Hostname: page-component-cd9895bd7-hc48f Total loading time: 0 Render date: 2024-12-26T22:38:26.141Z Has data issue: false hasContentIssue false
  • English
  • Français

Canadian Life Insurance Companies and the Capital Market, 1890–1914

Published online by Cambridge University Press:  07 November 2014

Ian M. Drummond
Ian M. Drummond*
Affiliation:
University of Toronto
Get access

Extract

In this paper I propose to examine the placement policies of Canadian life insurance companies, and the campanies' place in the Canadian capital market, during the period of rapid agricultural and industrial development which preceded the First World War. It is no longer possible to maintain, as Buckley could maintain in his study of capital formation, that before the War Canada had a very undeveloped domestic capital market. McIvor's recent work has increased our knowledge of Canadian financial history, a subject strangely neglected since the work of Shortt and Breckenridge some sixty years ago. Kilbourn's study of the Steel Company of Canada has provided valuable evidence on the early stirrings of our capital market. I have argued elsewhere that these stirrings were both vigorous and significant for Canadian economic development before 1914, and that particularly in the field of government finance they cannot sensibly be ignored. The following pages discuss selected aspects of the financial history of this most interesting period. I shall try to show not only what the life insurance companies were doing with their funds but why they were doing what they did. The paper concludes with some reflections on the social rationality of their investment policies.

First, some description of the Canadian life insurance companies themselves. By 1895 they already bulked large on the domestic scene, though not so large as the chartered banks. Their assets were valued at $32,000,000 in 1895, and their annual premium income then amounted to $5,703,000 from domestic business and $595,000 from foreign business. By 1914 the companies' assets were worth $257,800,000, their annual domestic premium income was $26,047,000, and their foreign premium income was $12,680,000. Throughout this period they faced vigorous competition from British and especially from American firms, which collected 45 per cent of the total Canadian life insurance premia in 1895 and 40 per cent in 1914.

Type
Research Article
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 28 , Issue 2 , May 1962 , pp. 204 - 224
Copyright
Copyright © Canadian Political Science Association 1962

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1 Buckley, K., Capital Formation in Canada, 1890–1930 (Toronto, 1955), 67.Google Scholar

2 McIvor, R. C., Canadian Monetary, Banking, and Fiscal Development (Toronto, 1959).Google Scholar

3 Shortt, A., “Historical Origins of Banking and Currency in Canada,” Journal of the Canadian Bankers' Association, IV (1896–1897) through XIV (1906–7).Google Scholar

4 Breckenridge, R. M., The History of Banking in Canada (Washington, 1910).Google Scholar

5 Kilbourn, R., The Elements Combined (Toronto, 1960), 63–79.Google Scholar

6 “Capital Markets in Australia and Canada, 1895–1914,” Ph.D. dissertation, ms, Yale University, 1959.Google Scholar

7 Drummond, I. M., “Government Securities on Colonial New Issue Markets,” Yale Economic Essays, I, spring, 1961, 137–75.Google Scholar

8 Superintendent of Insurance, Reports, 1896 and 1915. Unless otherwise noted, all subsequent statistical material relating to the life insurance companies is drawn from these reports, or from those of other years.

9 Insurance Act (Further Amendment), 62–3 Victoria, c. 13, 1899.

10 Insurance Act, 9–10 Edward VII, c. 32, 1910.

11 Before an insurance company could purchase ordinary shares, the issuing company was required to pay dividends at a rate no lower than 4 per cent for a period of seven years. On preference shares the period was five years, and on corporate debentures three years.

12 Buckley, , Capital Formation, 64, 139.Google Scholar

13 See Eckhart, H. M. P., Manual of Canadian Banking (Toronto, 1913), 136 Google Scholar, for a comment on the agricultural lending habits of the banks.

14 From 1895 to 1905, Ontario mortgage corporations decreased the share of loans in their portfolios from 83 per cent to 76 per cent. Ontario Registrar of Loan Mortgage Corporations, Reports, 1897 and 1906. Cf. also Easterbrook, W. T., Farm Credit in Canada (Toronto, 1939), 44–5Google Scholar, and Monetary Times, 08 7, 1903, 178.Google Scholar

15 From the end of 1896 to the end of 1905 their currency debenture obligations rose by $8,462,000 and their Canadian deposits by $3,343,000, while their sterling debenture indebtedness was reduced by $8,871,000.

16 Ibid. See also Easterbrook, Farm Credit, 29, 31. In March, 1895, the chartered banks held Dominion obligations to the total of $2,830,000; by March, 1899, their holdings had increased to $4,779,000.

17 Calculated from Canada Year Book, and summarized in Drummond, “Government Securities,” 168.

18 Ibid., 167–8.

19 See Appendix, Table IV.

20 Dominion of Canada, Board of Inquiry into the Cost of Living, Report (Ottawa, 1915).Google Scholar

21 At various dates from 1900 to 1915, the Monetary Times published data on the yields at issue of municipal, provincial, and corporate securities on the Canadian market. Because these data are presented in an incomplete and crude form they serve only to support the general impression that interest rates were rising in most years between 1900 ana 1915, and that the trend was as clearly upward in Canada as elsewhere in the western world.

22 From Ontario Registrar of Loan Corporations, Reports, various years.

23 Ibid.

24 The eastern advances of the mortgage loan companies were stagnating or declining, while western advances rose both absolutely and relatively. Easterbrook, Farm Credit, 44–5.

25 Cost of Living Report, 790–41.

26 Representative city debentures in 1914 were issued to yield 4¾ per cent to 5 per cent, and in 1900 to yield 3¾ per cent to 3 per cent. Monetary Times, Annual Review, 01, 1914, 81.Google Scholar

27 Monetary Times, 1898–1899, 1127 Google Scholar; 1899–1900, 1118; Royal Commission on Insurance, Evidence, 906-7, 1226–7, 1543.Google Scholar

28 Drummond, , “Government Securities,” 167–9.Google Scholar

29 Under Canadian law the Dominion government had the power to expand its note issue by $4,238,000 without additional gold reserve in 1895. In 1900 this excess of issue power had fallen to $3,765,000. Canada Year Book, 1918, 513, 515.Google Scholar

30 Canadian banks were allowed to issue notes to a total value no greater than paid up capital and surplus. In March, 1895, the aggregate capital and surplus of the Canadian chartered banks was $89,040,000 and their aggregate note issue was $29,415,000.

31 The commission was constituted in February, 1906. Its members were Duncan MacTavish, a county court judge, John Langmuir, President of the Toronto General Trusts Corporation, and Ambrose Kent, a Montreal accountant. For a summary of the preceding agitation, and of the succeeding reception of their report, see Hopkins, J. Castell, Canadian Annual Review, 1906, 216–17Google Scholar; and ibid., 1907, 70ff.

32 Royal Commission on Insurance, Evidence, four volumes paged continuously (Ottawa, 1906 ) (Sessional Paper 66 of 1906). Hereafter cited as Insurance Evidence.

33 Royal Commission on Insurance, Report (Ottawa, 1907).Google Scholar Hereafter cited as Insurance Report.

34 On all the above, Insurance Evidence, 948ff. See also Ross, V., A History of the Canadian Bank of Commerce (Toronto, privately printed, 1926), 96.Google Scholar

35 Walker Papers, B. E. Walker to F. H. Peavey, 5 April 1899.

36 Cox had been buying up shares for many years, and the Hamilton directors of the company had not always been pleased by his evident intention to control it. Before the MacTavish Commission Cox denied that the call-up of capital had been intended to squeeze out anyone, and asserted that as “everyone paid up” there was no case in which an old shareholder did not retain his old shares (Insurance Evidence, 907). However, between the end of 1898 and the end of 1900, Central Canada Loan increased its holding of shares in Canada Life from $66,800 par value to $113,600, par value, while Cox's personal shareholding increased from $231,000 par value to $244,000. It is reasonable to suppose that some of this increase in Cox's holdings reflects an inability on the part of some old shareholders to pay a very heavy call.

37 Insurance Evidence, 948.

38 Insurance Report, 9ff.

39 Walker Papers, J. W. Flavelle to B. E. Walker, Dec. 21, 1907, to which is attached J. W. Flavelle to A. Bruce, Dec. 21, 1907. The latter alleges that “the administration of the company has drifted into looseness and extravagance,” and on behalf of an investigatory committee of directors it doubts the president's ability to work out the necessary reforms. Already, in 1899, Walker had expressed his opinion that Cox might be extending himself too widely (Walker Papers, B. E. Walker to M. Cudahey, Dec. 18, 1899), and by 1908 the combination of high central office expenses and expansionist policies had damaged the company's competitive position (Walker Papers, F. G. Allen to Charles F. Bullen, March 28, 1908). Later discussion and disagreement arose in connection with the position and power of Senator Cox and his relatives in the management of the company (Walker Papers, B. E. Walker to H. B. Walker, Oct. 24, 1910, Nov. 19, 1910, Nov. 22, 1910; Z. A. Lash to B. E. Walker, March 3, 1911, to which is attached Z. A. Lash to J. H. Plummer).

40 Walker Papers, J. W. Flavelle to B. E. Walker to which is attached J. W. Flavelle to E. W. Cox, March 4, 1910.

41 Walker Papers, Z. A. Lash to B. E. Walker to which is attached Z. A. Lash to J. H. Plummer, March 3, 1911.

42 Insurance Report, 17.

43 Dominion of Canada, Senate Debates, 3d Session, 10th Parliament, 1906–7, col. 551.

44 In 1906 at least eight of Canada Life's fourteen directors were close business associates of Cox.

45 Insurance Report, 17ff. The question of Canada Life's transactions with Central Canada and Dominion Securities exercised the MacTavish Commission greatly. Indeed, these transactions were certainly extensive. Between 1900 and 1905 Canada Life bought 11.6 per cent (by cost of purchases) of its new securities from Central Canada, 31.6 per cent from Dominion Securities, 38.4 per cent from the primary or original issuers, and 18.5 per cent from other persons. There is no way to tell whether these transactions chiefly reflected common interest and ownership, or merely the relative importance of Dominion Securities and Canada Life in the distribution and purchase of securities.

46 On all the above, Insurance Evidence, 1169–1182.

47 Superintendent of Insurance, Reports, 1911 through 1915. These later reports include detailed data on the sources from which insurance companies acquired new securities. During this period Canada Life bought 31 per cent of its new acquisitions (at cost of purchase) from Dominion Securities, 0 per cent from Central Canada, 27 per cent from other bond dealers, and 42 per cent from the primary issuers of the securities.

48 “I wanted my son to be the manager of the company.” Insurance Evidence, 964.

49 Junkin, the managing director of Manufacturers' Life, also took a leading part in this syndicate because he did not wish “his” company to be controlled by Cox. Mackenzie and Mann financed their purchases of Manufacturers' Life shares by borrowing on call from Manufacturers' Life. Ibid., 269, 275, 967.

50 Insurance Report, 18ff. Insurance Evidence, 376, 379.

51 Insurance Report, 57.

52 Ibid., 58.

53 Insurance Evidence, 294–7, 299.

54 PrudentiaI Securities Company was incorporated originally to buy unauthorized securities from Manufacturers' Life prior to the government inspection. Canadian Securities Ltd. had a much more general purpose. Ibid., 168, 170, 342–3, 402–4.

55 Ibid., 61–2.

56 Ibid., 330–4.

57 Ibid., 376.

58 Ibid., 390.

59 Ibid., 354-8; Insurance Report, 56, 90. For an account of the Development Company's formation, Ashworth, E. H., Toronto Hydro Recollections (Toronto, 1955), 7 Google Scholar; Monetary Times, 09 30, 1904, 422.Google Scholar

60 Insurance Report, 41, 81.

61 Insurance Evidence, 1182.

62 Ibid., 732–7.

63 The Ontario Securities Company bought Sterling Bank stock with money borrowed from Continental Life, thus allowing the bank to make its first government deposit. Ibid., 1418–19; Insurance Report, 95–7.

64 Curtis, C. A. and others, Statistical Contributions to Canadian Economic History (Toronto, 1931), I, 53.Google Scholar

65 Harris, G., The President's Book (Montreal, privately printed, 1928), 186–8.Google Scholar

66 Ibid., 137.

67 Insurance Evidence, 2884, 2890.

68 Ibid., 2284.

69 Ibid., 2930.

70 Ibid., 2851.

71 On Sun Life's holding in the Illinois Traction companies, see Superintendent of Insurance, Report, 1915. On Illinois Traction, see, in particular, Hilton, G. W. and Due, J., The Electric Interurban Railways in America, (Palo Alto, 1959), 183, 201, 346–9.Google Scholar

72 Harris, , President's Book, 190.Google Scholar

73 Superintendent of Insurance, Report, 1915.

74 For an account of the Shawinigan project, see Dales, J. H., Hydro-Electricity and Economic Devehpment: Quebec, 1898–1940 (Cambridge, Mass., 1957).CrossRefGoogle Scholar

75 Ibid., 52.

76 Ibid., 54.

77 Insurance Evidence, 2879.

78 Ibid., 2863, 2865.

79 Ibid., 2867

80 Ibid., 2867.

81 Ibid., 2871–3.

82 Ibid., 1735, 1748. For comment, see Hopkins, J. Castell, Canadian Annual Review, 1906, 226.Google Scholar