GLOBAL – A report by the Actuarial Profession on resource constraints urges actuaries to understand the implications of resource constraints for their advice, assumptions and models, as such constraints raise the possibility of a limit to economic growth over the medium term.
The research report – 'Implications of Limits to Growth for the Actuarial Profession' – modelled the impact of resource constraints on a pension fund.
All of the scenarios modelled in this report showed lower returns on assets and higher costs for schemes compared with the no-constraints model.
Specifically, the level of defined contribution pensions, compared with projected salary prior to retirement, for the worst scenarios is almost half of that of the no-constraints scenario.
A healthy defined benefit pension scheme meanwhile could become insolvent within 35 years solely as a result of the limitations to growth as modelled, and in the absence of other detrimental influences.
Resources and their interrelationship represent a hidden set of determining factors to financial and demographic variables such as discount rates, inflation and demography.
The report says these factors are ignored in standard economic modelling although they have had a significant impact on the economy in the past.
Historical evidence also suggests that while life expectancies have improved, periods of social and economic trauma can lead to declines in life expectancy.
Beneficiaries of long-term financial products such as pensions are a select group that may be insulated from the worsening mortality of the rest of the population, according to the report.
In other news, a study by insurer Swiss Re has concluded that better risk management can secure future energy supplies and reduce the impact of climate change.
The report – entitled 'Building a Sustainable Energy Future: Risks and Opportunities' – looks at how new sustainable energy technologies, shifts in public perception, market forces and the policies set by global and national decision-makers will influence the way people power society in the future.
At the centre of the report is the link between decisions on the global energy mix and their consequences for how people mitigate and adapt to global climate change.
Andreas Spiegel, head of sustainability and political risk at Swiss Re and author of the report, said: "This study clearly shows that renewable energy will play an important role in the global power mix of the future.
"At the same time, it shows that adaptation to climate change will increase in importance because the window of opportunity for mitigating climate change is getting much narrower."
The report's approach is based on an economic analysis of different future energy mix scenarios.
These scenarios range from a future with no attempt to curb global warming to more moderate scenarios, which reflect a slow greening of the economy or the influence of technological advances and political action on the global energy mix.
In the best-case scenario, a successful mix of political, social and technological factors would mean that low-carbon technologies could supply 92% of the global power supply by 2050.
Lastly, the US emerged as the leader in the tenth edition of the Sustainability Yearbook by investment manager RobecoSAM, with 10 of its companies awarded sector-leading status.
The US was followed by Germany and South Korea, with six of the countries' companies respectively perceived to be sector leaders, ahead of France, Spain and the UK, with five companies each.
Australia, the Netherlands and Taiwan had four sector leading companies each, ahead of Canada and Italy with three.
Vincent Neate, head of climate change and sustainability at KPMG in the UK, said: "Business is entering a period of unprecedented opportunity and risk due to a potent cocktail of mega-forces including climate change, population growth, water scarcity, urbanisation and ecological decline.
"Investors should consider the companies awarded gold medals in the Sustainability Yearbook 2013 as among the best prepared within their own sectors to manage these challenges and make themselves fit for the future."
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