wet the whistle of the individual who turns the crank. Perhaps it would be cheaper to furnish him the requisite moisture in some other way.

The very discouraging aspect of the winding up business, and the experience of another year showing that weak companies, on the average, grow weaker, just as surely as strong companies grow stronger, fully confirm the remarks we offered on pages xiii and xiv of our last Report. Let us look the facts in the face. They tell us that mutual insurance, if honestly, judiciously, energetically managed, may succeed wholly on the credit system; that is, by assessments after the loss. Every member entering with the understanding that he is to pay his share of all losses and expenses that occur during the existence of his policy, nearly, if not quite all, will pay when called on. But when each member is required to pay a premium in cash, which he is told will probably carry him through, with a surplus to be returned at the end, and to give his note in addition, rather as a matter of legal form than of actual necessity, the case becomes very different. A capital consisting of notes thus given has generally proved a failure in time of need. If the directors, at the start, are active, judicious and fortunate, and if they set the law at defiance by retaining the surplus cash premium, or a good part of it, instead of dividing it, the company becomes possessed of a sufficient cash capital, and the notes are not needed. The early insurers are in fact made to furnish the grand balance-wheel of success for the benefit of those who come after. But as often, or more so, just the reverse takes place. The directors divide money which should be kept. The premiums of new comers are taken to pay losses or dividends to the old ones; money is borrowed to do the same thing, thus still further anticipating the future business; and at last, when no more can be borrowed, and debts can no longer be put off, resort is had to the notes. Then it is difficult to persuade members that they can justly be assessed to pay losses which perhaps occurred previous to their receipt of cash dividend. Very little can be collected, and that after great delay and shocking expense. In short, however correct in theory and law, practically the mechanism will not work to any good purpose, and is a burning disgrace to the ingenious Yankee mind. Let us look at the actual figures. Without

invidiously naming the companies, we select ten, which appear from their returns not to have, in any case, more than half enough of cash funds to carry through their present risks. Assessing the notes would almost certainly be fatal to any one of them. They can only continue to exist and meet their losses by rare good luck as to the amount of the losses, and by victimizing new comers! These ten companies insure, in the aggregate, $15,185,994. Counting in their old office furniture at their own estimate, balances of old assessments, debts due from agents, &c., they lack $57,242 of having cash funds sufficient to re-insure their outstanding risks. In point of fact, it would require $91,205 to re-insure the balance of their risks at the cash premium required at first, which, as we see, turned out insufficient; but after paying other immediate debts, they have really altogether only $16,480 of cash funds for that purposeand some of them considerably less than none! Yet the legal cure provided for this state of things has proved to work so little, if any better, than the disease, that we cannot but dread to apply it even when the operation becomes inevitable. That a company of several hundreds of well-meaning people who have been misled into this uncertain style of insuring each other, when they find their treasury without funds and five or ten thousand dollars in debt, should be wound up for two or three years, at an expense about as great as the debt, without any certainty of finally paying it, seems a hard fate. An ounce of prevention in such a case seems preferable to any amount of Bad as the cases alluded to are, perhaps not one of them is a case of legal insolvency, because no creditor is pressing for money, and officers are willing to lend on the security of notes or future premiums. If clothed with the legal power to make the proper assessments, we should have no doubt that we could either close these companies, to the great benefit of all concerned, with little loss of time or money, or compel the present members to place cash enough behind their risks to give them a fair title to solicit new associates. The latter result would never take place, however, if the insured should understand their own interests. It is not possible for any mutual insurance company with a smaller amount of business and only cash. enough to re-insure its risks, to furnish for the same money as good a quality of insurance as a mutual company with a larger

cure.

business and a surplus of cash beyond the re-insurance. A strictly legal mutual insurance company, that is, one which from the start has yielded to every member his right under section 51, chapter 58 of the General Statutes, cannot be as safe as many of our best illegal companies, without having a business at least one hundred times as great as section 58 of the same chapter requires to start with. Therefore when one of the lame mutual insurance companies is made as good as new, or ten times as good, it is not made a sure thing, nor can it be put on the road to safety without being allowed to reserve from division, at the expiration of each policy, some portion of the net profits thereon. All other forms of mutual insurance, even when started wholly on credit, recognize the necessity of a reserve of cash profits. The mutual marine and fire and marine companies, though they issue scrip for profits, are allowed by law to retain the actual funds absolutely subject to be absorbed by future losses, and do not begin to redeem the scrip till the reserve fund exceeds a certain fixed amount; viz., it is at the option of the company to begin to redeem scrip after the fund reaches $250,000, and it is imperative after it reaches $500,000. So the joint stock insurance companies in New York and elsewhere, which are converting themselves into mutual companies to the extent of three-fourths of their profits, on what is called the "participation scheme," only issue scrip to the policy-holder for his share of said profits, and make no provision whatever for the redemption of this scrip except the excess of the fund of profits over a fixed sum, which, so far as we know, is $500,000. When it comes to redemption, the oldest scrip takes precedence, and the fund is always subject to losses as much as the capital, and before the capital. For the want of a law, in their case, consistent with success, our really successful mutual insurance companies have all pursued the practice above described as to retaining the profits, or a part of them, with this difference,-that they have issued no scrip. They have accumulated considerable funds, which may be said to belong to the company without belonging to the members. As it is natural for Massachusetts men to aim at success, and unnatural for them to violate law, it is worthy of consideration whether it may not be best to authorize all mutual fire insurance companies hereafter to retain all their profits, only

issuing scrip therefor, to be redeemed in the order of its age after the profit fund exceeds $200,000, and only as fast as such

excess accrues.

That the mutual system of insurance is better suited than the stock system to the genius and character of our free and thinking society is plain enough from the marked success of many of our own mutual companies, the still greater success of mutual marine insurance in New York, and the increasing popularity of the "participation scheme" above alluded to. The business would gravitate into the mutual channel of itself were it not that the private interest of the officers of a multitude of small mutual companies stands in the way striving to sub-divide, in direct conflict with the mathematical principle on which all insurance is founded.

Besides making the ordinary abstract from the returns, it has been an object with us for several years past, to elicit from those of the mutual fire insurance companies an exact financial history, or exhaustive cash-balance-sheet, from year to year, of each company. But so differently have the questions of the schedule been understood, or at any rate so differently answered, that it has been found impossible, in regard to most companies, from their returns, to account for the cash assets of the present year having become what they are from being what they were in the previous year. The schedules adopted in 1856 were doubtless intended to call forth all actual receipts and disbursements, profit and loss, of whatever nature. One reason why they sometimes fail to do so is, that some companies have on their books constructive receipts and disbursements, which should balance each other, and they return one side of the account without the other. The schedule does not call for either side of such an account, but if one is returned the other should be. For example, in some companies, though interest in cash is never exacted on the premium notes, it is received constructively, and paid back constructively, as part of the dividend. This constructive disbursement is exactly equal to the constructive receipt, and both might well be omitted from the return. But, one company, following its ledger, will include the constructive interest along with the cash interest, under the head of "amount received for interest," and exclude it under the head of "amount of cash dividends paid to policy[See page xx.]