According to some history books, the dreaded mob went into riot mode after it was proposed in February 1751 that Great Britain adopt the Gregorian calendar, already used in most of western Europe. ‘Give us our Eleven Days’ they cried.
We laugh, of course, at the perverted kind of thinking that confuses a system of measurement with the thing measured. The former is a means of representing reality, and can be whatever we like, the latter is reality itself, and remains the same in spite of human imposition. When Britain changed from the Fahrenheit system, which measures Autumn temperatures at around 50 degrees, to the Centigrade system, which measures the same thing at only 10 degrees, we were not troubled by a sudden drop in temperature.
Yet this is precisely what we tolerate in our system of measuring balance sheets. The UK life insurance industry was widely reported as insolvent in 2012, for which reason the ‘matching adjustment’ regime was agreed in 2014, and introduced in 2016. This saved the system from bankruptcy. But what actually changed? What is it that accounting systems are supposed to measure? And what in particular is the reality corresponding to the ‘very significant capital benefit’ that David Rule (director of Insurance, Prudential Regulation Authority) promises in this July 2018 letter?
Give us back our capital, the insurance industry cried, and their plea was answered.