Asset and risk management in the 1970s

Abstract

Life insurance companies and the Johannesburg Stock Exchange were focussed more single-mindedly upon asset management than the banks which have always earned a significant proportion of their income from commissions not directly related to interest on advances. All three types of institutions, banks, life insurance companies and the stock exchange, mobilised capital on a large scale. The risks they incurred, however, were different. The banks incurred risks with the loans they made, with their foreign currency operations, and with interest rates that moved erratically. Life insurance companies incurred risks with the lives of members they insured and with the assets under their management, while investors on the stock exchange always had to be prepared to live with fluctuations, sometimes sudden and sharp, in the value of their assets. Skill in managing these risks could make the difference between success and failure, between earning profits and making losses. Movements in bad debt portfolios had always been of major concern to bankers and they had learned to live with this threat to liquidity. Life insurers, by contrast, calculated their risks more scientifically with their actuarial tables used for life expectancy, but showed no technical superiority in calculating the risk in managing their assets.