Tuesday, September 19, 2017

Review of Investing in Life: Insurance in Antebellum America by Sharon Ann Murphy

I'm looking at a small insurance company as an investment, so I read a history of life insurance called Investing in Life: Insurance in Antebellum America. The first for-profit life insurance company was started in 1809, in Philadelphia.

Southerners had to pay more for life insurance. There were also travel restrictions for northerners, for example some policyholders were prohibited from going south of 34 degrees of latitude. There were also higher premiums charged for 49ers planning to travel California and work in the gold rush, for example one company at the beginning of 1949:

"We shall not insure parties going by Panama, but only those going round the Cape. We take no risk over $1000. The charge is double that shown by the tables at each age and $5 per $1000 for going and for returning.
That is the first actuarial estimate I have seen of the probability of dying on a round trip to California for the early gold rush: 1%. Even then, many of the insurance companies had bad loss experience with 49er policies.

Note that life insurance premiums in general were far higher in the mid 19th century than today. In the 1830s, the premium for a 30 year old man was 2-3%. By the 1850s this had dropped to the low 1% range per year. Today it is far lower. According to modern mortality tables, a man does not have a 1% annual chance of dying now until he's 60 years old.

Life insurance companies liked married men: "bachelorhood is more destructive to life than the most unwholesome trades, or than residence in an unhealthy house or district, where there has never been the most distant attempt at sanitary improvements of any kind."

Also, at the time they noticed in regard to married men that they "may, in one sense, be accounted as selected lives; for the weak, the delicate, those suffering from disease of any kind, the dissipated, the licentious, do not marry."

After the for-profit insurance companies came the mutual insurance companies. They figured out how to market life insurance as an investment in addition to an assurance for families.

Northern life insurance companies having southern policyholders, from whom they could not legally (or practically) receive premium payments during the civil war, led to litigation after the war. From an 1876 Supreme Court case:
"If a failure to pay the annual premium be caused by the intervention of war between the territories in which the insurance company and the assured respectively reside, which makes it unlawful for them to hold intercourse, the policy is nevertheless forfeited if the company insist on the condition; but in such case the assured is entitled to the equitable value of the policy arising from the premiums actually paid."
I had never thought about post-CW litigation before.

Oddly, this book did not discuss the investment portfolios or strategies of the insurers at all; only the liability (insurance) sides of their business. 3/5.

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