The life assurance industry has not distinguished itself over the years. It’s opaque, riddled with jargon and has produced returns which have almost invariably disappointed. But is it really asleep at the switch as well?

The annuity business, which provides guaranteed incomes in retirement, is particularly tricky, since pricing them means picking the winner of the long-distance race between medical advances and our increasingly sedentary lifestyles. Last summer Partnership Assurance came to market, effectively arguing that its competitors had failed to notice that smokers and the chronically sick tend to die sooner. Now here comes another one saying much the same thing.

Just Retirement has its own black box which mysteriously allows it to offer better annuity rates on “impaired” lives. Despite medicine’s impressive achievements in keeping ill geriatrics alive, both these companies reckon can pay them more than those fuddy-duddy old life offices. Yet something seems to be mis-firing. Partnership shares still stand at a premium to their 385p offer price, but they’ve faded all the way from 540p to 413p, after the Financial Times revealed that Partnership faced action from its UK regulator.

Permira, the private equity house backing Just Retirement, has run into this fading enthusiasm, and has had to chop back its planned sale, cutting both the price and, dramatically, the size of the offer. It’s still likely to be capitalised at between £1 and £1.25bn, two-thirds that of Partnership.

Valuing these companies is a leap of faith. Outsiders can’t know whether the projections of early death are too optimistic (from the companies’ viewpoint, rather than that of the smoking annuitants) or whether their guesswork really is better than that of the big annuity providers. Oh, please don’t call it guesswork. Mr Nostradamus, the wise old actuary at the Backscratchers Mutual Life Assurance Company (motto: you scratch my back, and I’ll scratch it too) prefers the term “proprietary technology.”

Sucking up to sukuk

We’d quite like London to be the world centre for Islamic finance, the way it is for foreign exchange and was for the eurodollar. Making markets here is what we do, and as a way of paying the bills, it’s a good deal easier and more lucrative than coal mining or cotton-weaving.

Last week our great leader pulled a sharia-compliant rabbit from his hat at the World Islamic Forum to announce Britain’s intention to issue Islamic bonds, or sukuk. The attraction is obvious; a few of those trillions of dollars slopping about the Middle East could usefully be poured into the permanent hole in the Treasury’s finance.

There are a few technical problems, like deciding exactly what a sukuk bond is. Sharia prohibits the payment of interest, so the more it looks like a conventional, interest-bearing bond, the less the Islamic scholars like it. If it looks nothing like a conventional bond, then there are no yardsticks against which to price it. Some scholars are also uneasy about secondary trading, which is the main attraction for London’s markets. As for derivatives, they are seen as quite beyond the pale.

The contortions needed to produce a bond with a fixed coupon that isn’t a bond with a fixed coupon will be wondrous to behold, even before the accompanying complex anti-avoidance tax rules. Still, as David Cameron might have said, quoting Willie Sutton when asked why he robbed banks: because that’s where the money is.

Eat, drink and be merry

In between all those special offers of perfectly drinkable claret at very reasonable prices comes a shocking little report from Morgan Stanley: we’re drinking more and global wine production is falling. Oh no! A wine shortage! Quelle horreur!

It looks pretty bad, says the bank: “There may be insufficient supply to meet demand in coming years” adding that “as consumption turns to the 2012 vintage we expect the current production shortfall to culminate in..higher prices.”

However, should the cheap claret start to get scarce, there are a million other vineyards in the world. If that’s not enough, there are thousands more sites where grapes could be grown, especially if global warming gets going. Since there is some evidence that many of us have difficulty in distinguishing Romanee-Conti from plonk, there is no need to hit the bottle on the back of Morgan Stanley’s report.

This is an updated version of my FT column

(Corrected for typo)

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