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Capital Market Development over the Long Run: The Portfolios of UK Life Assurers over Two Centuries

Journal: European Review of Economic History

Date: 2021

Author: David Bogle, Christopher Coyle, John Turner

Abstract:
What shapes and drives capital market development over the long run? In this paper, using the asset portfolios of UK life assurers, we examine the role of regulation, historical contingency, and political reactions to events on the long-run development of the UK capital market. Government response to events such as war, hegemony-secured peace, and the wider macroeconomic environment was the ultimate determinant of major changes in asset allocation since 1800. Furthermore, when we compare the UK with the United States, we find that regulation played a limited role in shaping the asset portfolios of the UK life assurance industry.

Link: Google Scholar

Background and Context

Study Scope

This research examines 200 years of UK life insurance companies' investment portfolios from 1830-2016 to understand what shaped capital market development.

Data Sources

The study analyzes asset composition data from insurance archives, government publications, and industry reports covering UK life assurance companies.

Historical Importance

Life assurance companies were critical capital market players, managing up to 25% of the UK capital market and serving as the largest institutional investors until the 1970s.

Evolution of UK Life Assurer Asset Portfolios (1830-2016)

  • Shows dramatic shifts in how life insurers invested their assets over two centuries
  • Reveals transition from government debt dominance to equity preference
  • Demonstrates how investment patterns reflected broader economic conditions

Impact of World Wars on Government Debt Holdings

  • Illustrates how wartime financing needs drove increased government debt holdings
  • Shows spikes in government securities during both World Wars
  • Demonstrates how political events shaped investment patterns

Assets Under Management Growth (1871-2016)

  • Shows exponential growth in life assurer assets under management
  • Demonstrates increasing importance of life assurers in capital markets
  • Illustrates institutional investor development over time

UK vs US Asset Allocation Differences

  • Compares investment patterns between UK and US life assurers
  • Shows impact of stricter US regulations on equity investment
  • Demonstrates how regulation shaped market development differently

Rise of the "Cult of Equity" (1920s-1960s)

  • Shows dramatic increase in equity investment after 1920s
  • Illustrates shift away from fixed-income securities
  • Demonstrates response to inflation and changing economic conditions

Contribution and Implications

  • First comprehensive analysis of UK life assurer investment patterns over 200 years
  • Demonstrates how political events and economic conditions, rather than regulation, shaped British capital markets
  • Shows historical evolution of institutional investment practices and their impact on market development

Data Sources

  • Portfolio evolution chart based on Figure 1 in article
  • War impact visualization based on Table 3 AUM data
  • AUM growth chart based on Table 3 data
  • UK-US comparison based on Figure 4 data
  • Equity rise chart based on data from Tables 3 and 6