Life in the Slow Lane

Look in any good bookshop (or on Amazon) and you will find any number of books describing the spectacular failures of financial institutions. From Barings Bank to Lehman Brothers and RBoS, via the wildly mis-named Long Term Capital Management, Northern Rock and plenty more, there is an irresistible mix of money, power, Nobel prizes, hubris and/or corruption.  There are also people to blame - we think of Leeson, Milliken, Boesky, Merton, Skilling, Goodwin, Fuld and others and ask: who will play them in the film?

But where are the books and films about life insurance and pensions mishaps? There have been mishaps, and big ones. Just in the UK we had endowment and personal pensions mis-selling, which helped to kill off with-profits as a trusted retail product. Then there was the slow demise of defined-benefit pensions as employers bailed out of risk-sharing - though that at least furnished a pantomime villain in the shape of Robert Maxwell.  Perhaps the capstone was the demise of Equitable Life, the grand-daddy of them all.  Traditional actuaries have watched their bread-and-butter disappear, pursued by claims for compensation. But not pursued by authors. Nor, I might add, by any long-term retrospectives to see how things really did turn out in the end.

Maybe the reason is timescale. Life and pensions are just too placid to make a best-seller. Equitable Life is a good example because its downfall was written up afterwards, in the form of the Penrose Report (2004). It delivers a cast of characters (though none to compare with Maxwell) and a plot, and a denoument in the House of Lords. Afterwards there was a battle worthy of any sub-postmaster. However, the story begins in the 1950s (or even further back if you are an actuarial historian) and wends its way through the decades in a horrifying tale of...honest people trying to do a good job for modest reward (at least by the standards of bankers and hedgies) and mostly retiring or moving on before the climax. The role of an estate in the management of a with-profits fund ought to be exciting enough for anybody, but compared with a bank imploding it all goes wrong so sloooooooooowly.

Which is a pity, because there are lessons worth learning, and not just in the mishaps.  Can you name a life insurer that went under in the 2008 crisis?  It's not easy, unless you include the rather special case of AIG. The crisis hurt, of course, but on the whole, institutions regulated as insurers or like insurers did what they were meant to do in a crisis, and weathered it. It is a bit like the senior British actuary who once stood up at a conference in the USA and said that he studied non-life insurer insolvency and he envied American researchers, because they had so much data and he had none.

So if you have any talent for writing and are looking around for a subject, may I suggest the ups and downs of our genuinely long-term financial institutions?