Leases for Lives: Life Contingent Contracts and the Emergence of Actuarial Science in Eighteenth-Century England

275 Pages·2017·3.25 MB·English

by  David R Bellhouse

Leases for Lives
Many historians of insurance have commented on the disconnect
betweentheriseofEnglishlifeinsurancecompaniesintheearlyeight-
eenth century and the mathematics behind the sound pricing of life
insurance products that was developed at about the same time.
Insurance and annuity promoters typically ignored this mathematical
work.Bellhouseexploresthisissueandshowsthattheearlymathema-
tical work was not motivated by insurance but instead by the fair
valuationoflifecontingentcontractsrelatedtoproperty.
Even the work of the mathematician James Dodson in the creation
of the Equitable Life Assurance Society, offering sound, actuarially
based premiums, did not change the industry in any significant way.
The tipping point was a crisis in 1770 in which the philosopher and
mathematicianRichardPrice,aswellasothermathematicians,showed
thatadozenormorerecentlyformedannuitysocietiescouldnotmeet
theirfinancialobligationsandwereinviable.
DavidR.BellhouseholdsdegreesinActuarialScienceandinStatistics.
He has worked for over 40 years at the University of Western Ontario,
where he is now Professor Emeritus. He has published extensively in
thehistoryofprobability,statistics,andactuarialscience.Hehasrecently
published a major biography of Abraham De Moivre. Bellhouse is a
fellowoftheAmericanStatisticalAssociationandhasservedasPresident
oftheStatisticalSocietyofCanada.HeisarecipientofWestern'sGold
MedalforExcellenceinTeachingandwasrecentlygiventheUniversity
ofManitobaFacultyofScienceHonouredAlumniAward.

Leases for Lives
Life Contingent Contracts and the
Emergence of Actuarial Science in
Eighteenth-Century England
David R. Bellhouse
UniversityofWesternOntario
UniversityPrintingHouse,CambridgeCB28BS,UnitedKingdom
OneLibertyPlaza,20thFloor,NewYork,NY10006,USA
477WilliamstownRoad,PortMelbourne,VIC3207,Australia
4843/24,2ndFloor,AnsariRoad,Daryaganj,Delhi–110002,India
79AnsonRoad,#06-04/06,Singapore079906
CambridgeUniversityPressispartoftheUniversityofCambridge.
ItfurtherstheUniversity'smissionbydisseminatingknowledgeinthepursuitof
education,learning,andresearchatthehighestinternationallevelsofexcellence.
www.cambridge.org
Informationonthistitle:www.cambridge.org/9781107111769
DOI:10.1017/9781316282229
©DavidR.Bellhouse2017
Thispublicationisincopyright.Subjecttostatutoryexception
andtotheprovisionsofrelevantcollectivelicensingagreements,
noreproductionofanypartmaytakeplacewithoutthewritten
permissionofCambridgeUniversityPress.
Firstpublished2017
PrintedintheUnitedStatesofAmericabySheridanBooks,Inc.
AcataloguerecordforthispublicationisavailablefromtheBritishLibrary.
ISBN978-1-107-11176-9Hardback
CambridgeUniversityPresshasnoresponsibilityforthepersistenceoraccuracy
ofURLsforexternalorthird-partyinternetwebsitesreferredtointhispublication
anddoesnotguaranteethatanycontentonsuchwebsitesis,orwillremain,
accurateorappropriate.
To Louise

Contents
Preface pageix
Acknowledgments xi
1 Introduction 1
2 MathematicsandPropertyintheSeventeenthCentury 8
3 EdmondHalley’sLifeTable 24
4 Halley’sImpactorLackofIt 40
5 DeMoivreandHisEarlyInfluence 61
6 Mathematicians asConsultants 79
7 Mathematicians andEarlyLifeInsuranceCompanies 104
8 TheAnnuityBubbleofthe1760sand1770s 124
9 TheAftershocksoftheBubble,TheirImpact
onLifeAnnuities 154
10 Developments intheLifeInsuranceIndustry
intheLaterEighteenthCentury 179
11 AReturntoRoots 198
12 Conclusion 206
Appendix1:TechnicalAppendix 209
Appendix2:LifeTables 216
Endnotes 221
Bibliography 237
Index 255
vii