The Past, Present, and Future of Tontines
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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
(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 |