Seminar by Moshe Arye Milevsky

The Religious Origins of Longevity Risk Pooling

This presentation is about the history of financing the cost & risk of longevity, and the rather surprising role of religion in that process. The focus is on the Presbyterian Church of Scotland's annuity scheme for widows and orphans, whose genesis took place 280 years ago. The renowned economist Adam Smith was among the notable figures who participated in this annuity scheme which has gained much notoriety among actuaries. Indeed, many have praised the 1744 annuity scheme as a revolutionary development in actuarial science, probability, and statistics. Some authors, such as Niall Ferguson (2008) and Yuval Noah Harari (2014) have gone so far as to argue that 1744 was a breakthrough moment and an enlightened “victory of science over superstition.”

However, a closer look at the archival records reveals a more nuanced account. The documentary evidence suggests that Protestant beliefs, practices and institutions played a vital role in developing best practices for managing the annuity scheme and the embedded longevity risk. These 18th-century “financial engineers” and fund trustees were devoutly religious individuals, many of whom believed mortality rates followed “divine probabilities” and that stochastic modelling was another branch of theology. In sum, I will argue that the tenets and institutions of religious faith should be granted (additional) credit for the origins of retirement annuity financing and for providing the confidence to make century-long actuarial projections. At the time these forecasts bordered on prophecies, even if today they are (based on) theorems.