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The Past, Present, and Future of Tontines

A Seventeenth Century Financial Product and the Development of Life Insurance

Editors: Hellwege, Phillip

Comparative Studies in the History of Insurance Law / Studien zur vergleichenden Geschichte des Versicherungsrechts, Vol. 2

(2018)

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Abstract

A tontine may be described as a pooled life annuity. Investors buy shares, and the issuer promises to pay interest on the raised capital. The characteristic feature of tontines is that the annuities of deceased investors are shared by surviving investors. With the death of the last survivor, the issuer's obligation to pay annuities terminates and the issuer has no obligation to pay the raised capital back. Investors may use a tontine as a pension product and the issuer may use it as a means to raise capital. 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.

The different authors analyse the origins of tontines, their diverse developments and careers in selected countries, their importance for the development of insurance (law), their decline in the late 19th and early 20th century and their potential as a pension product of the future.
A tontine may be described as a pooled life annuity. Investors buy shares, and the issuer promises to pay interest on the raised capital. The characteristic feature of tontines is that the annuities of deceased investors are shared by surviving investors. With the death of the last survivor, the issuer's obligation to pay annuities terminates and the issuer has no obligation to pay the raised capital back. Investors may use a tontine as a pension product and the issuer may use it as a means to raise capital. 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.

The different authors analyse the origins of tontines, their diverse developments and careers in selected countries, their importance for the development of insurance (law), their decline in the late 19th and early 20th century and their potential as a pension product of the future.

Table of Contents

Section Title Page Action Price
Preface 5
Summary of Contents 7
Chapter 1: Introduction 9
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
Part 1: The Framework for the Development of Tontines 17
Chapter 2: Lorenzo Tonti 19
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
Chapter 3: Financial Engineering in the 17th and 18th Centuries –Tontines in England, France, and Ireland 49
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
Chapter 4: The Socio-Economic Setting for DevelopingTontines from the 17th to the 19th Centuries 79
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 motivesfor private tontine promotions 95
D. Explaining the demand for tontines 96
E. American tontine insurance in the 19th centuryand its British cousins 99
Part 2: A Comparative Legal History of Tontines 107
Chapter 5: Tontines in France from the Ancien Régime to the Third Republic 109
A. Introduction 109
B. The legal discourse on tontines 111
C. The role of the state 115
D. Conclusion 119
Chapter 6: Tontines in the Dutch Republic and the Early Kingdom (1670–1869) 121
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
Chapter 7: Tontines in England and Scotland 143
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
Chapter 8: Tontines in Scandinavia 153
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
Chapter 9: Tontines in German-Speaking Territories 167
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 179
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
Chapter 10: Tontines in Portugal –Nicholas Bourey’s Paleo-Tontine of 1641 193
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
Chapter 11: Tontines in Italy 203
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
Chapter 12: Tontines in Spain 229
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
Chapter 13: The Evolution of the Tontine in North America 239
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
Chapter 14: Tontines in Latin America 259
A. Introduction 259
B. A short history of life insurance in colonial and post-colonialLatin 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 Ecuadorian experience with tontines 268
IV. Spanish tontines in Cuba, Argentina, and Uruguay 270
V. The case of Mexico 271
VI. Brazil’s late experience with tontines 271
D. Conclusion 272
Chapter 15: Tontines in Poland 273
A. Introduction 273
B. Setting the scene: the history of insurance 275
I. A 200-year anniversary? 275
II. Early beginnings 275
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
Chapter 16: Tontines in Hungary 289
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
Chapter 17: The Russian Experience with Tontine Insurance 297
A. General comments on the emergence oflife insurance and tontines in Russia 297
B. The campaign to ban tontines in Russia 298
C. Conclusion 304
Part 3: The Present and Future of Tontines 305
Chapter 18: What Can Tontine Design of the Future Learn from Its Past? 307
A. Introduction 307
B. Value 314
C. Clear 314
D. Real 315
E. Flexible 315
F. Conclusion 316
Chapter 19: Tontines in Europe Today 317
A. Introduction 317
B. Le Conservateur 318
C. The demographic challenge and the retirement smile 321
D. The tontine as an instrument for resolving theretirement smile problem 324
E. Conclusion 326
Chapter 20: Tontines in the Western World Today 329
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 theUnited 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
Chapter 21: Tontines and other Forms of Rotating Credit Associations in Africa 343
A. The informal sector and the law 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
Part 4: Comparative Analyses 365
Chapter 22: A Comparative Analysis from the Perspective of Economic History 367
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
Chapter 23: A Comparative Analysis from the Perspective of Legal History 383
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
List of Contributors 399
Index 401