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Life from the Napoleonic Wars to the Second World War

When the romantic formative period of a science is over, it gradually settles down into one of ordered progress, which while supremely useful has less about it to attract the imagination.[1]

So said Samuel George Warner in his 1917 presidential address to the Institute of Actuaries. And yet, with the benefit of 200 years of hindsight, this statement might be more applicable to the beginning of the nineteenth century. In Warner’s era, actuarial thought and practice was largely reactive in the context of a series of unprecedented events and circumstances: global war, high inflation, interminable economic depression, low interest rates, more global war, government-induced ultra-low interest rates. At the start of the nineteenth century, life assurance practices still had to navigate the political and economic challenges of their time, but the actuaries of the nascent life assurance industry were arguably freer to plot the course of their profession and its practices. The trail had been blazed in the final half of the eighteenth century and a revolutionary vision of life assurance as a long-term savings vehicle for the middle classes had been realised with the remarkable success of the Equitable in the final two decades of the century. Many new life offices would follow in Equitable’s wake. The pioneering work of Dodson, Price and Morgan now had to be systematically developed into robust best practices for an embryonic profession that was invested with substantial powers and discretion in a fastgrowing and increasingly significant element of the financial sector.

The modelling of mortality and its implications for the pricing of life contingencies continued to dominate actuarial thought in the first half of the nineteenth century. Whilst important, even fundamental, developments in mortality modelling continued through to the end of the nineteenth century, a sense emerged by the middle of the century that mortality was increasingly well-understood. Likewise, it was recognised that a greater amount of professional energy should be invested in the further development of thought in other important aspects of actuarial responsibility within a life assurer such as reserving methods, surplus distribution approaches and the assurer’s investment policy. The forming of the Institute of Actuaries in 1848 (and Faculty of Actuaries in 1856), and the arrival of their professional journals and sessional meetings, was a catalyst for more collaborative and co-ordinated thought-l eadership amongst actuaries. It is perhaps no coincidence that the 25 years following the formation of the institute was a period that saw the crystallisation of many important ideas and principles that acquired permanence in actuarial thought.

The technical considerations involved in the valuation of liabilities, and hence surplus, emerged as a major field of actuarial research in the midnineteenth century, together with the related topic of determining how the surplus should be distributed amongst the with-profit policyholders in a way that was just and equitable. To a lesser degree, the second half of the eighteenth century also saw actuaries give greater consideration to the asset side of the balance sheet, and the first actuarial papers on investment strategy for life assurance liabilities were produced. But just a handful of investment papers emerged in the nineteenth century, and this field was only to become an area of real focus for the profession in the twentieth century.

The economic turmoil of the first half of the twentieth century and its implications for the management of the British life offices kept valuation, surplus and investment strategy at the top of the thought-leadership agenda. New mortality tables continued to be developed, but the first half of the twentieth century did not witness any notable fundamental breakthroughs in thinking on the construction of the tables.

The historical developments in these three broad areas of actuarial thought— mortality modelling, valuation and surplus, and investment strategy for life assurance liabilities—over the nineteenth and first half of the twentieth century are discussed in turn below.

  • [1] Warner (1918), p. 16. © The Author(s) 2017 C. Turnbull, A History of British Actuarial Thought,DOI 10.1007/978-3-319-33183-6_3
 
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