Life annuities have been used as a form of insurance for centuries. Insurance itself is one of the oldest financial services in existence. Its principles have not changed even if the nature of the products people buy have evolved. Yet there are two perspectives to all transactions; insurance contracts serve just as much a purpose to the seller as to the buyer. Take the example of an annuity, though usually thought of as insurance against longevity risk, they are something quite different to the seller. To the party underwriting the policy, annuities are not unlike a loan; cash is received today and transformed into a series of future payments and the ‘float’ can be invested in the meantime.

           Nowadays, insurance companies act as intermediaries investing this float. However, their presence is hardly required. Indeed, annuities and tontines, their archaic cousins, were a common source of financing in 18th and 19th century Europe and America. They directly funded state deficits, real estate developments, and infrastructure; no intermediary required. Some of the projects enabled by this cross between debt financing and insurance still stand today, including several bridges in the city most notable as a global center for insurance. Bridges crossed by millions of Londoners over the years owe their existence in part to these financial products.

Annuities and Tontines

           In Britain, from the eve of the Industrial Revolution on, annuities were being sold as a source of financing for state deficits. ‘Consolidated annuities’ were perpetual obligations issued by the British government to finance government borrowing through the late 18th and 19th centuries. These ‘consols’, as they were called, were not quite like the life-contingent annuities most associated with insurance, but they served a similar purpose to the buyer. The long lives of these annuities made them insurance against longevity; prospective buyers assessed their utility on this basis. Though these obligations were not contingent in any way on the lifespan of the owner, they were nonetheless an early retirement-planning tool.

           Of course, an annuity of this sort is rather like a bond. The most notable difference between an annuity and a conventional bond being that the former’s future cash flows would all be equal with no lump sum from principal repayment at the end. As such, annuities most closely resemble fully amortizing loans or, in the case of the British consols, perpetual bonds. In Britain, the consolidated annuities that made up most of the state debt for over a century paid their 3% coupon perpetually.

           Another form of debt financing common to this era, one with even more insurance-like characteristics, were tontines. Unlike the annuities issued to fund British state deficits, tontines were life-contingent. In a tontine, the sum paid regularly by the issuer to the tontine’s beneficiaries was fixed. After being paid out by the issuer, it was split evenly among the beneficiaries, the shareholders of the tontine. As beneficiaries died, however, their payments were diverted to the other beneficiaries in the scheme. Thus, the fixed benefit was split among fewer holders as time went on. The issuer stopped paying only when the last beneficiary had died.

           As a curious aside, the ‘nominee’, the person on whose life the policy was contingent needn’t be the same person as the tontine’s holder. Someone could enhance the potential value of their share in the tontine by picking a younger nominee. A commonly selected nominee in the 1770s was George, Prince of Wales, the future King George IV, then just a teenager. He would live to be 67 though and so was not a particularly lucrative choice.

           Regardless, owing to this mechanism by which payments were split, the tontines were life contingent to the buyer; payments were made only until death. However, because the payments made by the issuer were always fixed, regardless of how many recipients were still alive, the size of future outflows were predictable. This made them a reliable source of financing. Indeed, the proceeds from tontines, like annuities, were used as a type of debt financing to fund private endeavors like real estate and infrastructure projects, including the construction of London’s bridges.


           By the mid-18th century, when the use of tontines as a source of financing was emerging, London was a steadily growing city. It grew from a population of under half a million at the time of the 1666 Great Fire of London to 630,000 people by 1715. However, over the next half century, growth slowed. With 740,000 residents in 1760, the city’s population had grown by well under half a percent per year in the preceding half century. Regardless, it was also an industrial and commercial metropolis. Already by 1715, perhaps a third of the city’s workforce was employed in manufacturing, but infrastructure deficiencies were limiting its growth. Early in the 18th century, there were few bridges crossing the Thames in London. That would change over the next few decades; a wave of bridge building soon enabled the growth of Southwark and the rest of the city south of the river.


           The old medieval London Bridge had existed for centuries, but it was crowded with residences, shops, and even public latrines. The bridge was hardly fit for accommodating much traffic in a city of this size. In 1729, London Bridge was complemented by the new Putney Bridge which replaced a ferry that had previously operated between Fulham and Putney, just a bit farther upriver. Then came Westminster Bridge and Kew Bridge in the 1750s. Over the next twenty years, Blackfriars Bridge, Battersea Bridge, and Richmond Bridge were built. By 1780, there were an abundance of Thames crossings and the old London Bridge had been cleared and renovated, albeit with mixed success.

           Of this wave of bridgebuilding, at least two of the new crossings owed their existence to insurance. Kew Bridge, built in 1759, and Richmond Bridge, opened in 1777, were built by funds raised from the proceeds of tontines. In exchange for their initial investments, their future payments were funded by the tolls on these bridges. Indeed, in 1855, one woman was still benefiting from the original tontine that financed the Richmond Bridge’s construction 78 years earlier. According to an issue of The Bankers’ Magazine that year, she was 80 years old and received £800 a year. In the mid-19th century, the average annual wage for an unskilled laborer in England was about £20, little more than a shilling a day. Though she would die four years later, it was a phenomenal return on an initial investment of £100.

           Naturally, tontines and annuities are only as good as the promise of the obligor to pay them. In the case of those schemes that funded infrastructure, they were only as good as the projects they financed. Take the case of London’s Waterloo Bridge, built in 1817 and funded by the issuance of 99-year annuities of £8 per year for £60 each. Of course, these were not life annuities since they carried a fixed term, albeit a long one. Just how expensive a source of financing these annuities were also stands out. Essentially, the lender was borrowing at over 13% interest.

           The cost of constructing Waterloo Bridge came out to £1,050,000. Of this, equity capital supplied £500,000, and the rest was financed by debt. The annuities sold totaled £500,000 and the balance was composed of a 999-year mortgage of £54,000. Just like a quality bridge, the financial structure looked rather secure. The debt summed up to just slightly over half of the cost of the bridge, and the mortgage, the senior-most claim, stood at just 5% of the cost. However, the bridge was not a financial success. In 1855, for example, the bridge collected an income of about £18,000 and had expenses of £3,500 but this was nowhere near sufficient to service the debt. The mortgage was paid but the annuity-holders were receiving only 32 shillings of their £8 payments, just 20% of the sum due. The accumulated arrears by then were £2.4 million and equity-holders hadn’t seen a single penny in dividends.

           Unsurprisingly, the income these bridges collected came from tolls. In 1800, tolls may have been a penny or less for pedestrians but would be far greater for carriages. The end for toll bridges in London came when the Metropolitan Board of Works, a public authority, began buying up all these bridges, starting in 1869. Tolls were abolished in the following decade. During their century in private hands, the bridges were not spectacular investments. Common shareholders in the bridges rarely received their dividends. Damage from storms and collisions with boats necessitated frequent repairs. In the end, the Waterloo Bridge was sold to the Metropolitan Board of Works for just £474,200 in 1877, under half of what it had cost to build sixty years earlier.


            Though they may have been financially unsuccessful, London’s bridges were hardly economically unimportant. They are also just one example of the use of tontines and annuities, products usually associated with insurance, as a source of debt financing. Even this is not too surprising. Insurance companies remain gigantic lenders today, investing their premium revenue in credit markets around the world. However, the fascinating difference is that the financing of London’s bridges was done without an intermediary; entrepreneurs sold the annuities or shares in the tontines themselves. The proceeds from their sale to people trading current wealth for security in their later years funded these projects directly. Though the original financial beneficiaries of these insurance contracts have long since passed, millions still make use of the infrastructure they financed.

Further Reading

1.     Clive Emsley, Tim Hitchcock and Robert Shoemaker, “London History – London, 1715-1760”, Old Bailey Proceedings Online

2.     Clements, Diane. “Risk or Reward? An Eighteenth-Century Tontine.” On History, Institute of Historical Research, 15 Feb. 2019.

3.     “Metropolitan and Suburban Bridge Shares.” The Bankers’ Magazine, vol. 15, 1855, pp. 95–97.

4.     “Richmond Bridge.” London Borough of Richmond upon Thames, 2 Apr. 2019.

5.     Stern, Hersh. “Waterloo Bridge Annuities.” Annuity Museum.

6.     “Survey of London: Volume 23, Lambeth: South Bank and Vauxhall.” Howard Roberts, and Walter H Godfrey. London: London County Council, 1951. British History Online.

Comments (1)

  1. Chuck


    I have delegated this to my girlfriend to distill and repeat back to me over dinner tomorrow evening. I very much look forward to hearing her summation.

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