Life Offices After the Second World War: The Underwriting and Management of Financial Market Risk (1952-2004)
The history of actuarial thought in the British life assurance sector over the second half of the twentieth century is tumultuous. This was increasingly the case as the century wore on, reaching something approaching a crisis by the century’s end, from which the profession started to reorientate itself in the early 2000s. The root causes of the late twentieth-century challenges initially emerged earlier in the century and have already been briefly noted. The most important of these was the increasing trend, started in the 1920s and 1930s, of abandoning the strictly risk-averse investment disciplines of nineteenth century Bailey in order to pursue greater investment in equities and other risky asset types.
This apparent increase in risk appetite could be viewed in the context of a broader long-term trend in with-profits policy design towards it being unambiguously configured as a long-term savings vehicle as opposed to a more balanced mix of savings and life assurance protection. As a long-term savings product provider, with-profits funds were exposed to increasing competition from other sectors of the financial services industry such as banks and asset managers. The stress of competition doubtless placed commercial pressures on actuaries, whose role was to determine the charging, reserving requirements and bonus policies of life products.
From an intellectual perspective, the radical developments in relevant related disciplines that occurred over the second half of the century created opportunities and threats for the actuarial profession. Financial economics, the application of advanced quantitative techniques to finance and new modelling possibilities created by advances in computing technology each © The Author(s) 2017
C. Turnbull, A History of British Actuarial Thought, DOI 10.1007/978-3-319-33183-6_5
contributed to a revolution in financial and risk management practices in other parts of the financial and corporate sectors. Would these developments make traditional actuarial skills obsolete? Could the profession embrace these new ideas and capabilities and add them to their professional toolkit? This represented a formidable challenge for the British profession. As we have seen, actuarial concepts and their applications evolved significantly over the 100 years between 1850 and 1950. The core technical skills required in actuarial work, however, had not changed fundamentally over that period. The tried and tested actuarial syllabus of the mid-twentieth century was not easily adapted to the radical and technical developments in finance, quantitative techniques and computer modelling that would emerge in the following decades.
The challenge was cultural as well as intellectual. The British actuary of this era stood resplendent in his status as a purveyor of techniques too complex and opaque to be understood by anyone else; his professional judgement was beyond challenge; his track record was without blemish. He was not minded to be told that his methods were antiquated or that his thinking was flawed. An intellectual and cultural clash was afoot.
As ever, this is a story replete with remarkable actors, and it is perhaps all too easy for hindsight to blind us to the real challenges and conflicts they faced as they made the progress they did.