Tontine: Wikis


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From Wikipedia, the free encyclopedia

In cryptography, a tontine is a secret sharing algorithm which allows n people to share secret data, such that any k of them can reconstruct it by combining their keys.
For the Australian pillow manufacturer, see Tontine Group.

A tontine is a scheme for raising capital which combines features of a group annuity and a lottery.



The scheme is named after Neapolitan banker Lorenzo de Tonti, who is generally credited with inventing it in France in 1653. Some sources claim that similar schemes already existed in Italy, but there is no dispute that the wider popularity of the form was due to Tonti.


The basic concept is simple. Each investor pays a sum into the tontine. Each investor then receives annual dividends on his capital. As each investor dies, his or her share is reallocated among the surviving investors. This process continues until only one investor survives. Each subscriber receives only dividends; the capital is never paid back. The proceeds of the subscription were used to fund various private or public works projects. These sometimes contained the word "tontine" in their name, as did the Tontine Coffee House on Wall Street in New York City. Built in 1792, it was the first home of the New York Stock Exchange. In a later variation, the capital would devolve upon the last survivor, effectively dissolving the trust and usually making the survivor very wealthy; it is this version that has often been the plot device for mysteries and detective stories.

In Edinburgh, Scotland, Fortune's Tontine Tavern was built in 1796 on Princes Street. It was Edinburgh's first proper hotel. The family had previously run Fortune's Tavern in Old Stamp Office Close in the High Street, Edinburgh, a favourite of the upper classes but moved to the newly created and fashionable New Town. The five star Balmoral Hotel, built in 1902 sits on the site today.[1]

As a type of rotating savings and credit association (ROSCA), tontines are well established as a savings instrument in central Africa, and in this case function as savings clubs in which each member makes regular payments and is lent the kitty in turn. They are wound up after each cycle of loans.[2]


First page of Dousset 1792 French patent for a tontine

Financial inventions were patentable under French law from January 1791 until September 1792. In June 1792 a patent was issued to inventor F. P. Dousset for a new type of tontine in combination with a lottery.[3]

Uses and abuses

Louis XIV first made use of Tontines in 1689 (after Tonti's death) to fund military operations when he could not otherwise raise the money. The initial subscribers each put in 300 livres, and, unlike most later schemes, this one was run honestly; the last survivor, the widow, Charlotte Barbier, who died in 1726 at the age of 96, received 73,000 livres in her last payment. The British government first issued tontines in 1693 to fund a war against France, part of the Nine Years' War. However, tontines soon caused problems for their issuing governments, as they would increasingly underestimate the longevity of the population. At first, tontine holders included men and women of all ages. However, by the mid-18th century, investors had caught on how to play the system, and it became increasingly common to buy tontines for young children, especially for girls around the age of 5 (since girls lived longer than boys, and by which age they were less at risk of infant mortality). This created the possibility to produce great returns for the holders, but it proved to be quite costly for the governments. As a result, the tontine scheme was eventually abandoned, and as of the mid-1850s, the tontines had been replaced by other investment vehicles such as "penny policies", a predecessor to the 20th-century invention of the pension scheme.

Tontines became associated with life-insurance in the United States in 1868 when Henry Baldwin Hyde of the Equitable Life Assurance Society introduced tontines as a means to sell more life insurance, and meet the demands of competition.

While once very popular in France, Britain, and the United States, tontines have been banned in Britain and many jurisdictions in the United States, because many of these schemes were little more than swindles. Geneva, in Switzerland, was known for its active market in tontines in the 17th and 18th centuries. Nevertheless, there are underground organizations in the US that still use the tontine.

Tontines in other cultures

See also


External links

1911 encyclopedia

Up to date as of January 14, 2010

From LoveToKnow 1911

TONTINE, a system of life insurance owing its name to Lorenzo Tonti, an Italian banker, born at Naples early in the 17th century, who settled in France about 1650. In 1653 he proposed to Cardinal Mazarin a new scheme for promoting a public loan. A total of 1,025,000 livres was to be subscribed in ten portions of 102,500 livres each by ten classes of subscribers, the first class consisting of persons under 7, the second of persons above 7 and under 14, and so on to the tenth, which consisted of persons between 63 and 70. The annual fund of each class was to be divided among the survivors of that class, and on the death of the last individual the capital was to fall to the state. This plan of operations was authorized under the name of "tontine royale" by a royal edict, but this the parlement refused to register, and the idea remained in abeyance till 1689, when it was revived by Louis XIV., who established a tontine of 1,400,000 livres divided into fourteen classes of 10o,000 each, the subscription being 300 livres. This tontine was carried on till 1726, when the last beneficiary died - a widow who at the time of her decease was drawing an annual income of 73,500 livres. Several other government tontines were afterwards set on foot; but in 1763 restrictions were introduced, and in 1770 all tontines at the time in existence were wound up. Private tontines continued to flourish in France for some years, the "tontine Lefarge," the most celebrated of the kind, being opened in 1791 and closed in 1889.

The tontine principle has often been applied in Great Britain, at one time in connexion with government life annuities. Many such tontines were set on foot between the years 1773 and 1789, those of 1 773, 1 775 and 1777 being commonly called the Irish tontines, as the money was borrowed under acts of the Irish parliament. The most important English tontine was that of 1789, which was created by 29 Geo. III. c. 41. Under this act over a million was raised in Io,000 shares of ioo, 5s. It was also often applied to the purchase of estates or the erection of buildings. The investor staked his money on the chance of his own life or the life of his nominee enduring for a longer period than the other lives involved in the speculation, in which case he expected to win a large prize. It was occasionally introduced into life assurance, more particularly by American life offices, but newer and more ingenious forms of contract have now made the tontine principle practically a thing of the past. (See NATIONAL DEBT; INSURANCE.)

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