This paper describes a scheme for the automation of an industrial assurance office. No advice has been sought from manufacturers and the method has not been tested on a computer. The aim is to stimulate discussion of the subject and to help students to form an opinion as to whether, and to what extent, a computer can be of use in this type of work. Those students who are unfamiliar with the terms used in discussing electronic computers or industrial assurance are recommended to read §§VII and VIII of the paper first.

The objects of this paper are to consider how a life office in the United Kingdom might approach the question of using electronic data processing equipment and to indicate some of the problems which will be encountered—without, I am afraid, supplying all the answers. There are in fact very few questions on this subject to which a general answer can be given. Although a good deal can be gained from exchanging information and ideas, it will ultimately be up to each individual office to solve its own particular problems.

Many of the difficulties one meets in discussing this subject arise from the widely differing circumstances in the various offices. Each person naturally tends to approach the problem from the point of view of his own office, and consequently suggests different answers partly because he is considering different questions. I have therefore felt it desirable to limit the scope of the paper, and since there are important differences between the offices which transact industrial assurance and those which do not, I propose to confine my attention to the problems of an industrial/ordinary office. A further limitation is that group business is not discussed.

It is not a new idea for debenture or loan stocks to be issued with an option to the lender to convert the whole or part of his holding into ordinary shares at fixed prices on certain future dates or during certain periods. There has in recent years been an increase in the number of these stocks available to the British investor and there is also a substantial number that have been issued in the U.S.A. and Canada. A typical example is the Bowater Paper Corporation Limited 5¾ % Convertible Unsecured Loan Stock 1978–82. In July 1959, holders have the right to convert each £50 of loan stock into twenty-one £1 Ordinary shares; in July 1960, into twenty Ordinary shares; and in July 1961, into nineteen Ordinary shares. There are no conversion rights after July 1961 and any stock not converted by that date will remain as a normal unsecured loan stock redeemable in the period from 1978 to 1982.

The existence of this option is, of course, attractive to the investor and this is reflected in the market price of the stock. The problem is how to determine the portion of the market price that represents the cost of the option. Of the many features that, no doubt, affect the position, the most significant seems to be whether the option is remote or not.

The text book, The Practice of Life Assurance, by Coe and Ogborn, pp. 367–9, and the references there to other literature, give a brief summary of the subject of group life assurance; this paper attempts to bring out in more detail a little of the practice (of some U.K. offices) and some of the special problems that belong to the subject, for the benefit of students who have no practical experience of it. There is no dearth of literature on pension schemes, with which group life contracts are very often linked, so that reference to pension schemes in this paper, though necessary, will be brief.