Author: Roger Lawrence

More than 200 years ago, Equitable Life, the now defunct UK mutual life insurer, realised that they were making excess profits and started distributing them to policyholders via reductions in the following years’ premium. This profit distribution evolved into making annual increases to the sums insured; the next evolutionary iteration was to deliberately load premiums to allow for scope to intentionally generate “profits” by diverting the additional margin into riskier but hopefully more profitable assets. Finally, insurers were doing so well, especially from a buoyant stock market, they began adding a further “terminal” bonus to pay-outs funded from the excess…

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Defined Benefit (DB) pension schemes in which the employer bears the investment and longevity risk have been on a downward journey to eventual extinction in the U.K. and many other jurisdictions for years. Extending life spans and low investment returns have combined to make running these schemes far too operationally risky for most employers including many of the largest. To cap increasing liabilities, most have either closed to new members (the lowest level of intervention), through to also stopping new accrual of entitlements for existing workers, and on to eventual buy-out or other run off strategies. The market for these…

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