ON THE NATURE OF INSURANCE. 263 



understood that the consideration which tempts men to 

 lend names or money to an insurance office, is the offer 

 of payment for the risk, or of higher than market interest 

 for the money. If the capital be paid up, the office 

 makes common interest upon it, which is returned, with 

 an augmentation, to the proprietors : if the capital be 

 only paid in part, or merely nominal, still the office has 

 to pay something more than it receives. 



Now, I take it for granted that an office charging 

 premiums* such as are commonly demanded, managed 

 with prudence and economy, and successful in obtaining 

 business, will not ultimately need any capital at all: 

 firstly, because the premiums are such as must, in the 

 long run, realise a profit after paying the expenses of 

 management ; so that the only use of the capital would 

 be as a provision against extraordinary temporary fluc- 

 tuation: secondly, because a sufficient supply of business 

 renders the probability of ruinous fluctuation extremely 

 small, and altogether beneath consideration, j- Now, 

 since it is well known that the premiums are sufficient, 

 it follows that the only need which a commencing 

 insurance has of capital is for safeguard against the early 

 expenses of management, and against failure of business; 

 as follows. 



The expenses of carrying on an insurance office, 

 though they vary somewhat with the amount of business, 

 yet do not by any means increase as fast. In the first 

 year of its existence, it would not be surprising if all 

 the premiums paid were swallowed up by house-rent, 

 salaries, &c. ; while, in process of time, increase of 

 business might reduce such expenditure to 2 per cent. 

 upon the yearly premiums. Some capital, therefore, is 

 necessary at the commencement ; for, if there be none, 



, 



least improbable, is a national bankruptcy. Any contingency, then, which 

 is much less likely than a national bankruptcy, need not be considered. 



B4 



