How a Raging Inferno Helped Build the American Insurance Industry

On this day in business and financial history ...

On the night of Dec. 16, 1835, a fire began at a large warehouse in Manhattan. It was the second fire in the city in two days, and the bitter cold of an impending winter had frozen much of the precious water needed to put out the blaze. The fire raged until the next morning, when a last-ditch explosion of buildings created enough of a firewall to contain the destruction to a 50-acre range. Nearly 700 buildings burned to the ground, including the recently built Merchant's Exchange and the original location of the New York Stock Exchange (UNKNOWN: NYX.DL  ) at 40 Wall Street.

All but three of New York City's 26 fire-insurance companies went bankrupt, as many had their headquarters -- stored cash and all -- destroyed in the fire. Damages were estimated at $20 million at the time, which would be about $430 million today. This doesn't seem like much, but $20 million equaled more than 1% of the national GDP in 1835.

The city's remaining insurance companies largely decided to relocate to Hartford, Conn., which soon became known as "The Insurance Capital of the World." Hartford was the city where Travelers  (NYSE: TRV  ) was founded in 1864. The Hartford Financial Services Group (NYSE: HIG  ) is one of few pre-fire insurance companies in Hartford, which has been its headquarters since 1810, but Aetna (NYSE: AET  ) also traces its origins to pre-fire Hartford -- it began as a fire-insurance company at some time around 1819, but shifted toward more diversified offerings in the 1850s.

One of the other immediate results of the fire, besides widespread bankruptcies and an insurance exodus to Hartford, was a widespread switch to fire-resistant stone buildings in Manhattan, which influenced the ornate style of Wall Street's financial sector for many years thereafter. The New York Stock Exchange stayed close to its original home in downtown Manhattan but did not move into its present location at 18 Broad Street until 1903.

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