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Equity Release Mortgages: Call for Tender

The Institute and Faculty of Actuaries (IFoA) and the Association of British Insurers (ABI), through the Actuarial Research Centre (ARC), are inviting research teams and organisations to submit proposals for a jointly commissioned research project on Equity Release Mortgages: No Negative Equity Guarantee.

Timeline:
Category Date
Opening date 13 August 2018
Closing date 7 September 2018 (12.00 UK time, BST) Extended
Expected award Mid September 2018
Expected commencement October 2018 onwards

ARCABI

Eligibility
Proposals would be welcomed from any research-led organisations within the university, not-for-profit, public or private sector.  Organisations may be based in the UK or elsewhere in the world.
 
Call document
Download the Call for Research on Equity Release Mortgages: No Negative Equity Guarantee.  This document includes essential information for applicants, including how to apply.
 
Call description
The objectives of the commissioned research are to determine appropriate methods for determining ERM cashflows and their value:
  • To give a more academically rigorous view than previously, given the increasing importance of the market.
  • To consider appropriate stochastic models, including the range of demographic and economic factors taken into account, how they are modelled, and the correlations assumed. Any modelling should consider the range of ERM product features and options.
  • To give a view on whether it is necessary to model all factors stochastically or could some factors (e.g. mortality) be valued deterministically without any great impact on the results.
  • To consider practical approaches to approximating any models proposed.
  • To consider whether it is reasonable to use closed form solutions based on Black Scholes (as adjusted) or whether there are alternative closed form solutions which might be better.  It is recognised, for example, that the geometric Brownian Motion (GBM) underlying Black Scholes does not truly represent the ERM risks.  However, the research proposal is interested in practical solutions, so closed form solutions such as Black Scholes should be supported (or at least not ruled out) if with suitable parameters and adjustments they gave similar results to stochastic modelling.
  • To consider the relative merits of ‘real world’ and arbitrage free (risk neutral) methods and how the assumptions should be set on both bases.  In the context of the insurance industry, particular attention is drawn to the different uses to which cashflows and value might be put and the importance of appropriately determining expected cashflows and future outcomes through the economic cycle, distinct from the current price or fair value, and the relationship between the two under different economic conditions, e.g. under a low risk free rate environment.
  • To consider whether there are any “halfway house” solutions between real world and risk-neutral approaches given, in relation to the latter, the absence of a deep and liquid market.  It should be noted that the 2007 paper suggested that there was a significant difference in the value of the NNEG on the two approaches.
  • To consider the theoretical reasonableness of applying a deferred possession cap (positive deferment rate) on the projected ERM cashflows and on the value of the ERM assets and how this cap should be assessed under different economic conditions.  For example, the implications when real yields are negative and resulting impact on the difference between real world and risk neutral cashflows.
  • To provide results based on detailed modelling.  The 2007 paper had a very simple model and it was felt that a more realistic approach was desired.  However, it was recognised that there would be significant commercial constraints on providers giving information directly.  It is considered that academic research based on real ERM data and past experience would add to the credibility of this research, compared to past professional and academic papers.
  • To provide commentary in terms of theoretical coherence, consistency with current and historical market data, ease of implementation and explanation, and objectivity.
 

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Start date
E.g., 26/01/2021
End date
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Events calendar

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    Drawing from his most recent book “The New Long Life” and his longevity research Andrew J Scott will outline how longer lives and new technologies will fundamentally reshape how we structure our lives and transform the economy. As well as looking at the agenda this will set governments and corporates he will focus on the implications for you and how you prepare your future career.

  • India Town Hall

    Webinar
    28 January 2021

    Spaces available

    IFoA Immediate Past President John Taylor would like to invite you to the Institute and Faculty of Actuaries’ (IFoA) virtual India Town Hall 2021, hosted by John Taylor with IFoA Council Member Mahidhara Davangere and IFoA Chief Executive, Stephen Mann. 

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    What are the options for the world economy looking ahead?

    In this Thought Leadership Lecture, Economist, Vicky Pryce, will be discussing world economic trends, including the differences in geographical performance and how output is recovering and where.

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    Trust and Leadership for Actuaries

    Led by Dr. Jim Baxter, University of Leeds, this webinar introduces some key ideas in the ethics of trust, with a particular focus on those in, or on the path to, leadership roles. Dr Baxter is joined by a panel of experienced leaders who will give their personal perspectives on how they understand the value of trust and how they seek to promote and inspire trust, drawing on their experiences of leadership. The panel includes:

  • Health and Care Hot Topics webinar

    Online webinar
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    In this webinar, we have two presentations showing the latest research on the implications for life and health insurers of two key issues: genomics and pandemic risk.

    Dr Peter Joshi and Paul Timmers will share their research on how well-established underwriting processes can allow for genomics in predicting expected mortality and morbidity. They will then discuss the potential for stratified screening and personalised medicine to improve health and reduce claim costs.

  • Spaces available

    As the world’s attention begins to turn to COP26 later this year in Glasgow, Sarah Gordon (Chief Executive, Impact Investing Institute) will share her vision for how the financial services industry can deliver for people and the planet, as well as how to encourage more investment with the intention to generate positive, measurable social and environmental impact alongside a financial return.

  • Sub-Saharan Africa Town Hall

    26 February 2021

    Spaces available

    IFoA Immediate Past President John Taylor would like to invite you to the Institute and Faculty of Actuaries’ (IFoA) virtual SSA Town Hall 2021, hosted by John Taylor with IFoA Council Members Mukami Njeru, Prosper Matiashe and IFoA Chief Executive, Stephen Mann.

  • MENAP Town Hall

    2 March 2021

    Spaces available

    IFoA Immediate Past President John Taylor would like to invite you to the Institute and Faculty of Actuaries’ (IFoA) virtual MENAP Town Hall 2021, hosted by John Taylor and IFoA Chief Executive, Stephen Mann.