 40, 43, 44 League of Augsburg 52, 61, 62, 169, 200, 330 Learned, Rufus Frederick (1834–1924) 246 Leib, Johann George (1670–1727) 181 Les Fonds de Prevoyance et Compagnie d’Assurance sur la Vie de le Ville de New-York 252 Les prévoyants de l’avenir 221 Lesage, Alain-René (1668–1747) 110 Ley de Entidades de Seguros y su Control of 1973 (Argentina) 270

Index Ley de la Superintendencia de las Compañías de Seguros of 1927 (Chile) 262 Ley de ordenación, supervisión y solvencia de las entidades aseguradoras y reaseguradoras of 2015 (Spain) 232, 233 Ley de sobre ordenación de los Seguras privados of 1954 (Spain) 232 Ley de Sociedades Anónimas of 1854 (Chile) 260, 266, 267 Ley declarando libre la creación de Bancos territoriales, agrícolas y de emisión y descuento, y de sociedades de crédito of 1869 (Spain) 231 Ley del Contrato de Seguro of 2012 (Peru) 269 Ley General del Sistema Financiero y del Sistema de Seguros y Orgánica de la Superintendencia de Banca y Seguros of 1996 (Peru) 269 Ley que regula el Contrato de Seguro of 2013 (Chile) 268 Ley relativa á la inscripción en el Registro que al efecto se establece de las Compañías, Sociedades, Asociaciones, y en general, todas las entidades que tengan por fin realizar operaciones de seguro of 1908 (Spain) 230, 231, 235 Ley sobras Compañias de Seguros Sociedades, Sociedades Anonimas y Bolsas de Comercio of 1931 (Chile) 268 Ley sobre ordenación del seguro privado of 1984 (Spain) 233 Liefrinck-Teupken, W.F.H. 131 Lieto, Agostino de 21, 22, 23, 24, 25, 26, 33, 36, 157, 163 Lieto, Angela di 22, 45 Lieto, Isabella di 19, 22, 45 Life annuity 79, 81, 84, 88, 91, 122, 124, 125, 170, 180, 188, 206, 207, 212, 216, 239, 309, 311, 385, 386, 388, 394 Life Assurance Act 1774 143, 146 Life insurance 84, 92, 114, 119, 180, 203, 207, 208, 210, 211, 212, 218,

407 220, 226, 230, 239, 261, 263, 277, 279, 280, 297, 367 Life-contingent investment 79, 80, 81, 82, 84, 94, 95 Likelemba (Congo) 355 Lima 267 Lima, Duarte de 36, 385 Limay, Baron de, Honoré II de Coriolis, Baron de Limay (1600– 1668) 36 Limerick 91, 92 Lippe 173 Lisbon 200, 309 Liv-rentesocietetet af 13/2 1747 161 Loan 123 Loménie (Henri-Auguste de Loménie de Brienne, 1594–1666) 32 London 83, 91, 93, 94, 97 López de Casa Blanca, Ramón Joaquín 270 Lottery 33, 58, 64, 81, 87, 91, 92, 94, 99, 110, 112, 113, 136, 139, 158, 170, 173, 174, 179, 180, 211, 213, 222, 229, 254, 255, 287, 329, 385, 388, 394 Louis XIII 383, 384 Louis XIV 20, 40, 41, 52, 63, 85, 87, 110, 115, 153, 368 Louis XV 63, 115 Louis XVI 116 Lübeck 172, 173 Ludovisio, Duke 21 Lugo, Juan de (1583–1660) 126 Luzzatti, Luigi (1841–1927) 224 Lviv 278 Maassen, W.W.J. 121, 125, 131 Maatschappij, Opgeregt tot redding van Drenkelingen 127 Mahodisana (South Africa) 311, 358 Maine 91 Mainz 167, 174 Maleszewski, Bolesław (1844–1912) 284, 299 Manara, Ulisse (1858–1943) 209 Manchester 91 Manuel I 200 Marperger, Paul Jacob (1656–1730) 182, 383 Marrè, Gaetano (1771–1825) 210 Marseille 45 Masaniello (1620–1647) 20

408 Masieri, Valentino 214 Maximillian (Mexico) 271 Mayzel, Bronisław (1849–1927) 275 Mazarin, Jules Cardinal (1602–1661) 10, 19, 23, 24, 25, 26, 29, 41, 42, 51, 54, 80, 109, 115, 193, 309, 368, 384 Mazzarino, Michele Cardinal (1605– 1648) 24 McCurdy, Richard (1835–1916) 105 Mecklenburg 171, 172 Mecklenburg-Strelitz 171 Medina de Las Torres, Duca di, Ramiro Núñez de Guzmán (1600– 1668) 21 Meilleraye, Marshall de la, Charles de La Porte (1602–1664) 26, 37 Mercantilism 82 Merlin, Philippe-Antoine (1754–1838) 113 Merseburg 174 Messina 45 Mexico 262, 264, 267, 271 Middelburg 37, 90, 129 Mielec 278 Milan 213 Milevsky, Moshe A. 318 Minerva Universal 94 Mirabeau Honoré Gabriel Victor de Riqueti, Marquis de (1749–1791) 113 Mixed tontine 213 Mohl, Robert von (1799–1875) 177 Moivre, Abraham de (1667–1754) 309 Monetary tontine (Africa) 351 Monte Cavallo 21 Monte del matrimonio 205, 383 Monte delle doti 27, 30, 205, 383 Montepío Universal 373 Monterey, Conte di, Manuel de Acevedo y Zúñiga (1586–1653) 21, 23 Montes pietatis 125, 182, 383 Morgan, William (1750–1833) 100 Morse, Samuel (1791–1872) 245 Mortuary tontine 93, 371, 392 Moulin, Jacques 114 Moziki (Congo) 359 Mrazek, Józef (1838–1895) 274 Müller-Erzbach, Rudolf (1874–1959) 183

Index Murcia 229, 392 Muswell Hill Estate Tontine 92 Mutua Sicurtà, Società di soccorso in caso di morte 226 Mutual Life Insurance Company of New York 103, 178, 246, 284, 285, 378 Mutual tontine (Africa) 348, 364 Mutuelle de France et des Colonies 226 Mutuelle Lyonnaise 226 Nani, Giovanni Battista Gasparo 40 Naples 20, 21, 203, 205, 216 Napoléon Bonaparte 116 Napoleonic Wars 273, 276 National Tontine Institute (Hungary) 290, 291, 292, 295 Netherlands 79, 87, 90, 92, 97, 121– 41, 155, 159, 165, 262, 312, 316, 385, 389, 390 New British Tontine 94 New Hampshire 91 New Haven, Connecticut 91, 243, 244 New York 91, 104, 240, 242, 243, 249, 250, 251, 252 New York Life Insurance Company 103, 178, 275, 285, 286, 287, 298, 299, 300, 302, 303, 378 New York Stock Exchange 240 Nice 214 Nicholas Bourey 385, 386, 387 Nicholas I (Russia) 277 Nigeria 311 Nine Years War 52, 61, 62, 169, 200, 330 Nitti, Francesco Saverio (1868–1953) 224 Nördlingen 90 North America 14, 80, 168, 178, 187, 239–57, 308, 312, 316, 378, 389, 391 North, Douglass 49 Northampton, Massachusetts 244 Northwestern Mutual 247 Norway 162 Norwich Union Life 101 Nueva Granada 267 Nueva Ley de sociedades mercantiles of 1966 (Peru) 269 Nuova società tontina di assicurazioni marittime 216

Index Nuremberg 10, 91, 167, 172, 190, 310, 389, 390, 395 Nutzbringende Gesellschaft 157 Oberholzer, Hans-Martin 11, 168, 191 Officer (military) 94 Ogris, Werner 169, 310 Oha (Nigeria) 358 OHADA 344 OHADA Uniform Act on Commercial Law 344 OHADA Uniform Act on Securities 344 Ohio 250 Oldenburg 167, 310 Oost-Indische Compagnie 128, 131, 132 Ordenanzas de Bilbao of 1737 230, 260, 261, 269 Ordonnance de la marine of 1681 115, 211 Organisation pour l’harmonisation en Afrique du droit des affaires see OHADA Origins of tontines 203 Orry, Philibert (1689–1747) 64 Osbourne, Lloyd (1868–1947) 143 Osnabrück 171 Ostrogradsky, M.A. (1857–1923) 298 Ottoman Empire 289 Pacte social 117 Paisley 91 Papal States 217 Paraná 266 Pardessus, Jean Marie (1772–1853) 210 Paris 25, 155, 307, 384 Parodi, Cesare (1779–1870) 210 Partitions of Poland 273 Peasants’ Emancipation Reform of 1861 (Russia) 298 Peebles 91 Peekamoose Club, New York 255 Pelati, Pietro Antonio 213 Pellegrino, Andrea 213 Pennautier, Pierre Louis Reich de (1614–1711) 26 Pension Benefit Guaranty Corporation (U.S.) 334 Pension Protection Act of 2006 (U.S.) 334 Peru 261, 264, 268

409 Pery Square Tontine, Limerick 92 Petty, Sir William (1623–1687) 82 Peyre di Castelnuovo 214 Phélypeaux (Louis Phélypeaux de la Vrillière, 1599–1681) 32 Philadelphia 240, 241 Philip II 200 Piedmont 25, 213, 218, 219 Pincherle, Leone (1814–1882) 218 Pistoia 22 Pitt, William (1759–1806) 60, 240, 369 Pius IX 217 Pöhls, Meno (1798–1849) 186 Poland 273–88, 391, 392 Pontchartrain, Comte de, Louis II Phélypeaux (1643–1727) 20 Ponzi, Charles (1882–1949) 239, 253 Portugal 14, 193–201, 309, 312, 385, 389 Portuguese Restoration War (1640– 1668) 200 Potsdam 10, 167 Powszechny Zakład Ubezpieczeń 275 Poznań 276, 278, 279 Preußische Renten-VersicherungsAnstalt 177 Price, Richard (1723–1791) 94 Privilegiata Società pontificia di assicurazioni 217 Providence Insurance Society in Warsaw see Towarzystwo Ubezpieczeń Przezorność w Warszawie Prussia 10, 104, 167, 169, 170, 172, 174, 187, 251, 273, 276, 278, 310, 379, 387, 390, 392 Puerto Rico 373 Quinn, Stephen 50 Racan, Honorat de (1589–1670) 31, 39, 40 Ramel-Nogaret, Dominique-Vincent (1760–1829) 113 Ranieri 224 Ransom, Roger L. 381 Rava, Luigi (1860–1938) 224 Real decreto aprobando con carácter definitivo el Reglamento para la aplicación de la Ley de 14 de Mayo de 1908, sobre Registro é

410 inspección de las Empresas de Seguros of 1912 (Spain) 231, 234 Real Decreto de ordenación, supervisión y solvencia de las entidades aseguradoras y reaseguradoras of 2015 (Spain) 232 Real decreto-ley estableciendo en el Ministerio de Trabajo, Comercio e Industria, en la Inspección Mercantil y de Seguros, un Registro e Inspección de las Sociedades y entidades de ahorro, capitalización y similares, con arreglo a las disposiciones que se insertan of 1926 (Spain) 232 Real estate tontine 320 Reales Cédulas (1793–1795) 260 Regensburg 173 Reglamento de ordenación del seguro privado of 1985 (Spain) 231 Rentes viagères 88 Retirement smile 321, 324 Reversionary bonus policy 99 Revolutionary War (U.S.) 331 Richelieu, Cardinal (1585–1642) 384 Rimini 22 Rise Hansen, C. 153 Rochester, Chatham, Brompton and Strood Tontine Association 95 Rome 21, 23 Ronde Lutherse Kerk te Amsterdam 127 Rossano 22 Rossya 284 Rosyjskie Towarzystwo ubezpieczeń dochodów i kapitałów z roku 1835 284 Rotating credit associations (Africa) 13, 16, 311, 357, 392 Rotterdam 127 Rouen 155 Royal Universal Tontine 94 Ruiz, Jacinto María 265, 267 Russia 251, 273, 277, 278, 279, 284, 297–304, 379, 392 Russian Society for Insurance of Lifelong and Other Term Income and Money Capital 297 Russian Society of Profits and Capitals Insurance of 1835 see Rosyjskie

Index Towarzystwo ubezpieczeń dochodów i kapitałów z roku 1835 Sáinz de Andino, Pedro (1786–1863) 260 Salem, Massachusetts 244 Salgado 21 Salisbury, Thomas S. 318 Sanduk (Sudan) 358 Sao Paulo 271 Sardinia 214, 218, 221 Saumur 28 Savoy 213, 214, 219, 385 Saxe-Weimar 174 Saxony 173, 174 Scandinavia 153–66, 311 Schomaker, Joost 137 Schuurbecque Boeijen, J. 121 Schweinfurt 167, 172 Scialoja, Antonio (1817–1877) 220 Scotland 143–51 Scottish Widows 100, 101 Sehested, Christian Thomesen (1590– 1657) 37 Seignelay (Jean-Baptiste Antoine Colbert, Marquis de Seignelay, 1651–1690) 45 Semi-tontine 239, 249, 252, 274, 299 Seven Years War 52, 65 Shakespeare, William (1564–1616) 309 Sheffield 91 Sicily 45 Sickness fund 93 Sieghart, Rudolf 158 Silesia 83, 276, 278 Slavia 284 Smith, Adam (1723–1790) 314 Snow, Beverly (1799–1856) 245 Social security 212, 331, 332, 333 Sociedad anónima 260, 266, 267 Società a tontina per le assicurazioni marittime 216 Società delle Tontine Sarde 218, 219, 220, 222 Società di assicurazioni diverse 203 Società di Tontine Italiane 220 Società Reale di assicurazione generale e mutua 218 societas 134 Société Anonyme 117, 119

Index Society for Annuities Encreasing to the Survivors 93 Söderberg, Tom 164 Sonnenfels, Joseph von (1732/34– 1817) 83, 176 South America 14 South-Carolina Tontine Bank 242 Spain 20, 79, 88, 200, 229–37, 263, 264, 265, 309, 311, 370, 371, 380, 389, 391 Spanish America 80 Sparkassen Tontinen 177, 178, 391 St. Denis 79 St. Helens 91 St. Lucie Club, Florida 255 St. Petersburg Society of Fire Insurance and Profits and Capitals Insurance see St. Petersburgskie Towarzystwo Ubezpieczeń od Ognia oraz Ubezpieczeń Dochodów i Kapitałów St. Petersburgskie Towarzystwo Ubezpieczeń od Ognia oraz Ubezpieczeń Dochodów i Kapitałów 275, 277, 284, 285, 286, 287 Stade 171, 189, 190 Staffordshire 92 Stamos, Michael Z. 318 Standard Life 101 Stasavage, David 50 Stephen Drew (1742?–1826?) 245 Sterbe-Kasse (Berlin) 188 Steser 274 Stevenson, Robert Louis (1850–1894) 143 Stoddert, Benjamin (1744–1813) 243 Stokfel (South Africa) 311, 358 Stourport 91 Struyck, Nicolaas (1686–1769) 127 Stuart Lakes Club, Delaware 256 Stuttgart 177 Sudan 311 Supervision 116, 253 Supplemental security income 332 Surrey 91 Survivor fund 330, 339, 340 Sussman, Nathan 50 Süßmilch, Johann Peter (1707–1767) 181 Sutch, Richard 381

411 Sweden 163, 164 Swedish-Pomerania 173 Switzerland 79, 175, 183, 309 Tammany Hall 242 Tammany Hall Tontine 242 Tammany Society, New York 242 Tate and Lyle’s Thames Refinery Annual Tontine Benefit Society 93 Temple, William (1628–1699) 82 Terray, Abbé Joseph Marie (1715– 1778) 65, 88, 116 Terrazas, Luis (1829–1923) 271 Testamentary contracts 114 Thuillier, Guy 119 Tobago Estates Tontine 245 Tonti, Abbot 21, 22 Tonti, Antonio, Count 22 Tonti, Enrico de 19 Tonti, Lorenzo (1602–1684) 10, 12, 13, 18–47, 51, 61, 62, 68, 80, 109, 110, 113, 125, 153, 157, 158, 163, 170, 193, 199, 204, 213, 307, 308, 309, 315, 330, 368, 383 Tonti, Michelangelo Cardinal (1566– 1622) 21, 157 Tontine Association, Boston 241, 242 Tontine Association, New York 240 Tontine Building, New York 240 Tontine Coffee House and Hotel, Albany 243 Tontine Coffee House, New York 240, 244 Tontine Coffee House, Toronto 245 Tontine Company, Washington 243 Tontine Crescent, Bath 241 Tontine Fire Insurance Company, New York 248 Tontine Hotel Company, Brunswick 244 Tontine life insurance 10, 15, 99, 149, 168, 178, 187, 246, 367, 378, 391 Tontine Mall, Brunswick 244 Tontine perpétuelle d’Amortissement 117 Tontine Savings Fund Assurance 102 Tontines commerciales (Africa) 351, 364 Tontines d’argent (Africa) 351 Tontines de force de travail (Africa) 351 Tontines de travail (Africa) 351

412 Tontines mutuelles (Africa) 348, 364 Tonty, Alphonse de 19, 45, 46 Tonty, Henry de 19, 45, 46 Toronto 245 Torres Mendez, Miguel 269 Tott, Clas (1630–1674) 163 Toulon 45 Towarzystwo Ogniowe dla Miast i Wsi 276 Towarzystwo Ogniowe dla Wielkiego Księstwa Poznańskiego 278 Towarzystwo Ogniowe w Królestwie Polskim 277 Towarzystwo Ubezpieczeń Przezorność w Warszawie 279, 280 Towarzystwo Wzajemnych Ubezpieczeń od Ognia w Krakowie 279 Transparency 248, 251, 257, 295 Tuchthuizen 90 Turin 213, 215, 218 Turkey 245 Turner, Joseph Mallord William (1775–1851) 245 Tuscany 25 Tutini, Camillo (1594–1667/70) 22, 23, 24 Uitgestelde Nationale Schuld en de Kansbiljetten van dezelve Schuld 139 Ukraine 278 Union Bank, Boston 241 United Homoeopathic and General Life Assurance Society, England 247 United Kingdom 212, 267, 379 United States of America 91, 212, 262, 263, 368, 369, 370 Universal Establishment of Insurance see Powszechny Zakład Ubezpieczeń Universal Tontine 94 Universal Tontine Association, Philadelphia 241 Upholland 91 Upper Lusatia 171, 173 Urbanization 333 Uruguay 265, 270 Usury 79, 254 Utrecht 131

Index Utrechtse Provinciale Tontine 136 van Akerlaeken 129 van Bijnkershoek, Cornelis (1673– 1743) 123 van Dael, Jacob 123, 124, 125, 130, 155, 161 van der Perre, Nicolaas 126, 127, 132 van Haaften, M. 158 van Haaften, Marius (1880–1957) 121 van Niekerk, Johan 122 van Zurck, Eduard 134 Vandale, Sara 155 Vare, William S. (1867–1934) 255 Variable annuity pension plan 338 Vendôme, Duke of, Louis I. de Bourbon (1612–1669) 26 Venezuela 261 Venice 40, 170, 218, 383, 385, 387 Versicherungsaufsichtsgesetz of 1901 168, 179, 184, 185 Vesta Mutual Life Insurance Bank see Westa Bank Wzajemnych Ubezpieczeń na Życie Victor Amadeus II 214 Victor Emmanuel 219 Victoria Park Company of Manchester 92 Vidari, Ercole (1836–1916) 209 Vieira, Antonio (1608–1697) 201 Visée, Robert de (1660–1732) 47 Voet, Johannes (1647–1713) 134 Wagenvoort, Herman 122, 125, 126, 127, 131, 135, 140, 153, 156, 158, 163, 387 Walford, Cornelius (1827–1885) 201, 247, 309 War of the Austrian Succession 52 War of the Grand Alliance 52, 61, 62, 169, 200, 330 War of the League of Augsburg 52, 61, 62, 169, 200, 330 War of the Pacific (1879–1883) 269 War of the Palatine Succession 52, 61, 62, 169, 200, 330 War of the Polish Succession 52, 214 War of the Spanish Succession 52, 62, 214 Warsaw 276 Warsaw Fire Insurance Society see Warszawskie Towarzystwo Ubezpieczeń od Ognia

Index Warszawskie Towarzystwo Ubezpieczeń od Ognia 279 Washington, D.C. 91, 243, 245 Weidenhaijn, Johan von (1604–1666) 163 Weingast, Barry 49 Weir, David R. 50 Welfare and Pension Plans Disclosure Act of 1958 (U.S.) 333 Westa Bank Wzajemnych Ubezpieczeń na Życie 279, 280 West-Indische Compagnie 128, 131, 132 Westphalia 174 Widow and orphan assurance 183, 187, 188, 189 Wied 171, 190 Wiederholtes Verboth aller und jeder Collecten, wozu keine Königl. Approbation ertheilet ist of 1781 (Prussia) 185, 191 William III 51, 56, 309, 315, 368 William III of England 330

413 Wills, Douglas 50 Windsor, Vermont 244 With-profits policy 99 Witt, Johan de (1625–1672) 309 Wolfenbüttel 171 Workforce tontines (Africa) 351 World War I 273, 279 World War II 333 Würtembergische Leibrenten-Bank 177, 190 Wzajemne ubezpieczające krajowe Towarzystwo Ogniowe w Krakowie 278 Yafeh, Yishay 50 Yorke, Charles (1722–1770) 59 Yorkshire 97 Yorkshire Tontine 94 Zambia 311 Zeeland 389 Zeist 92 Zimbabwe 311 Zuchthäuser 90