7.4.1The Status of the Assumed Growth Rate

Consider the following statements in the Endowment Mortgage Quotations (Case 1 and Case 2 of Appendix 1/2) regarding the assumed growth rate of 10.75% p.a.:

‘The surplus and early repayment term are calculated assuming a unit growth rate of 10.75% p.a. less a management charge of % per month.

This rate is not a forecast and the amount payable may be greater or less than illustrated.’

If the assumed growth rate of 10.75% p.a. is not a forecast, 

—————— then what is it?

The use of the word ‘Assuming’, in the context of the Endowment Mortgage Quotations, has the purposive intent of providing major yardsticks that affect the borrower’s decision as to choice of Mortgage type.

The assumed growth rate of 10.75% is the genesis of the representations by the Financial Institutions (First National and Irish Life) of the Benefits pertaining to the Endowment Mortgage.

The assumed growth rate is therefore the genesis of two major yardsticks (i.e. the Projected Surplus After Loan Repaid and the Early Repayment Term) by which the borrower evaluates, and the Financial Institutions know and intend that he will evaluate, the worth of the Endowment Mortgage relative to the Repayment Mortgage.

The Financial Institutions do not deny such a critical status to their assumed growth rate.

They do not say:

‘Let us pretend that the growth rate will be 10.75% p.a.’


The Life Assurance Companies know the facts relating to investment in Endowment Mortgages.

Notwithstanding the fact that the First National Homeway Mortgage Fund (Series 4) was only recently launched by May 1991, Irish Life knew the performance of comparable Investment Funds. They had all the experience and expertise of a major Financial Institution at their disposal and were, therefore, in a position to apply that experience and expertise when deciding upon an assumed growth rate for their Endowment Mortgage representations.

When such an esteemed Financial Institution makes an assumption with regard to the growth rate to be used for its presentation of the worth of a particular Investment Fund, with the intention that a borrower / investor should act upon it  ——  and he does act upon it  ——then it can well be interpreted that such an assumed growth rate is sound and reliable and based on facts known to them.

The borrower / investor, therefore, has every right to rely on the assumed growth rate as a growth rate that can be reasonably expected to be achieved.

Any other interpretation of the status of the assumed growth rate would make an Absurdity of the entire Mortgage Quotation presentations.

(See Esso Petroleum Co., Ltd. v Mardon in Section 2.2.1: The Construction of a Contract.)


This issue, in Law, would come down to whether or not Irish Life could show reasonable grounds for believing that the assumed growth rate of 10.75% was (in May 1991) a growth rate that could be reasonably expected to be achieved.

While, in the case of my wife and I, their tied agent’s Official represented to me that Irish Life would not use a growth rate that could not be reasonably expected to be achieved (see Section 1.2: The Experts' Advice and Representations), justification of their grounds for believing it to be so will normally be evidenced by showing that the assumed growth rate used is in compliance with that specified for such an investment product by the Life-Assurance / Insurance Industry Self Regulating Organisation.

BUT, it must be remembered that such Organisations exist solely to represent the Life-Assurance / Insurance Companies’ interests, and their representations on any matter must be seen as being primarily focused on furthering those interests. Everything they do follows from consultation with 'Those in Power' within the Life-Assurance / Insurance Industry. In this regard, a potential conflict of interest must be seen to exist.

The question therefore arises whether, as the yardstick by which the consumer is most likely to be influenced when making his investment decision, it can be proved that such an ‘assumed growth rate’ was arrived at on the basis of an unbiased and truly objective assessment of the ‘expected long term growth rate’.


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