The Beginnings of the Equitable (1757-1772)
It has been frequently said that the history of the Equitable Office is the history of life assurance in England. If this be not literally true, it certainly is true that the readiness with which the conductors of this Office have ever listened to and embraced all real improvements, not only led it to the high position which it so speedily attained, but has tended to advance both the theory and practice of Life Assurance in this Kingdom.20
As Lectures went to press in 1756, Dodson organised a series of City of London meetings to secure the financial and political support he would require to bring his conception to fruition. Dodson secured significant backing from influential City and political figures to create a new life assurer. His City backers whole-heartedly bought into Dodson’s vision with one important exception: Dodson had envisioned the life assurer being established as a mutual partnership with unlimited liability, but his backers believed that the venture would be more marketable as a corporation that provided limited liability to its participating policyholders. The share capital would still be largely unfunded and so participating policyholders would still be ‘on call’ to inject capital if required, but this would be subject to a maximum amount. Their first objective was therefore to obtain a royal charter for incorporation. They presented a petition of application to the Privy Council in 1757.
The three corporations writing life assurance in Britain at the time (the Amicable, Royal Exchange and London Assurance) lobbied for the petition to be rejected. These firms argued that the size of the life assurance market was so small that it could not support another corporation. They also argued that it would be unsafe for the new insurer to be established without the backing of a capital fund. The petition was rejected by government in 1760, and in the intervening time since the application, Dodson had died. A report was published by the Attorney General and Solicitor General in 1761 explaining the reasons for the rejection of the petition. A few quotes from the report can give a sense of the nervousness about the revolutionary life assurance design being proposed by the petitioners.
On the funding of risk capital through capital calls rather than a ‘paid-up’ fund:
Because it appears to us altogether uncertain whether this project will or can succeed in the manner in which it is proposed, and if the success is uncertain, the fund for supporting it, which is to arise from the profits of the undertaking, will be precarious. This last objection is, in our opinion, a fatal objection to the scheme; for, though an undertaking plainly calculated for the benefit of the public may, in some instances, deserve encouragement, even where success is dubious, yet, in such cases, the projectors alone ought generally to abide the peril of the miscarriage. In the present proposal, therefore, whatever else may be hazardous, the capital or fund to answer the losses ought to be certain and liable to no casualty.
On the use of mortality tables to set premiums by age:
The success of this scheme must depend upon the truth of certain calculations taken upon tables of life and death, whereby the chance of mortality is attempted to be reduced to a certain standard: this is a mere speculation, never yet tried in practice, and consequently subject, like all other experiments, to various chances in the execution.
On the use of population data to set life insurance premiums:
The register of life and death ought to be confined, if possible, for the sake of exactness, to such persons only as are the objects of insurance. Whereas the calculations offered embrace the chances of life in general, the healthy as well as unhealthy parts thereof, which, together with the nature of such persons’ occupations, are unknown numbers.
On the prospect of the business being profitable:
We are more apt to doubt the event, because it has been represented to us ... that all profit that has been received by the Royal Exchange Assurance Office, from the time of its commencement to the present time (40 years) amounts only to a sum of ?2,651, the difference between ?10,915 paid in premiums and the sum of ?8,263 disturbed in losses ... If then, this corporation, who are charged with taking big unreasonable premiums have reaped no greater profit, we can hardly expect a more considerable capital to arise from lower premiums, and the hazard of loss will be increased in proportion as the dealing will be more extensive.
And their final advice:
If the petitioners, then, are so sure of success, there is an easy method of making the experiment, by entering into voluntary partnership, of which there are several instances now subsisting in the business of insuring; and, if upon a trial these calculations are found to stand the test of practical experiment, the petitioners will then apply with a much better grace for a charter than they can at present, whilst the scheme is built only upon speculative calculations.
The promoters immediately took the advice of the Attorney General and Solicitor General and produced a draft deed of settlement that would create a new life assurer as an unincorporated partnership of participating members (just as Dodson had always advocated). The Society for Equitable Assurances on Lives and Survivorships was thus established in September 1762.
For the next ten years, the Equitable developed as an established life assurer in a small life assurance market. Like most businesses, it had its fair share of corporate politics and power struggles, but it stayed largely true to Dodson’s vision. By 1772, it had accumulated assets of around ?30,000, with an annual premium income of ?7,558 and total sums assured of ?174,282 on 567 assurance policies. The policies were a mix of participating and non-participating contracts, and whole-of-life and term assurance policies. There were also 20 annuitants receiving a total of ?694 per annum. The further development of Dodson’s vision and indeed the next developments in actuarial thought required impetus from a new character.
-  The following quotations from the report of the Attorney General and Solicitor General are obtainedfrom Ogborn (1962), Chapter II.