A working party was set up in February 1999 by the Research Committee of the Life Board to consider the impact of a low inflationary environment on the financial services and investment markets with particular emphasis on companies conducting long-term insurance business.
The working party has produced an interim report which reviews the causes of the present expectation of low inflation and discusses evidence from the past and the role of demographics. It considers issues surrounding the composition of the retail price index, appropriate economic assumptions and the impact on investment markets, including the effect of charges on net returns to savers. The position of long-term insurance business is then considered in more detail, looking at HM Treasury return consequences as well as disclosure and product design features. Finally, there are two investigations, the first looking at the effect of low inflation on the achieved profits derived from different product designs, and the second looking at the changes in ruin probability for a with-profits office associated with declining inflation.