1.1. The net premium method of valuation has been controversial ever since it was first advocated over a century and a quarter ago. Its merits and deficiencies have exercised the minds of actuaries whose names are legendary in actuarial science—men such as Finlaison, Jellicoe, Sprague, Manly, Bailey, Coutts, Elderton and Redington; it has been tested in practice against almost every kind of experience; and its demise has repeatedly been predicted. Nevertheless, although it has been modified somewhat over time, in principle it remains today firmly entrenched in life office practice. Consideration of it, even in modern times, has divided actuaries in old ways—the artist from the scientist, the theoretician from the practical man.

1.1. The effects of inflation are gradual, and are difficult to separate from the effects of other influences. This paper looks briefly at some of the effects in the past, and then takes a look into the future.

1.2. In the last seventy years this country has experienced three periods of rapid inflation. The first two were connected with the two major Wars. During the Wars the Government took action in the form of price controls and subsidies to restrain the growth in prices. We are now experiencing another bout of inflation (and another bout of Government action).

1.3. The recent inflation has not been a purely British phenomenon. It has been shared by most of the world. I. S. Friedman (1973) points out that action by individual countries is unlikely to succeed in beating inflation. In the absence of any concerted action, he concludes that inflation is likely to be with us for the foreseeable future.

This paper is the second edition of a paper presented last winter to the Glasgow Actuarial Students' Society and the Faculty of Actuaries Students' Society. It has been written with a view to giving some information to those who have no experience at all of property investment and also to stimulate discussion among the actuarial investment pundits. It has been written in the context of investment by old established Life Offices and large Pension Funds only (referred to as ‘Institutions’) unless the text states otherwise.

Part I is on similar lines to Binns, Chapter 16. Part II pursues some aspects in greater detail and is rather more opinionated, and it is hoped that those with experience of property investing will, in discussion, rise to the baits offered.

The origin of savings connected with human life was not a particularly happy one in France. A certain Neapolitan named Lorenzo Tonti submitted to Mazarin, the Finance Minister of ‘Sun King’ Louis XIV, a savings plan, the profits from which would help to replenish the sadly depleted royal coffers of this grandiose monarch. The plan was called a ‘Tontine’ after its originator and provided for a lump sum to be divided amongst the survivors of those who had contributed after a period of say 10 to 15 years. The ‘sales psychology’ was good as the individual is normally of the opinion that he will outlive his contemporaries. Unfortunately the results were disastrous as Parliament refused to ratify the royal edict of 1653 and Mr Tonti was clapped in the Bastille.

1.1. Historically, as today, the Danish insurance community has been subjected to a far greater degree of official supervision than their U.K. colleagues are accustomed to. Insurance can only be written if the Forsikringsraad (Insurance Supervisory Board) recommends that the applicant office be granted a concession to do so. In particular, the Forsikringsraad will have to be satisfied that the office's premium rates are adequate. At a time when the U.K. is moving towards closer supervision, it is particularly interesting and instructive to examine a functioning supervisory system. (Section 6 of the present paper deals with this aspect of insurance in Denmark.)