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Call for simpler products, higher charges Back  
The Society of Actuaries in Ireland (SA) held a half day financial seminar on May 31 in the Conrad Hotel entitled ‘Financial Services - The New Economic Paradigm.’ The topic for discussion was the consequences for those who run life assurance and pension funds in the new era of lower investment returns.

Eoghan Burns, Corporate Business Actuary at Irish Life, outlined to the seminar the findings of the SA working party on the implications for Irish life offices of a low investment return environment.

He said life assurance companies were now competing with retail financial institutions, supermarket financial services and PRSA providers in the new arena of low inflation and lower returns. Burns said it was up to the industry to differentiate their products from those of their competitors and maintained simpler products were the obvious way forward.

In a survey of SA members, some 60 per cent believed that policy returns would be lower than policyholders expected but nevertheless 80 per cent of respondents were bullish about future prospects.

Burns said there was a need to increase policy charges, moving to a less fixed and more fund-related system of charges. He forecast rising demand for equity/unit-linked products, specialised funds and a corresponding increased need for investment advice.

Paul Walsh, director of recruitment consultants Acumen Resources, told the conference that insolvency was still a real risk for life companies and that its likelihood had increased in times of low returns.

He said that life offices should look at reducing their annual bonuses for with-profits and unitised with-profits policies. Walsh said it was important in times of reducing investment returns to strike a balance between cutting bonus rates and adhering to ‘smoothing’ rules that may no longer be suitable in a new investment environment.

He highlighted the finding in the survey that almost 80 per cent of respondents thought policyholders were not being fully made aware of the impact of lower future investment returns.

Gerry O’Carroll, partner at Watson Wyatt, examined the recent move from a defined benefit system to a defined contribution one, and argued that it was a result of increased individualisation in society. He also outlined the advances in actuarial technology and demonstrated how it could assist actuaries in their projections.

John Bristow, professor of economics at TCD, asked whether the historically unprecedented Irish economic boom could continue much longer. He outlined the relevant economic theory on the matter, examined the experience of other economies that have undergone high growth over long periods of time and considered the possible factors that could derail the economy.

The TCD professor called on the Minister of Finance to reverse the recent policy of give-away budgets in order to dampen down the clear signs of overheating in the non-traded sector of the economy. However, he doubted if the minister would heed his advice and predicted that the domestic pressures would continue.

Bristow said that the labour supply could be a real constraint on growth in the medium term and advocated a relaxation of immigration restrictions for all types of workers.

He added that growth could be harmed by a reduction in export demand resulting from a slackening of growth in our trading partners, but he saw no reasons for this happening in the near future.

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