|About A.M. Best|
About the Founder of A.M. Best
Alfred Magilton Best was born in Caldwell, N.J., in 1876. At the age of 15, he began his career in the insurance industry as a junior clerk with the Queen Insurance Company of America in New York. Best continued to work in the insurance field for various companies over the next six years. He learned about the necessity of providing a source of information concerning the reliability of insurance institutions and also gained a lot of first-hand knowledge about the industry.
In 1899, Best founded the A.M. Best Company Inc. He led the company through the money panic of 1907, World Wars I and II, the speculative 1920s and the stock market crash of 1929. The company experienced tremendous growth between the years of 1899 and 1958, when Alfred M. Best died at the age of 81. Many of the publications that were produced during Best's presidency are still in production today.
Throughout his lifetime, Best often was called upon to testify before congressional committees and courts to make statements about the insurance industry. He was an honorary member of the Drug and Chemical Club of New York, director of the Vermont Symphony Orchestra, Honorary Trustee of the Southern Vermont Art Association, and a member of the Jersey Cattle Club. Shortly before his death, Alfred M. Best was appointed the Insurance Man of 1958 by the Federation of Insurance Counsel. In 1962 he was inducted posthumously into the Insurance Hall of Fame for his leadership, innovation, integrity and vision.
The following was written by Alfred M. Best for the 1949 issue of Best's Review® magazine. He reflects on the first 50 years of the company and how it began.
A Junior Clerk at Fifteen
In March 1892, at the age of fifteen and a half years, I was hired as a junior clerk, at $3 a week, in the local department of the Queen Insurance Company of America.
Late that year, at sixteen, I was offered the job of assistant to the placer for the New York brokerage firm of Owens & Phillips. This job was at $6 a week. Moreover, it offered my first opportunity to get acquainted with insurance company officials. I was in and out of all of the insurance offices in New York City, ordering renewals, arranging for endorsements, collecting return premiums, and otherwise helping the placer. My hours were eight-thirty to five-thirty.
I was then living twenty-eight miles up the Hudson River, and had to take each morning a train which left at six-twenty-seven, this getting me at the office about eight o'clock, and I got home at night about seven-thirty; so that during the fall and winter months I began and finished my working day in the dark.
A Broker at Sixteen
I saw how my employers handled their brokerage business, and, though only sixteen, I blithely began soliciting my friends to let me place their insurance. I secured a considerable number of orders.
Those very long hours were pretty hard on a growing boy, particularly since the previous year my employers thought I had not been with them long enough to justify any vacation; and so, about the middle of 1893, after nine months with the brokers, I was offered a better job with the Queen, and I went back there --- but again missed any possibility of a vacation! I stayed with the Queen until the latter part of 1894, all this time building up a little income from commissions on insurance sold.
Early in 1895, when I was nineteen and was placing some insurance for a friend whose business was importing, I was told that a new fire insurance company was being organized and was looking for a clerk who knew something about the insurance business. As much from curiosity as anything else, I looked up the promoters, who promptly offered me the job. Their scheme was to raise $1,500,000 of capital and surplus and write large lines direct on selected risks, eliminating agents and brokers. They were sending out circulars all over the country inviting applications for insurance and asking for full information about the risk offered and the tariff rates.
Rate Making at Nineteen
My job was to enter these applications in a large book, setting down the premium involved, to give the promoters some idea of the feasibility of working successfully along their chosen line. I asked what I was to do if an applicant failed to mention the rate. I was told to guess at it, which was rather startling advice, considering that I was only nineteen, with a decidedly sketchy knowledge of the business. However, I took the job; and, where an application for, say $100,000 of insurance came in with no rate mentioned, I hustled around to some experienced friend in the business and got some notion of what the rate ought to be.
The projected company never materialized, due to the unfortunate fact that the proposed president was arrested for fraud in some other activity. The promoters, however, were also operating five "Lloyds" organizations and I stayed on as assistant to their underwriter, a dour man with a strong propensity to get drunk. He did this once too often, was fired, and from then on I passed on all applications for insurance, which came in from all over the country, on every conceivable sort of risk. I was with this crowd about five months and every month my salary was raised. That astonishing fact, plus what I have already recited, convinced me that I was in a den of thieves. I knew I could not possibly be worth the princely sum of $25 a week which I was drawing down. So I went around among my insurance company friends to ask what they thought of my employers. The opinion was unanimous and I gave up my dazzling job. Sure enough, not long afterward all five of the "Lloyds" outfits blew up. That was how I got my first knowledge of "crooked" insurance operations.
Of course, I still had my income from brokerage commissions, but I needed a job. About that time the first edition of the Standard Dictionary came out, and a friend showed me a beautiful leather-bound copy of it. He was a junior officer of the New York Life Insurance Company. It occurred to me that if I could somehow get the entree to the officers of the life insurance companies, so that I could talk to them and their more important employees, I could sell a carload of those handsome dictionaries and make a lot of commissions.
With this in mind I walked into the office of the Spectator Company, then the most prominent insurance publishers, to see if they could help me secure the entree to the life insurance offices. I talked with the president, a very kindly elderly man, who said no to my question, but asked how I would like to work for "The Spectator." So I started in with that organization, first working entirely inside on their publications but later spending part of my time as a salesman. This went on through 1896 and 1897. There I learned about some bad conditions in the fire insurance field, particularly with respect to irresponsible concerns which were writing a considerable amount of business because of the shortage of insurance capital, which made it difficult to cover large risks.
This new knowledge, plus my previous experience, convinced me that there should be some place where any one interested --- whether insured, agent or broker --- could obtain a reliable report upon the financial condition and operating methods of insurance companies. That idea was the germ from which grew my present business. It never occurred to me that it took a lot of self-confidence, not to say conceit, for a twenty-one-year-old boy to undertake such a thing. This self-confidence was no doubt the result of my having had to take responsibility at an early age. I induced an older man who had spent many years with the Spectator Company to join with me, and another considerably older man to join both of us, in the enterprise.
First Publishing Effort
It was agreed that we would start off with $4,500 capital, each to contribute one-third. I had to borrow my share, because from the time I started working I had pretty heavy responsibilities at home.
So, in December 1897, I left the Spectator Company and the three of us set up a little corporation, which in 1898 published a volume of reports upon insurance companies, of all classes except life. That was the year of the Spanish-American War.
This three-cornered partnership did not work out satisfactorily, and eighteen months later it was broken up.
Alfred M. Best Company, Inc
On December 13, 1899 I incorporated as Alfred M. Best Company, Inc. I set up shop in a small sub-let room, with a second-hand desk and a couple of chairs, which I bought for $15, a typewriter desk and an old typewriter donated by a relative. I paid $10 a month rent for the room and $4 a week for the privilege of dictating a few letters to the stenographer of the man from whom I rented the office. That was the entire outfit.
I had repaid the $1,500 which I had borrowed for my share of the abortive first effort, and the same man loaned me $500. I secured the necessary additional money to start the business through a contract with the promoters of a mercantile agency, to whom I sold the idea of including in the large volume they were planning to supply to their subscribers a section containing my projected book. The contract was for three years, and gave me enough money for paper, presswork and binding of not only the sheets furnished this agency, but also a stock of books for my own use.
Then I went to the Home Insurance Company and induced them to buy two thousand copies of my first edition, and, since these books were paid for by the agency contract, I had something for general expenses of operation. All alone I prepared the forms to send to the companies asking for their statements, wrote the reports, read the proofs and published the book. Then I began the effort to sell individual copies at $5 each. It contained reports on all classes of companies except life, and consisted of three hundred pages. I persuaded the leaders in the fire insurance business that it was a good book, that there was need for it and that I was trustworthy; and they wrote very nice letters endorsing the book, allowing me to use these letters in an advertising circular, through which I sold a goodly number of copies of my book. The business was launched.
In 1901, I was able to obtain a larger office, my own stenographer and one clerk-bookkeeper; the latter is still with me. Meantime, I was getting out a monthly supplement to the annual volume which was a forerunner of Best's Insurance News of today. It then ran from four to eight pages. The one book and the supplement were all that I published for several years.
In February, 1904, the Baltimore Conflagration gave me an opportunity for digging out the amount of the losses of fire insurance companies involved, and this work got me some newspaper publicity. By this time, of course, I was slowly building up a staff and had taken larger quarters. After three movings to better quarters, I finally had relatively spacious offices in the heart of the insurance district in New York and a staff of sixteen people. That year of the Baltimore fire gave us our first big "boost."
San Francisco Conflagration
From April 18 until April 21, 1906, the City of San Francisco burned. Getting reliable information with respect to the losses of the two hundred and forty-three companies and associations involved, and the effect upon their finances, was a tremendous job, which meant day and night work for many months, but we got and published the information. Early the following year, it was embodied in a report in pamphlet form, of which over two hundred and fifty thousand copies were sold, and for which to this day we still receive requests, forty-three years later. The pamphlet showed not only the amount of the loss sustained by each company, gross and net, but also its general policy in paying the conflagration claims. It was necessary to criticize some prominent companies for unfair treatment of claimants, but we had documentary proof which would stand up in court, if necessary, for everything we printed, and we pulled no punches. There were loud outcries and threats of libel suits, but none ever materialized.
Incidently, it was this San Francisco loss pamphlet which brought our work to the attention of many thousands of business concerns purchasing large amounts of insurance.
San Francisco Side Lights
If the compiling of the information on the San Francisco Conflagration entailed an immense amount of grueling work, it also brought to our attention incidents of interest and humor. For instance, one company reported its loss at $1,500,000 and advertised that figure extensively. One day its general adjuster and a friend were talking, and the friend said, "Do you know what your loss really is?" The adjuster replied airily, "Sure we do; it's $5,500,000." The catch was that our representative was in the room when that statement was made, and we promptly published it. The company threatened a suit for libel, but never carried it out, and not long after, it was forced out of business.
A funny incident happened when a foreign gentleman who spoke little English walked into the office of a company whose adjuster was frantically trying to settle claims at a very heavy discount from the adjusted loss. Not being able to understand what the gentleman was trying to say, the adjuster snatched the $1,000 policy out of the former's hand and shouted, "I won't listen to any more argument; $500 is all we'll pay." The man chattered excitedly at him, but the adjuster waved him aside angrily, drew a check for $500 and threw it across the desk at the man, who goggled at it a minute, then picked it up and departed. A little later the adjuster discovered that all the man wanted was to have the policy transferred to a new location. He had no claim for loss.
In 1905, a quarrel broke out among officers of a large life insurance company, and this led up to an investigation by the New York Legislature through what became known as the Armstrong Committee. It dug into the entire life insurance business, and as a result many new laws regulating that business were enacted in 1906. The work was done by a special committee headed by Senator Armstrong, with Charles Evans Hughes as counsel and Miles Menander Dawson, an eminent consulting actuary, as technical adviser.
Late in 1905, anticipating these events, we decided to get out a volume of reports on life insurance companies, thus rounding out our activities to cover the whole insurance field. I made an arrangement with Miles Dawson to edit this book, and started a selling campaign. As a result we worked all through the first ten months of that year, with both a day and night force. The work of digging out of old insurance reports the historical data necessary for producing the new life book was in itself a tremendous task, but it was accurately and successfully done.
Mr. Dawson's great responsibilities to the Armstrong Committee (organized after we had made our arrangement for jointly producing the first life volume) threw a heavy additional editorial burden upon me. I worked every day from nine to five with one set of employees, and then until eleven o'clock with a night staff. It must be borne in mind that while we were still engaged with this very heavy work on the life book, the San Francisco Conflagration occurred early in 1906, but in spite of this double burden the San Francisco Loss Report and the new life book were both produced. Late 1905 and 1906, however, covered a period in our history which will always stand out in my memory as pretty overwhelming.
It was in 1906 also that we produced our first ratings of insurance concerns. The country was then swarming with Lloyds organizations (over one hundred and fifty of them in New York State alone) stock companies organized in States where the insurance laws were lax, and bogus "stock companies," the latter issuing policies that embodied part of the title of well-known, sound stock companies. In New York State there was a legal provision for issuing special licenses to brokers, authorizing them to place insurance with non-admitted insurers, provided both the insured and the broker first made affidavit that the market in admitted companies was exhausted. A lot of these licenses were issued by the New York Insurance Department, which came to us and asked that we prepare a confidential list of all such concerns, indicating our opinion of their reliability by the numbers 1,2,3,4,5. The Superintendent said that this list would be used merely as an aid to their examiners, who periodically looked over the books of the brokers having the special licenses above mentioned.
We prepared such a list, but, to our chagrin, instead of keeping it confidential the Department notified all of these brokers that they were in possession of it, and that if they found on the next examination of the brokers' books that business had been placed with any concern rated lower than second grade on our list the licenses would be taken up!
This ultimatum created a terrific furor, but that list was the genesis of our present Insurance Guide with Key Ratings. Our first Key Rating book covered only "surplus line" concerns; then we added all stock companies, and then, from time to time, all other classes of carriers except life insurance companies. This little book quickly became extremely popular with business houses, banks and others not too familiar with insurance statements. Today many banks, school boards and similar organizations will not accept any policy unless a company carries a high rating from us.
Rash of New Life Companies
One result of the disclosures of the Armstrong Committee investigating the life business was the organization all over the country of scores of new life insurance companies. When our first life volume was published, in 1906, and in the years immediately following, it was necessary to criticize pretty severely the dubious financial position and peculiar methods of many of these new companies. This criticism led to a considerable number of controversies between our office and the managements of these companies, and in a good many cases with the Insurance Departments of the States in which such companies were located. Some of the controversies had their funny side. One company, in Kentucky, sent us its statement one year, showing in the gain and loss exhibit a gain of $167,500, with nothing to indicate its source. We wrote both the company and the Kentucky Insurance Department for information. The president of the company replied that the item represented premium on stock sold during the year, which on the face of it was a silly untruth because no stock was sold in that year. The Insurance Department replied honestly that it was a mark-up of the home office building.
We thereupon answered the president's letter, saying that he must have known his statement to have been false when he wrote his letter, and that we would not file any future communications bearing his signature. Whereupon he challenged me to a duel! A few days later a nice old gentleman who was the consulting actuary for the company visited our office and confirmed the Insurance Department's statement as to the real nature of the item we had questioned. I then showed the old gentleman the duel challenge, which quite flabbergasted him. I pointed out that since I was the challenged party I had the choice of weapons, and that they would be baseball bats at a distance of one pace. The old gentleman stared at me without a trace of a smile and said, "I will give that message to my superior officer exactly as you have given it to me." In due course, I received a rather abject apology and the duel never took place.
Life Service Expanded
In 1912, to round out our service to life insurance field men, we expanded comment which had been appearing in our volume of Life Insurance Reports dealing with policy conditions, premium rates and dividends, net costs and surrender values, and included this information in a separate volume.
In 1914 the casualty-surety business had increased in importance so greatly that we decided to get out a separate volume of reports covering those classes. An indication of the growth of the business and the continuous elaboration of our reports is the fact that these two volumes, the fire-marine and casualty-surety, then and today contain over six times as many pages as our original 1900 volume covering fire, marine, casualty and surety companies.
In 1920 we acquired our own office building, which is still our headquarters.
In 1929 we published the first edition of Best's Recommended Insurance Attorneys, listing lawyers in all parts of the country who had given satisfactory service to reputable insurance companies.
Two years later we issued the first edition of Best's Directory of Adjusters and Investigators and Best's Digest of Insurance Stocks, the latter intended primarily for the use of investors and dealers in insurance stocks.
In 1934 we brought out the first large volume of Reproductions of the Principal Schedules of Casualty and Surety Companies.
In 1936 we acquired Safety Engineering, America's pioneer safety magazine, established in 1901 and devoted to the promotion of health and prevention of accidents in industry and accident prevention on the highways, in the home, etc., --- a subject in which we have always been deeply interested.
In 1940 we produced the first volume of Best's Aggregates and Averages, bringing together in an orderly way all the important statistics relating to the fire and marine, casualty and surety business.
Late in 1947 we assumed the management of the sixty-year-old business of Flitcraft, Inc., which publishes two very valuable annual volumes and a monthly paper, all devoted exclusively to life insurance matters.
All during this period other minor publications were brought out, each to meet some specific need for information. Some of these were discontinued after they had served their purposes; as, to illustrate, a volume which analyzed the provisions of accident and health contracts, and which became unnecessary as policy contracts were more standardized; and another volume analyzing the conditions of automobile liability insurance policies, later discontinued for the same reason.
Thus, starting in 1900 with a single volume of reports, we now issue fourteen annuals, including the Flitcraft ones, four monthlies and several important weekly bulletins. We are now launching a new Personalized Safety Service, including safety posters, designed to be especially useful to workmen's compensation policyholders.
Naturally, during all of this long period our staff grew larger and larger; an efficient and growing field force has been operating for many years; branch offices were established throughout the country.
Our steady growth and increasing success over the years were not achieved without suffering disappointments, difficulties which at times seemed almost insurmountable, some hostility and occasionally really vicious attacks.
Our span of activity covers the money panic of 1907, the First World War of 1914-1918, and the very difficult years immediately following it; the widely speculative '20s, culminating in the inevitable stock market crash of October, 1929; the deep depression years which followed; the beginning of socialistically experimental activities of Government; the dislocation of the Second World War, 1939-1945, with all the accompanying worries and problems and the slow and painful attempts at readjustment up to the present day.
As indicated above, moreover, because of the very nature of our business we were involved in many controversies. We were sued for libel a number of times by people who resented our entirely truthful comments on their misdeeds, but we never had to pay a nickel to any of them.
In 1935 we were attacked most vigorously by certain life insurance companies, which did not like our comments and policyholders' ratings; most of them have since gone out of business. Our subscribers were not influenced by these attacks.
About the same time, in six different States, bills were introduced with the intent of driving us out of business in those States. By the simple process of educating the members of the legislatures concerned, we defeated them with little trouble, though some of our attackers had the backing of very strong local interests.
First knocking on wood, the writer of this article takes pleasure in stating that our recent years have been pretty free from this sort of attack. Principally today we have to deal with the headaches suffered by all business men in these difficult times.
Continued Vigilance Necessary
Nevertheless, we are still confronted with conditions in the insurance field which require us to keep constantly alert. In spite of the facts that insurance companies are, on the whole stronger, insurance laws and insurance supervision greatly improved, so that the public is better protected, weak spots are to be found in various sections of the country; there are still a good many insurance companies in active operation which require careful watching. Nowadays conditions in every line of business change much more quickly than in past years, and, to paraphrase, "eternal vigilance is the price of safety."
When we look at our problems, we remember the little six-year-old boy in the Mark Twain story, who supported his mother and twelve brothers and sisters "by digging wells in the daytime and taking in washing at night." We promise you that like him we will be ready "to toil even more assiduously than heretofore."
The writing of this article presents a welcome opportunity for me to express the deep gratitude which I feel toward the group of associates who, over decades, have aided so materially in building our business to its present position of usefulness and authority. Among our top executives are men who, having joined the organization at a very early age, have spent their entire business lives here, helping to develop the ideal of a service to the public reliable, complete and totally free from bias. Each of them is imbued with these principles, placing integrity above all others. Their analytical ability is based upon a wide comprehension of the insurance business as a whole, and over the years they have gained individual recognition in the insurance field as experts in their lines. Dealing as we do with all branches of insurance activities --- fire, marine, casualty, surety and life ---the opportunity exists for acquiring a very broad outlook, and each of our top men, though specializing in one line, has a good deal of knowledge of the other lines as well. Without these men this business could not exist, and I treasure above all other qualities they possess the loyal devotion which they have unswervingly given to this company.
Nor can I close this retrospective record without recording my sincere thanks to the insurance institutions which cooperate by giving us the voluminous information we need for our many publications, and to our many subscribers, large numbers of whom have remained with us for years and years. We have been happy for the opportunity which has been given us to be of service to the greatest business in the world and to the public at large which that business protects. Without the loyal support of our subscribers, sound elements in the insurance business, and our staff, we could have accomplished nothing.
--Alfred M. Best