An Equitable Assessment of Rights and Wrongs

by Dr Michael Nassim

Appendix II:  Extract from Ogborn, M.E.¹⁰

Appendix II:  Extract from Ogborn, M.E.¹⁰

“A contemporary view of the Society’s affairs is given by Augustus de Morgan in An Essay on Probabilities (1838), one of the volumes in “The Cabinet Cyclopaedia”.

I always consider (the Equitable) Society as a distinct and anomalous establishment, existing…under circumstances of an unique character.  It is the result of an experiment which it was most important to try, but which, having been tried, need not be repeated…The hazard having been run, and having turned out profitably, the proceeds belong to those who ran it, and to those who, by their own free consent, became their lineal successors.  Nor is it the least remarkable circumstance connected with this Society that the immense funds at its disposal have always been opened, though under restrictions, to the public… The general lesson taught by it (the history of the Society) is- be cautious; but…be cautious of carrying caution so far as to leave a part of your own property for the benefit of those who are in no way related to you.  If there be a Charybdis in an insurance office there is also a Scylla: the mutual insurer, who is much too afraid of dispensing the profits to those who die before him, will have to leave his own share for those who die after him.  Reversing the fable of Spenser, we should write upon the door of every mutual but one be wary; but upon that one should be written be not too wary and over it Equitable Society.

Clearly, Augustus de Morgan thought that too little bonus had been declared and too much surplus had been held back for the future.  In this he was probably misled either by the size of the rapidly accumulating funds or, as seems more likely, by the increase in the rate of bonus at successive decennial distributions to the magnificent rate of 3 per cent per annum in 1829.  However, this takes no account of the effect of spacing out the distributions to ten-year intervals and the figures already quoted for claims under assurances which had been forty years in force do not support his opinion (£390, £380 and £381 for assurances of £100 effected in the years 1770, 1780 and 1790 respectively).

The relatively high prices of Government stocks at this time gave an appearance of great prosperity but, in fact, the outlook had been worsened.  The immediate surplus had been swollen but the margin for future surpluses had been lessened.  The position would have been serious but for the use of the antiquated Northampton table- which overstated the liabilities- and the reservation of one third of the surplus.

Actuarial opinion, too, would not support Augustus de Morgan’s argument that the funds of a mutual society belong exclusively to the members of the fund at the particular moment of time.  A mutual life assurance society is a continuing business.  Ample funds are necessary for the credit and stability of the office and each generation of members comes into a heritage from the past; so in its turn, each generation should endeavour to pass on that heritage unimpaired to the generations that succeed it.  William Morgan understood this and modern opinion would support him. 

Augustus de Morgan’s view of the Equitable as a unique institution, whose practices should not be adopted by other societies, was related to the rigid, inflexible methods into which the Society had been forced*.  Experience has shown that more flexible methods are desirable and the whole subject is now better understood.  But the principles of mutual life insurance, with the policyholders sharing in periodical bonus allocations, are part of traditional practice in the United Kingdom and in many parts of the world; these were taught by the “experiment” of the Equitable Society.”

*These were the results of previous compromises struck by the Court of Directors and the Actuary with the membership.  In effect they were the sum of attempts to balance the interests of older versus newer members, and reconcile them with the needs of the Society as a whole to continue in business or expand judiciously. As a result the Society became relatively unattractive to new entrants in the middle of the 19^th century, and a period of stagnation ensued, essentially for the reasons given at the end of Section 3 in the main paper (MN).