Extracts

Chapter 1: A Brief History of Life Insurance

1.1 Life Insurance in Antiquity

Certain forms of life insurance existed in antiquity. Indeed, it appears that it was transacted in most ancient civilisations. Almost every economic history book contains references to practices that can be identified as forerunners of modern insurance techniques and economic historians have described insurance practices dating back thousands of years before the Christian calendar began.

The ancient Egyptians and Chinese left much evidence of burial society and other insurance activities in their communities. Historians believe that a rudimentary form of insurance existed in China as early as 5000 B.C. At that time, boat owners found it advantageous to redistribute their cargoes into several boats as they approached treacherous river rapids or on long sea voyages. If one boat was lost, all the boat owners shared the loss and hence no-one faced financial ruin.

At the time of the first Babylonian Empire about 2500 BC, members of caravans shared common losses caused by robbery or attack and, while it is not clear whether compensation for loss of life was included, it seems improbable that the death of valuable slaves (as with the loss of other commodities and chattels) would have been omitted from such arrangements. Indeed, the practice was so well established that it had already attracted government interference! Regulations on insurance were found in the ancient legal code of Hammurabi (1792 – 1750 BC), the Babylonian king whose surviving set of laws were once considered the oldest promulgation of laws in human history. They were inscribed on a diorite stella in the Babylonian temple of Marduk at Susa (modern Shushtar in Iran) and are now preserved in the Louvre, Paris.

Excavations have shown that there was a type of life insurance in the city of Milete in Asia Minor in the year 2052 BC. For example, citizens of the town paid 3 600 drachma into a common fund and in return received 30 drachma per month for life. On death, any balance remaining reverted to the fund except for 150 drachma which was paid to the next-of-kin to provide for funeral expenses.

The basic principles of life insurance were clearly well understood in ancient Greece. The Eianoi and The Thiasoi in ancient Athens were benevolent societies established and maintained by contributions from members. They later developed into societies providing for the payment of burial expenses and the immediate needs of deceased members’ dependants.

The Romans also understood the essential elements of life insurance. The Collegium Cultorum Dianae et Antinoi et Lanuvium was apparently a mutual society established to ensure that sufficient money was available for a suitable funeral on a member’s death. It appears too, that some Roman military societies established funds to provide for the payment of sums of money in the event of members dying within a specified period. Also provided for were lump sum payments on survival to a specified date or the payment of an annuity for the life of a member.

Romans customarily bequeathed annuities to their dependants. The earliest form of mortality table used for this and other purposes dates back to 208 AD when the Roman prefect and jurist Domitius Ulpianus perfected tables by which a fairly accurate estimate could be made of the length of human life. Ulpianus’s tables were still being used in Northern Italy as late as the end of the 18th century. Remarkably, his tables were the last word in mortality rates for over 1 400 years until the work of Sir Edmund Halley in the late 17th century.

The Romans were also known to have adopted from the Greeks a form of loan agreement under which money advanced by merchants and moneylenders to finance a ship’s voyage was repayable with interest only if the voyage was successfully completed. This form of agreement became known as a Bottomry Bond.

The Hindus were also known to use Bottomry Bonds to shift the burden of risk from owners of ships and cargoes to moneylenders. The Phoenicians, Greeks and Romans all developed agreements that corresponded in most essentials to written contracts used some 2 000 years later in marine ventures to the New World.

Bottomry Bonds were revived by medieval Mediterranean traders in terms of which if the ship should suffer shipwreck or perish by any other misfortune, there was no repayment of the amount advanced. If the voyage was successful, the lender was then entitled to reward by virtue of the risk to which he had been exposed. Bottomry Bonds were commonplace in the early 14th century and one dated 1329 has been preserved in Venice.

As cargoes often consisted of slaves (i.e. chattels), taking out insurance on the safe transport of human beings became a common practice. The earliest such contract for which record survives is dated 19 September, 1399 and covered the life of a slave during a sea-passage from Barcelona to Italy. Applied to embarked slaves then, life insurance was formally indistinguishable from marine insurance because it simply indemnified slave-owners for the market price of their chattels lost at sea.

In the Dark Ages, following the fall of the Roman Empire, the principles of mutual insurance in particular, were developed in both England and Europe by the feudal guilds which often included burial costs in their system of dues.

The early evolution of life insurance was therefore not so precise that we can point with confidence to a single civilisation, year or transaction and say that that was its beginning. What we can say though, is that its history closely mirrors the history of trade and it is consequently no surprise that insurance has often been referred to as ‘the handmaiden of commerce’.

1.2 Life Insurance in England

Evidence suggests that life insurance in England originated in the latter half of the 16th century and slowly gained currency thereafter. The earliest modern-day life insurance contract of which we have a record was issued on June 18, 1583 and is registered in the Chamber of Assurances in the Royal Exchange in London. It was a term policy for a period of 12 months, the sum insured being £383.6.8, on the life of one William Gybbons, ‘Citizen and Salter of London’ and a premium of £30.13.14 (8 per cent) was payable. (Premiums in those days were not fixed or calculated on any scientific basis but were paid annually in advance and were bargained for each year between the insured, the broker and the underwriters.)

The policy was issued by Richard Martin and underwritten by a group of 16 merchants, there being at that time no insurance companies per se. The reason why we have a record of this early insurance policy is that when Gybbons died after the contract had been in force for 364 days, the merchants declined to pay the claim. The matter was decided by the Appeal Court which ruled in favour of Gybbons’ estate. The insurers reasoned that the word ‘year’ in the policy meant 12 lunar months of 28 days each. The Court ruled that a ‘year’ was obviously meant to mean a period of 12 calendar months.
Apart from burial societies and the like, prior to the 18th century insurance was an unfamiliar concept to the average English person. Marine insurance however, was well-established and routinely transacted among a small fraternity of brokers and shippers. Life insurance, along with marine insurance, had a long history among this group in England and seems to have been introduced to them by Italian merchants around the middle of the 16th century. (The English word ‘policy’ was derived from the Italian polizza, meaning a promise or undertaking.)

This relative obscurity changed towards the end of the 17th century when the first co-operative life insurance societies appeared. Thousands of English men and women began to take out policies on their own lives and on the lives of others and began thereby experimentally to establish an economic value of human life. However, for most of the 18th century and despite the rapid growth of the life insurance market in England, most insured lives continued to be African slaves in transit to the New World. The insurance of slave cargoes was one of the oldest and most important constituents of the life insurance business as a whole. With the abolition of the slave trade and some earlier English legislation restricting the practice, the insurance of slave cargoes came to an abrupt end in 1807. By this time though, the acceptability of the concept of insuring human lives had become well-entrenched in the British psyche.

Because of its particular legal and ethical endowment, England was sheltered from a wave of laws prohibiting the transaction of life insurance business that spread across Europe from the 15th to the 17th century. Life insurance was regarded as unethical in most of Europe because many Europeans felt that it treated human life as a mere commodity. European governments considered that the life of a man should not be an object of commerce and that it was odious that his death should become the subject of ‘mercantile speculation’. This meant that in the 18th century, the life insurance market in Britain flourished under a minimum of state interference, whilst that of other European markets disappeared almost completely. Indeed, the practice of life insurance remains far greater in Britain today than in any other European country. At the close of the 17th century, the insurance trade in Britain was operating entirely without any direct government supervision. Government later began to exert control over the industry by use of Parliamentary statute only for the prohibition of certain selected practices. However, the English government never embarked upon wholesale bans of the life insurance trade and kept as much as possible of the business legal, at least partly in order to broaden the tax base. Under Queen Anne in the late 1600s, duties placed upon life insurance policies even helped to fund the national lotteries, themselves devised to help finance the wars of the time.

Surgical legislative interventions attempted to separate conduct defined as properly economic in character from that which was regarded as malign speculation. The thrust of regulation therefore shifted from banned contingencies to banned motives. Taking out an excessive amount of insurance cover transformed an insurance contract from being a means for compensating losses to an opportunity for reaping windfall gains.

The Gambling Act of 1774 introduced the first appreciable regulation of life insurance in England by barring any insurance on a life or event except insofar as the policyholder had a financial interest therein. This became known as insurable interest and in the case of life insurance, was required to exist at the time a policy was effected. Prior to this, insurance had been a form of gambling in that people could insure any other person’s life without hesitation, whether connected with that person or not.

This Act, which imposed the first statutory limitations on the issuance of life insurance in England, required that the purchaser of a policy be able to demonstrate a bona fide financial interest in the life to be insured. By forbidding the gratuitous creation of property in human lives through the unregulated purchase of insurance, the State asserted a legal say over the circumstances under which humanity itself could be made a commodity. Henceforth an economic calculus, defined by the criterion of insurable interest, distinguished indemnifying uses from speculative uses of insurance. The passing of the Gambling Act was therefore a decisive point in the history of life insurance and the full variety of life insurance practices that previously had been transacted side by side within insurance societies and by individual underwriters was now consigned to distinct legal and moral spheres.

The inability of other European countries to make this distinction led to the frequent association of life insurance with gambling and other disreputable factors and prompted them to prohibit its practice without exception. The French in particular considered life insurance to be against good morals and customs and to give rise to an ‘infinity of abuse and deceit’.

Apart from the fact that legislation did not hamper it, the development of the life insurance technique in England had been given a significant boost in the late 1600s by the emergence of probabilistic thinking and ‘political arithmetic’ or what is today known as statistics. The word statistics dates back to the Napoleonic wars when economic data was supplied to the British government. This data or ‘state arithmetic’ was the forerunner of present day statistics and the word is generally regarded as a contraction of the words ‘state arithmetic’. (In the middle 1600s it was also known as Political Arithmetic.)

The concept of statistics can be divided into two broad areas: The first deals with the systematic collection of information, its presentation and description. This branch is known as ‘descriptive statistics’. The other branch of statistics is one that is of more interest to those analysing risk. It is known as ‘inferential statistics’ and is useful, for example, where a person wishes to make certain inferences about the future, based on the data collected. The techniques used for forecasting the future are largely those of probability theory. Probabilities measure the likelihood that things will happen. In the case of life insurance they are for exampled, applied to measure the likelihood of death at certain ages. This likelihood is measured on a scale of 0 to 1. Where it is absolutely certain to occur, the probability of an event occurring is 1. It follows that an event with a probability of 0,2 is much less likely to occur than an event with a probability of 0,9. From this technique was devised the mortality tables used for the calculation of risk premium as discussed in the next chapter.

The first modern mortality table was published in 1693 by Dr Edmund Halley, Astronomer Royal and later of Halley’s Comet fame. This was the first mortality table based on a scientific calculation by an important citizen and it showed the probability of life and death in the city of Breslau in Silesia (now Wroclaw in Poland) where reliable data on births and deaths had been kept by the city fathers. It also contained an annuity determination, an important development for modern life insurance. Known as the Breslau Tables of Mortality, they paved the way for life insurance to become more of a science than an art although it is unlikely ever to become a pure science, as will become clear in later chapters.

During that period in history, many people believed in the doctrine of particular providences, seeing the hand of God behind everything that happened to them. The introduction of statistical analysis helped such beliefs to fade and with them, the philosophical objections to insuring human life. The intellectual and moral climate in England grew more favourable to underwriters in general and, together with the absence of prohibitive legislation, created the environment in which England became the home of modern life insurance. Indeed, as a result of these circumstances and developments, it became the centre of world trade in insurance in the modern era, producing vast volumes of ‘invisible exports’ and handsome fiscal revenues of which Europe was denied for centuries to come.

The first life insurance company (often referred to as a life office) instituted in England was the ‘Hand-in-Hand Society’ which was founded in 1696 by 100 incorporators. ‘The Society of Assurance for Widows and Orphans’, established in 1699, appears to have been the first office open to the general public. A death benefit of £500 on the death of a member was its object and a contribution of 5 shillings from each of 2000 members was required. This Society apparently never attained the required membership and survived for only 12 years. It paved the way however, for the ‘Amicable Society for Perpetual Assurance on Lives’, founded in 1706 and operating on similar lines by virtue of a charter from Queen Anne. Initially, this Society charged an annual premium of £6.4.0 irrespective of age, for a death benefit the size of which depended on the number of deaths amongst members during the year. There was a fixed number of shares (2 000) offered to the public and persons between the ages of 12 and 45 were eligible for membership. The contributions received during the year less outgoings, were to be divided at the close of the year between the representatives of the members who had died during that year. In 1770 the Society reported that during its history it had paid 3 643 claimants the total sum of £378 184 and that the sums paid on death in the 17 years prior to 1770 had averaged £154 each.

This concept of offering a death benefit equal to the fund available divided by the number of deaths during a particular period was not insurance practice as we know it today. Furthermore, the contract differed substantially from today’s life insurance in that the premium was a fixed amount per £100 death benefit, irrespective of the age at entry of the life insured.

One of the earliest schemes of mutual insurance was set up by the workers of the University Printing House, Oxford, in 1707. It was agreed that each should deposit one shilling upon every third Saturday and also at Christmas, Easter and the Wayzgoose (a trade picnic day) to be placed in a chest, the keys of which were kept by two nominated workmen. On the death of a member, there was paid to the widow or next-of-kin a sum depending on the length of time he had been a subscriber. Sums up to half the total amount paid in by a member could be advanced at interest but repayment by weekly instalments was compulsory during the ensuing year.

‘The Society for the Equitable Assurance on Lives and Survivorships’ was another of the several life offices established in England in the 18th century. Established in 1756, this company still exists today and is known as ‘The Old Equitable’. Policies issued by The Old Equitable in 1762 marked the beginning of life insurance as we know it today. For the first time actuarial principles were applied and premiums calculated according to age at inception of the policy. Whole life and term insurance for periods or one of more years were offered and an essential difference to previous policies was that premiums remained constant for the duration of the contract. The first such policy issued by the Society was granted to Edward-Rowe Mores, a graduate of Oxford and a Fellow of the Society of Antiquaries. The description in the minutes shows ‘that he is aged 32 years, that his state of health is and always has been exceedingly good and that he is not given to drink and other intemperance’. The annual premium was £3.17.6 together with an entrance fee of £0.15.0 and a deposit of £1.0.0.

A scientific valuation of the profitability of The Old Equitable was first made in 1776 by one William Morgan, company actuary at the time. The investigation revealed that premiums were too high for the mortality actually experienced and a decision was taken that the resultant surplus would be distributed to existing policyholders. Premiums were reduced by one-tenth and a bonus equal to one-tenth of the premium paid was distributed to members in the form of cash or as a reduction in future premiums due. This first exercise in the distribution of accumulated surplus resulted in the development of the first with-profit policies and the placing of premium and valuation calculations on a scientific basis by the major life insurers operating in England at that time, including ‘The Royal Exchange Assurance’, ‘The Westminster’ and ‘The Pelican’, all in the year 1783. During the next 50 years, a large number of life insurers commenced business in the United Kingdom and the uniform reversionary bonus system, a method for distributing accumulated surplus (see Chapter 3), became firmly entrenched more as a result of actual experience than of prior statistical intention.

Indeed, it should be noted that the compilation of statistics and their application to probabilistic reasoning did not themselves furnish the necessary preconditions for the development of life insurance, since life insurance underwriting existed long before the probabilistic revolution of the late 17th century. The propagation of scientific culture imparted appreciable impetus to the co-operative life insurance movement but neither the invention of probability theory nor the elaboration of statistical methods sufficiently explains the surging popularity of insurance in the late Stuart period. As life insurance came into vogue in the late 1690s and early 1700s, it is clear that the forms of operations proposed for the new insurance ventures had little to do with the method suggested by probability theoreticians. They functioned according to simple redistributive procedures and reflected the long history of pre-probabilistic insurance underwriting in England dating back to the late medieval period. As with insurers today, they stayed in business by the exercise of caution, by keeping a sharp lookout for fraud and by following hard-learned rules of thumb. In short, experience counted; counting did not.

In contrast to its misguided ill repute on the continent of Europe, life insurance in England was advertised as a morally uplifting exercise in the virtues of thrift, prudence and charity. In consequence, life insurance in England acquired widespread if not universal esteem. Policyholders agreed that life insurance inspired providence, encouraged a tender and selfless devotion to one’s family and ‘kindled a warm Christian fellowship’ amongst insurance society members.

Moreover, England had that great institution of insurance known as Lloyds of London. Lloyds came of age in the late 1700s insuring ships through a succession of wars culminating in the defeat of Napoleon in Waterloo in 1815. War drove up premiums and whilst many ships were sunk and much money lost, skilled underwriters grew rich and Lloyds grew in size and importance. Having begun through a loose association of merchants who gathered at Edward Lloyd’s coffeehouse in Tower Street near the Thames waterfront in the late 1600s, in 1771 a group of 79 sober underwriters established a formal association in a building nearby. Although Edward Lloyd was long dead, his name stuck, as did the tradition of doing business from wooden benches clustered in rectangular ‘boxes’ around a large room.

While still insuring much of world shipping, by the early 1900s Lloyds offered coverage for property and casualty, fire and theft, and product liability. It was known for accepting large and complex risks that no-one else would touch. By granting or withholding insurance, Lloyds could make or break a new business venture and by 1950 was earning for the British balance of payments nearly as much as the entire British banking system. It became the largest private investor in the United States government, holding billions of dollars in Treasury bonds. It also became a cultural and social force. Lloyds’ chairmen were celebrities. People stood up when they entered a room. The art collection of one Lloyds official became the nucleus of the National Gallery in London. Lloyds’ name was so potent worldwide that in 1936 it was celebrated in a full length Hollywood movie starring Tyrone Power. With a history stretching over nearly three centuries, Lloyds had obtained for itself and for the practice of insurance in general an aura unmatched by any other business enterprise.

The introduction of the Financial Services Act in the 1980s and subsequently the Financial Services Authority at the turn of the century, heralded the advent of an environment considerably less favourable to the British insurance industry. Indeed, a sudden and great contraction in the life insurance industry appeared to be taking place in the early 2000s and it remains for future historians to record whether or not this new-found state intervention will have unintended consequences similar in impact and magnitude to those of the Europeans in earlier times.

1.3 Life Insurance in the United States of America and Elsewhere around the World

The spread of life insurance in Britain during the late 18th and early 19th centuries far outstripped the advance of life insurance in North America during the same period. In the United States of America, where life insurance has always been legal, probably fewer than 100 life insurance companies were in existence at the end of the 19th century. As late as 1840 only 15 American companies underwrote life risks, with total coverage amounting to less than $5 million.

The first organisation in the United States of America established for the purpose of providing benefits payable on death was a ‘Corporation for the Relief of Poor and Distressed Presbyterian Ministers and of Poor and Distressed Widows and Children of Presbyterian Ministers’. Established in 1759 it is still in existence today and known as ‘The Presbyterian Ministers’ Fund’. The Fund apparently granted survivorship annuities commencing on the death of the policyholder and payable for the life of the beneficiary. Annuities could be purchased for between $10 and $35 per annum, the annual premium being one-fifth of the annuity payable on death.

Chartered in 1794, ‘The Insurance Company of North America’ was one of approximately 30 life insurance companies which had been founded during the last 15 years of the 18th century. ‘The Pennsylvania Company for Insurance on Lives and Granting Annuities’, established in 1809, was the first commercial company to be organised in America for the sole purpose of issuing life policies and annuities. It was also the first American company to operate on a scientific basis, requiring an application form, a medical examination and a premium which varied by age at inception.

In 1842, ‘The Mutual Life Insurance Company of New York’ was chartered as the first American company to operate as a mutual society, issuing 4000 policies during its first five years of existence. A year later, the ‘New England Mutual’ was established and two years later ‘Mutual Benefit of New Jersey’ was established. A flurry of life offices were subsequently founded and by the late 1800s there were approximately 100 life offices active in the United States of America.

The limited headway made by life insurance in continental Europe was of course due to the pervasive and long-standing laws forbidding its practice and leading to other unintended consequences. These laws were removed only in the first half of the 19th century and it naturally took a long time for the idea of life insurance to gain acceptance among a public generally ignorant of its principles and insurers unfamiliar with its techniques. In France, life insurance contracts did not receive full statutory recognition until as late as 1850, an attempt to overcome traditional moral and legal objection having been turned back by the revolutionary government in 1793 with a comment that ‘insurance replaces the service of humanity by the service of money and undermines the sense of compassion which should form the basis of society’.

The first European country to enjoy the presence of life insurance companies appears to have been Holland where the ‘Hollandsche Societeit van Levensverzekeringen’ was formed in 1807 on sound actuarial principles. It was only after 1850 that life insurance was properly transacted in Germany, Austria, Switzerland, France and Italy. Canada and Australia followed but it would seem that in other parts of the world such as Russia, Japan and Turkey life insurance business was not transacted until considerably later.

In China, foreign business people first introduced properly instituted insurance companies in the early 1800s. In 1805, the Canton Insurance Company was established in Guangzhou. In 1865 the first Chinese insurance company, the Yi He Insurance Company, was formed in Shanghai and by the turn of the century, China had a remarkably advanced insurance industry.

Following the establishment of the People’s Republic of China, all insurance operations were nationalised in 1949 and replaced by the state-owned People’s Insurance Company of China (PICC). In 1958, the domestic insurance company business was suspended, as it was felt to be unnecessary because of the Communist government’s monopoly of economic activity and provision of uniform welfare benefits. For the next 20 years, PICC’s activities collapsed and were confined only to China’s international business, principally marine and aviation insurance. As a result, much of China’s insurance skills and expertise were lost.

In 1982, PICC resumed its domestic insurance business. PICC’s monopoly ended in 1986 when a regional agricultural insurance company was formed. In 1988, another company, Ping An, was granted a licence in Shenzhen, and in 1991, China Pacific Insurance Company was established in Shanghai. Both are now major competitors of the PICC. Other domestic competitors have since been licensed, including Taikang Life, New China Life (Xinhua Life) and Taiping Life., drawing heavily on foreign insurance and re-insurance expertise.

1.4 Life Insurance in South Africa

Although a relatively small market by world standards, the South African life insurance industry, at least until the year 2002, had one of the highest per capita ownerships of life insurance in the world and had proven to be one of the most resilient and innovative. It had been a market in which unique life insurance concepts had been developed, a number of which had found their way into international practice.

South African life insurers played a significant role in the early development of unit-linked life products in the early 1960s and universal life-type products in the late 1970s. Moreover, the concepts of ‘Dread Disease’ (critical illness) and ‘Terminal Illness Benefits’ were first conceived of and put into practice in that country during the early 1980s. (See Chapter 3.) A combination of the adopted English attitude to life insurance, a relatively liberal legislative environment and a highly competitive market environment, combined to make possible this innovation and industry growth. (A far more onerous regulatory environment started to emerge after 1997 and it remains to be seen what impact this will have on future innovation and growth in the S.A. industry.)

In 1826, directly as a result of the arrival of the 1820 Settlers, two British offices set up branch operations in the Cape Colony. These were the ‘United Empire and Continental Life Assurance Association’ and the ‘Alliance British and Foreign Fire and Life Assurance Company’. In 1831 the first local company to set up operations was known as the ‘South African Life Assurance Company’.

On May 17, 1845 the ‘Mutual Life Assurance Society of the Cape of Good Hope’, was founded by John Fairbairn with an initial fund of £5 000. Fairbairn, later famous as the father of South African journalism, was elected first chairman. Known today as the ‘Old Mutual’, this company is the oldest and largest South African life office. After de-mutualising in 1999, it was listed on both the Johannesburg and London stock exchanges.

Founded by a Scotsman named William Elliot, a former employee of the ‘Gresham Life Assurance Society of England’, the ‘Southern Life Association’ was formed as a mutual society and the inaugural meeting of foundation policyholders was held on January 26, 1891. With the concurrence of the Registrar of Insurance, the Association was de-mutualised in October, 1984 in order to permit it to merge with the second largest proprietary life insurance company then in existence in South Africa and known as the ‘Anglo American Life Assurance Company Limited’. The name of the merged organisations then became the ‘Southern Life Association Limited’. In 1999 its interests were taken over by FirstRand Limited and the name of the Southern disappeared from the South African insurance scene.

In 2002, Sanlam was the second largest life insurance company in South Africa. Founded on June 8, 1918 as ‘Die Suid-Afrikaanse Nasionale Lewensassuransie Maatskappy’, it was a registered company wholly owned by Santam, a short term (property and casualty) general insurer. Mr Alfred MacDowall, also a Scot by birth and a member of the Scottish Institute of Bankers was the first General Manager and Secretary. Mr George Patterson served as first Actuary and Mr Joe Harris, another Englishman, was first Agency Manager. On January 28, 1953, the shareholders resolved to convert Sanlam into a company without share capital. This meant that the company became a mutual society with control in the hands of its policyholders. In 1998, Sanlam de-mutualised and once again became a proprietary company with its shares subsequently listed on the Johannesburg Securities Exchange.

The operations of the ‘Liberty Life Association of Africa Limited’ which had been founded in 1958 and the ‘Manufacturers Life Insurance Company of Toronto Canada’, were merged in 1972 and in 1974 the ‘Sun Life Assurance Company of Canada’ was merged with the same Group. By the end of 1974, the ‘Liberty Life Association of Africa Limited’ was one of the four largest life insurance companies in South Africa and from the mid 1970s became the largest proprietary life office in South Africa. In September, 1986 Liberty announced its acquisition of the ‘Prudential Insurance Company of S.A. Limited’, thereby reinforcing its predominant position.

By 1926 there were 34 life companies operating in South Africa. Of these, nine were domestic insurers and 25 were of foreign origin. In 1970 this number had increased to 56 life companies, of which 42 were local and only 14 were foreign. By 1987 and as a direct result of the continuing policy of the Financial Institutions’ Office (today known as the Financial Services Board) not to issue any more life licences, the total number of life offices in South Africa had declined to 30, largely through mergers and acquisitions. The foreign insurers had reduced largely to the six life reinsurance companies operating in South Africa, some of whom had an element of local shareholding. The reduction of their number stemmed mainly from the transfer of their interests to South African insurers which commenced during the early 1960s. In 1970 the Franzsen Commission recommended that the remaining branches of foreign insurers be converted into local subsidiaries within a given period. This subsequently led to the almost complete elimination of the interests of foreign insurers in direct writing life companies in South Africa. (Franzsen himself was subsequently believed to have changed his views and to have felt regret about the economic damage caused by the loss of foreign investment and insurance interests in South Africa following the recommendations of his Commission.)

By 2002, the number of full life offices actively trading in South Africa had fallen to just 19, all of which were South African owned and one, the Old Mutual, was listed on both the London Stock Exchange and the Johannesburg Securities Exchange. The number of locally registered life reinsurers remained at six. In addition, a small number of life offices attached to banks and retailers specialised in simple ‘mortgage protection’ and ‘credit life’ (decreasing term) insurance products.

1.5 Summary:

It is probable that forms of life insurance have been transacted since the very earliest civilisations. From ancient burial society practices to the insuring of slaves as mere cargo in marine insurance, life insurance, like its sister general insurance, has served and facilitated commercial transactions that might otherwise not have been viable. The industry was given new impetus with the advent of statistical methods in the 18th century. However, whilst scientific methods were a contributory factor, they were nonetheless not a necessary condition for the growth of the industry worldwide, life insurance having existed well before the advent of statistical analysis. More important was the moral, legislative and regulatory environment which made its growth in England possible whilst completely choking it off in Europe for nearly 300 years until well into the 19th century.

The long history of this industry stretches back through millennia and teaches that the techniques, technology and science of life insurance did not fall suddenly and dramatically from the skies in order to incarnate themselves in financial institutions. They were developed by trial and error over myriad eras and generations and were built up out of a multiplicity of needs, experiences, practices and disciplines. We cannot say for certain where or when it originated, but we do know that ‘the handmaiden of commerce’ has certainly been present at every major economic milestone in the history of humankind.

 

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Reviewed by Clive Ford-Haworth. Past president of agency management for major life companies and Executive Director of First Link (Pty) Ltd.

Reviewed by Peter Atkinson, Executive Internal Services, Insurance Institute.