Effectiveness of Natural Hedge and Reaction to Longevity Society

Transcription

1 Effectiveness of Natural Hedge and Reaction to Longevity Society Fubon Life Chang Cheng-Wei, FSA 09/22/2017

2 Agenda Methods of hedging longevity risk Effectiveness of natural hedge inter-products Effectiveness of natural hedge intra-product Action to the uncertainty in LTC insurance Pay in kind insurance What we do for the longevity society 2

3 Methods of hedging longevity risk Mortality Hedge Vehicles: Swiss Re mortality bond(2003) EIB longevity bond(2004) Mortality forwards (JP Morgan q-forwards,2008) Longevity SWAPs (JP Morgan, Canada Life,2008 ) Reasons for unpopularity: Basis risk Liquidity Not standardized contract Counterparty risk Market acceptance, Pricing problem 3

4 Methods of hedging longevity risk Reinsurance Natural Hedge- *Positive effect for Life Insurance under longevity situation *Negative effect for Annuity, LTC, and Hospitalization Insurance Appropriate liability portfolio can achieve the natural hedge Theoretical Definition: V dv d life dv d annuity 2 d V 2 2 d life 2 annuity 1 d V 2... =0 to achieve the immunization strategy for the mortality change 2 d To reveal the quick snapshot of longevity risk of products in Taiwan: Definition: Net Single Premium= Net Single Premium(Life) + Net Single Premium(Annuity) = 0 4

5 Agenda Methods of hedging longevity risk Effectiveness of natural hedge inter-products Effectiveness of natural hedge intra-product Action to the uncertainty in LTC insurance Pay in kind insurance What we do for the longevity society 5

6 Natural Hedge Effectiveness of Natural Hedge inter-products - Annuity and Life Insurance - LTC and Life Insurance - Hospitalization and Life Insurance Effectiveness of Natural Hedge intra-product - Whole life insurance with survival benefit: Type I - Whole life insurance with survival benefit: Type II 6

7 Method & Life expectancy Scenarios Scenario Pricing Rate 11TSO (2011 Taiwan Mortality Table) age sex base 2.50% 90% % 70% % 50% % 90% % 70% % 50% % 90% % 70% % 50% Death age based on 11TSO M F age 11T SO M F Increase_M Increase_F 90% (base) % % % (base) % % % (base) % %

8 Annuity and Life Insurance Deferred Annuity (Annuitization: age 65) vs Whole Life (WL) 35M 35F Scenario Pricing Rate 11TSO Annuity WL Ratio Annuity WL Ratio NSP Diff.(1) NSP Diff.(2) -(1)/(2) NSP Diff.(1) NSP Diff.(2) -(1)/(2) base 2.50% 90% 100, , , , % 70% 108,782 8,782 93,411 (6,589) ,723 6,723 94,379 (5,621) % 50% 120,426 20,426 85,041 (14,959) ,492 15,492 87,226 (12,774) 1.21 *Insurance companies might optimize the allocation of their annuity and life products to hedge against longevity risk. Annuity WL Annuity WL - The costs of annuity are more sensitive than whole life under longevity scenario. 8

9 Annuity and Life Insurance (Ratio) 9

10 LTC and Life Insurance Long Term Care (LTC) and Whole Life (WL) 35M 35F Scenario Pricing Rate 11TSO LTC WL Ratio LTC WL Ratio NSP Diff.(1) NSP Diff.(2) -(1)/(2) NSP Diff.(1) NSP Diff.(2) -(1)/(2) base 2.50% 90% 100, , , , % 70% 117,866 17,866 93,411 (6,589) ,033 12,033 94,379 (5,621) % 50% 141,080 41,080 85,041 (14,959) ,483 26,483 87,226 (12,774) 2.07 LTC WL LTC WL 10

11 LTC and Life Insurance (Ratio) 11

12 Hospitalization and Life Insurance Hospitalization and Whole Life (WL) 35M 35F Scenario Pricing Rate 11TSO Hospitalization WL Ratio Hospitalization WL Ratio NSP Diff.(1) NSP Diff.(2) -(1)/(2) NSP Diff.(1) NSP Diff.(2) -(1)/(2) base 2.50% 90% 100, , , , % 70% 108,516 8,516 93,411 (6,589) ,175 6,175 94,379 (5,621) % 50% 119,465 19,465 85,041 (14,959) ,797 13,797 87,226 (12,774) 1.08 WL WL Hospitalization Hospitalization 12

13 Hospitalization and Life Insurance (Ratio) 13

14 Agenda Methods of hedging longevity risk Effectiveness of natural hedge inter-products Effectiveness of natural hedge intra-product Action to the uncertainty in LTC insurance Pay in kind insurance What we do for the longevity society 14

15 Whole Life with Survival Benefit (Type I) Type I: Whole life insurance with survival benefit - Death benefit = Max(Sum Assured, Cash Value, GP-SB) - Survival Benefit(SB) = 2% SA per annum - Under proper allocation of SB and DB in one product, we could eliminate large portion of longevity risk. 15

16 Whole Life with Survival Benefit (Type I) 35M vs 65M :11TSO*90% :11TSO*70% :11TSO*50% 16

17 Whole Life with Survival Benefit (Type II) Type II: Whole life insurance with survival benefit - DB = Max(Sum of future SB, CV, GP-SB) - SB = 10% SA per annum Survival benefit is payable till death of the insured but the residual SBs will be paid as DB. 17

18 Whole Life with Survival Benefit (Type II) 35M vs 65M :11TSO*90% :11TSO*70% :11TSO*50% 18

19 Agenda Methods of hedging longevity risk Effectiveness of natural hedge inter-products Effectiveness of natural hedge intra-product Action to the uncertainty in LTC insurance Pay in kind insurance What we do for the longevity society 19

20 Long-term care products Most US players exited the market with losses Not successful in most Asia-Pacific market Subjectivity in the definition and lack of experience data Alzheimer s disease (dementia) is the key challenge for pricing Source: SOA LTC experience committee, intercompany study report 6, year

21 Long-term care products in Taiwan Not appealing to customers probably due to complicated product feature or unaffordable price Young people have limited budget, not urgency for LTC insurance Old people who need the protection could not afford it or could be declined by insurers Traditional ADLs benefit trigger is difficult to explain, unless it is tied to the definitions of social insurance (1)No. of LTC (2)No. of Health Product (1)/(2) Year No. of No. of NB Inforce No. of NB No. of Inforce NB Inforce , ,906 3,904,490 56,007, % 0.69% , ,354 4,409,902 58,757, % 0.73% , ,650 3,802,346 60,798, % 0.77% , ,541 4,008,966 62,985, % 0.85% , ,465 4,643,416 65,212, % 0.85% Source: individual product statistics from Taiwan LIA 21

22 Whether Someone Qualifies for LTC Benefits How to measure? How can you tell if someone can perform their ADLs if they say they are in pain, or depressed? How can you tell whether a person really needs a home health aide? How can you tell if someone is confused with time or place, or with memory loss that disrupt daily life? Prevalence in US One in nine people age 65 and older (11%) has Alzheimer s disease About one-third of people age 85 and older (32%) have Alzheimer s disease. Eighty-one percent of people who have Alzheimer s disease are age 75 or older Source: 2015 Alzheimer s Disease Facts and Figures (Alzheimer s association, 22

23 Cooperation with Academia Quasi Long Term Care Product Refer to SOA LTC Experience Committee Intercompany Study NHI data analysis(morbidity & mortality rate ) Doctor s opinion and suggestion Due to the lack of the elderly experience data, refer to the SOA LTC study to adjust the morbidity rate of Alzheimer s Disease over age 75. Stroke Multiple Sclerosis Alzheimer s Disease Parkinson s Disease Paraplegia Rheumatoid Arthritis Aortic Graft Motor Neurone Surgery Disease 23

24 Product Innovation Innovative design with Specified CI Some specified CI diseases more likely lead to impairment of activities of daily living Better known with those CI diseases than ADLs, easy to explain to customer Hybrid of LTC Income and Accelerated Death Benefit LTC income benefits will be paid monthly for lifetime, plus an additional one-time payment Not need to regularly examine that reduce complain cases from diagnosis of diseases and also lower expense of claims administration Performance Awarded with Product Innovation of 2013 Taiwan Insurance Best Performance Award Sales volume of quasi LTC take high proportion in LTC market (1)No. of Quasi (2)No. of LTC(Whole Year LTC(Fubon) Industry) (1)/(2) No. of NB No. of NB NB ,834 60, % ,853 65, % ,172 92, % 24

25 Agenda Methods of hedging longevity risk Effectiveness of natural hedge inter-products Effectiveness of natural hedge intra-product Action to the uncertainty in LTC insurance Pay in kind insurance What we do for the longevity society 25

26 Payment-in-kind Insurance Medical Care Funeral &Grave Nursing Pay in Kind Insurance LTC Service Health Management Housing for the aged 26

27 The advantage of payment-in-kind Supply Guaranty Even in short supply, the insurer guarantee the service for the insured Privilege Enjoy favorable price with high quality For the insured Real service or goods to the insured, not cash 27

28 Payment-in-kind of LTC The key considerations of LTC payment-in-kind Inflation Quality Duty Difficulty to predict the future inflation Reflect the growth of cost Shortage of high quality institution Supply/Demand Insurance company must take the duty for the contract 28

29 Agenda Methods of hedging longevity risk Effectiveness of natural hedge inter-products Effectiveness of natural hedge intra-product Action to the uncertainty in LTC insurance Pay in kind insurance What we do for the longevity society 29

30 Orange Plan First and the only Taiwan's financial and insurance industry to participate in Japan's Orange Plan. Cooperate with Aging and Health Research Center of National Yang- Ming University to build a "Health Risk Assessment Module" to collect information to understand the health of the aged and to reduce the probability of dementia/disability. Develop relevant services and insurance products that meet the needs of aging society 30

31 Fubon friendly neighbor 17 cities 400 agent branch offices as shelter 30,000 employees as guardian for dementia elder 31

32 Guardian of the aged Wristband & Bracelet Sponsor NFC smart wristbands and bracelets to Federation for the Welfare of the Elderly Fundraising Organize event to encourage donation to the charity and the aged Wish list Donate the goods and food to satisfy the need of lonely elder 32

33 Thank you~ 33