In 1744, two Scottish Presbyterian priests, Alexander Webster and Robert Wallace, conceived the idea of establishing an insurance fund to provide priests’ widows and orphans with pension.
The idea was that all the priests contributed a small part of their income to the fund, the money was invested in securities and, if one of the depositors died, his widow received dividends from the fund to live comfortably until the end of her life. Naturally, a reasonable question arose before the priests: how much should each priest contribute each year? It was also necessary to know or predict how many priests would die each year, how many widows and orphans would remain and how many years the widows would survive their husbands.
The priests turned to Colin Maclaurin, a professor of mathematics at the University of Edinburgh. Together they collected data on deceased priests; information on what age they passed away and how many priests would approximately go to a better world every year.
This work relied on statistics and probability theory. One of the most important discoveries was the law of large numbers of Jacob Bernoulli. Bernoulli established the principle that although a single event, the death of a particular person, is difficult to predict, it is possible though to predict the outcome of many similar events with greater accuracy.
In other words, it is impossible to predict when a certain person dies, but it is quite accurate to predict how many priests the church will be short of this year.
For the calculations Wallace and Webster used the so-called mortality table, which Halley had created half a century earlier. Halley analyzed the archive records of 1,248 births and 1,174 deaths of Breslau, Germany and compiled tables that said that death probability this year for a 20-year-old man is 1:100, and for a 50-year-old man is 1:39.
Based on this mortality table, the priests calculated that on average every year in Scotland 27 out of 930 priests would die for 12 months leaving 18 widows. 5 of those who would not be mourned by widows would leave young children. Also, two of those passing married, would leave children under the age of 16 from the previous marriage. This was a fairly accurate and detailed forecast.
Then they calculated how much time would pass before the widow's death or her remarriage. So they were able to determine how much money should be paid to fund participants to provide for their loved ones. Paying 2 pounds 12 shillings and 2 pence a year, a priest guaranteed his widow 10 pounds a year, a solid amount for those times. A widow could receive 25 pounds, but then the annual payment grew to 6 pounds 11 shillings and 3 pence.
Founders predicted that by 1765 the Trust for Widows and Orphans of the Scottish Church Priests would raise capital of 58,300 pounds. And indeed, that year the capital reached only one pound less that amount. Now the Webster and Wallace Fund, known by the short name "Scottish Widows", is one of the largest both insurance and pension companies in the world. With a capital of 100 billion pounds sterling, the fund willingly insures not only Scottish widows, but anyone who wants to buy a policy.
The Foundation for the Provision of Widows and Children of the Priests of Scottish Church was the first of the insurance institutions to adopt the "maximum principle": capital was saved so that contributions and interest income would cover the maximum possible annual payments and other expenses. If reality did not match with the forecasts, then the fund either would provide the necessary money in excess, or, worse, it would turn out to be in the red.
At least five times, Wallace and Webster tried to assess the future growth rate of the fund before deciding that from the initial 18,620 pounds (in 1748) it would increase to 58,348 pounds in 1765. One pound, they made an error in calculations in one pound. In 1765, it was announced that the company's free capital was 58,347 pounds. And Wallace and Webster lived up to this momentous event.
The Foundation of Scottish Priests’ Widows was the first of its kind, and its creation should be considered a major milestone in the history of finance. Bright minds of two people from now on worked not only on local priests, but on anyone who wanted to somehow protect their loved ones in case of their sudden death. The foundation did not even have its feet on the ground, when the universities of Edinburgh, Glasgow and St. Andrews stated their willingness to participate in it. For two decades, such foundations had been created throughout the entire English-speaking world, such as the Presbyterian Priest Philadelphia Foundation (1761), the English fellowship of justice (1762) or the Society of the Chapel of St. Mary (1768), which helped the widows of Scottish artisans. By 1815, the idea of insurance had spread so widely that it seized soldiers who were fighting against Napoleon.
It was believed that every fourth would die in the fields at Waterloo. The insurance made the soldier’s life easier, would he stay dying in the tall grass, his wife and children would get rid of the slum horrors (when the insurance "covered" people, they really could "shelter" under it, that is how new ideas came into everyday life language).
Sir Walter Scott insured his life in 1826, which was very encouraging to his creditors, as now they were in any case not losers. Gradually, step by step, a tiny fund designed to help widows of a couple of hundred priests, grew into an entire industry; today the "Scottish Widows" are engaged in insurance and pensions. Now it is only one of many financial services providers (Lloyds Bank bought the firm in 1999), but to this day the "Scottish Widows" embody the idea of serving people and a certain social policy to protect the interests of widows and orphans.
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