Category: Ifoa

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Links

I have updated the links page as follows.

Stress Tests – links mostly to Kevin Dowd’s work on the failures of the Bank’s stress testing regime, which seem to be manifold. There will be more to come as ‘No Stress IV’ approaches publication.

Equity release and the actuarial profession – links forming the source for our work on  Equity Release: A New Equitable in the Making.

Treasury Committee – links to the work of the Treasury Committee’s Solvency II investigation, including its report The Solvency II Directive and its impact on the UK Insurance Industry, October 2017.

 

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Long, Long, Long

As noted earlier, there was a presentation at Staple Inn yesterday evening on equity release mortgages, and this appears to be the paper. The strange jumble of ideas presented in the paper is connected with a much deeper question, namely why it took so long (more than four years) for the PRA to decide how to value a simple European option.

Continue reading “Long, Long, Long”

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The Search for the Holy Grail

“We believe more research needs to be completed”

Kevin Dowd 3 December 2018

Chris Cundy at InsuranceERM has just written a nice piece on Dean’s and my new report, Equity Release: A New Equitable in the Making published by the Institute for Applied Economics, Global Health, and the Study of Business Enterprise in their Studies in Applied Economics series. This new report is a follow-up to the Adam Smith Institute report Asleep at the Wheel: The Prudential Regulation Authority and the Equity Release Sector published on August 6th. To quote Chris’s article:

More criticism has emerged from Dean Buckner and Kevin Dowd on the valuation approach taken by some UK insurers investing in equity-release mortgages (ERMs) [who] earlier this year published a critique [Asleep at the Wheel] of how the no-negative equity guarantee (NNEG) element of ERMs was being under-valued, which results in ERM portfolios being over-valued.

Continue reading “The Search for the Holy Grail”

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Bits and pieces

Source: Dallas Federal Reserve

InsuranceERM covered our paper on Equity Release and the Institute yesterday. They are also advertising a conference in February, where I will be speaking on whether arbitrary discount rates are consistent with IFRS principles.

On other matters, the Institute have now published this presentation at Life Conference by the Equity Release Working Party, the one which actuaries voted on, as we reported last week. Note the whacking great disclaimer on the second page stating that ‘The IFoA and our employers do not endorse any of the views stated … in this presentation’, a standard boilerplate that normally appears at the end of presentations bearing the Institute’s logo. What is the Institute worried about?

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Is Equity Release Another Equitable in the Making?

Kevin Dowd and Dean Buckner, 29 November 2018

Our new report, “Equity Release: Another Equitable in the Making” has just been released in the Studies in Applied Economics series edited by Steve Hanke. Steve is professor of applied economics and co-director of the prestigious Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in Baltimore, Maryland. We are very grateful to Steve for publishing it.

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Weird distributions #2

The Institute says, in its reply to CP 13/18  (p.10), that

Using the Black-Scholes formula in pricing NNEG will affect the cost of the guarantee, since allowance is not made for the features of mean reversion, momentum and jumps described above. Under geometric Brownian motion the volatility increases with the square root of time while for other models it does not; the value for long term derivatives such as NNEG could materially differ from that assumed under the Black-Scholes model.

This second article on strange distributions discusses the mean reversion claim.

Continue reading “Weird distributions #2”