This was not the first time that Parliament had concerned itself with the affairs of insurance companies, however. In 1739, Britain entered into a war with Spain. As a consequence, trade with Spain ceased but – perhaps surprisingly – the underwriting of Spanish ships by British underwriters continued unabated. This led to a somewhat perverse situation in which British insurers compensated enemy merchants for shipping losses suffered at the hands of British privateers and squadrons of the Royal Navy. The value of insurance trade was, it seems, considered by many to be too valuable to forfeit voluntarily 10 as Britain entered a period of sustained warfare with Spain and then France. By 1748, attitudes had changed and Parliament passed an Act which banned the insurance of enemy ships by British insurers. Yet the Act was expired just a few months later (after the Seven Years War ended) such that insurers did, in fact, enjoy considerable discretion over which risks to underwrite, including foreign enemy ships. I think that what this example ultimately demonstrates is the importance of trade and competitiveness in shaping the British state’s involvement in the affairs of insurers. The protection of enemy ships was at direct odds with Britain’s foreign policy – but trade was ultimately considered strategically more important. In common with the environment in which our eighteenth-century forebears worked, trade and competitiveness remain important contextual factors in the debate about how we should regulate insurers today.
Bottomry, it turns out, was a type of contract whereby a lender would, for a fee, put up money (either in the form of a loan or sometimes a joint stake in the stock) for the purpose of advancing trade. This was on the understanding that “the borrower should, in consideration of a high rate of interest, be freed from liability in the event of certain accidents happening, e.g. failure of goods to arrive at their intended destination” 2. This looks to me rather like a Babylonian version of today’s catastrophe bond. 1  Plantin and Rochet (2007). See also Thoyts (2010). 2  Clayton (1971). See also, Bernstein (1996). 2  BIS central bankers’ speeches  The practice of bottomry flourished due to the proximity of another group of great traders – the Phoenicians, who adapted the basic concept to support trade expansion on the Greek coastline during the 10th and 9th centuries B.C., and to the increasing domination in the Aegean Sea after 800 B.C. of Greek traders who needed indemnity against their cargo. Hop westward across the Mediterranean Sea to ancient Rome, and citizens were paying subscriptions to so-called “burial societies” to cover the cost of expenses associated with their death – a kind of latter-day funeral insurance. This activity evolved such that by the second century A.D. it became common practice instead to pay the relatives of the deceased person a lump sum (the funeraticium), provided their subscription was not in arrears and the deceased had not committed suicide 3.