The Retirement Village Industry- Opportunities for Actuarial Improvement. Dennis Barton

Transcription

1 The Retirement Village Industry- Opportunities for Actuarial Improvement Dennis Barton

2 Agenda History Market Participants Legislation Product Taxation Accounting Actuarial Current practice Ideal practice Experience Practicalities Assumptions Insights

3 History 1954 Act 1974 withdrawal Private sector

4 Market Gross Subsets Penetration Future 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Persons 2009 Persons 2024 Persons to to to 64 Under 20

5 Product Tenure Contract Recurrent Capital Other care level Quality

6 Developers Family companies Church & charitables Corporates Participants

7 States Responsible Minister Common features Registration Disclosure Cooling off Recurrent expenses Disputes Legislation

8 Taxation Income GST Pre Land Not deductible Deductible Not deductible Construction Depreciable Deductible Depreciable Interest paid Deductible Deductible Deductible Incoming payments Not assessable Not assessable Not assessable Rental / DMF Accrual Receipt Accrual / receipt

9 Standards Auditors Discount receipts Undiscounted liabilities Accounting

10 Actuarial Known but uncommon Multiple decrements Last survivors Differences TVF PV Cashflow /( 1- A ) Case Shiller Ln(Price x+t / Price x ) = a i z i a i =Ln(index i ) z uniformly 0 except z x+t = 1 z x = -1

11 Current valuation practice Who Global exits Standard life tables No voluntary exits Last survivors Terms certain

12 Contracts Entry experience Exit experience Value growth Assumptions Individual calc s Sensitivity Reconciliation Ideal practice

13 Experience Source Entry distribution Average Trends Differences 30% 25% 20% 15% 10% 5% 0% Female single principals Coupled female Male single principals Coupled male 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Manager 1 Manager 2 Manager 3 All Entrants Single females Couples Single males

14 Experience (2) Exit distribution Involuntary Voluntary Trends Differences 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Death per Expected 15 years Upper limit 90.0% interval Lower limit 90.0% interval Average Death per Expected 15 years Upper limit 90.0% interval Average Death per Expected 15 years Lower limit 90.0% interval Average Death per Expected 15 years Weighted trend Death per Expected

15 Value growth Experience (3)

16 Practicalities Difficulties with commutation columns Duration related Last survivors Reuse of unit Each unit each year under macro Payments Probabilities Present values

17 Assumptions Entry Single F 48% aged 76 Single M 9% aged 77 Couple 43% F 74 M 76 Exits involuntary F Death 29% ALT M Death 54% ALT M Other 32% ALT F Other 22% ALT Exits voluntary 1.9% per annum Value growth CPI + 5% pa Discount rate 10% pa Contract DMF 4% realloc to 28% 5% refurb 0.25% realloc pa maint

18 Insights Exits have a distribution, not a number Proportion exiting 15% 12% 9% 6% 3% - Weighted new exits Female Expectancy Male expectancy Couple expectancy Weighted expectancy Year

19 Insights (2) Consequences of distribution (TVF) 60% Term certain Total Value Factor 50% 40% 30% 20% 10% Weighted entrant Fem ale entrant Male entrant Expectancy Couple entrant

20 Insights (3) Curve of PV of payments 30% 20% 10% 0% -10% -20% -30% Year

21 Use TVFs for targetting Insights (4) --2.0% 2.0%-4.0% 4.0%-6.0% 6.0%-8.0% 8.0%-10.0% 10.0%-12.0% 12.0%-14.0% 14.0%-16.0% 16.0%-18.0% 18.0%-20.0% None Male 20.0%-22.0% 22.0%-24.0% 24.0%-26.0% Fem ale None 55

22 Individual sales by age Insights (5) 93.0%-94.0% 94.0%-95.0% None %-96.0% 96.0%-97.0% %-98.0% 98.0%-99.0% 99.0%-100.0% 100.0%-101.0% Male 101.0%-102.0% 102.0%-103.0% %-104.0% 104.0%-105.0% 105.0%-106.0% 106.0%-107.0% Fem ale None55

23 Sensitivity Total value factor 60% 50% 40% 30% 20% 10% Expectancy Base Lower discount Slow er exits Higher discount Faster growth Slower growth More couples Younger entrants & more couples Term certain

24 Sensitivity (2) Total value factor 40% 35% 30% 25% 20% 15% 10% 5% - 3% 4% 5% 6% 7% Growth rate Discount rates 8.0% 9.0% 10.0% 11.0% 12.0%

25 Sensitivity (3) Total value factor 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Ages Couples proportions Exit rate scaling Expectancy

26 Insights (5) Cash flow is for capital valuations, not annual budgets

27 Wish we had done this sooner Residents The profession Has lost ground Knows demography Understands distributions Where now?

28 Questions