valuation – Page 7 – The Eumaeus Project

Kevin Dowd 20 August 2018

Earlier this week the Association of British Insurers and the Institute and Faculty of Actuaries issued a tender call for research on the valuation of the No-Negative Equity Guarantees (NNEGs) in Equity Release Mortgages (ERMs). Their timing is perfect, coming as it does a week after my report on NNEG valuation, Asleep at the Wheel: The Prudential Regulation Authority and the Equity Release Sector, and a few weeks after the PRA’s most recent Consultation Paper on the subject, CP 13/18, “Solvency II: Equity Release Mortgages.” One thing is for sure: the current manual used by practising actuaries for the valuation of NNEGs is not so much out of date as flat out wrong.

Continue reading “A Tender Issue”

Kevin Dowd

13 August 2018

Most UK Equity Release mortgages¹ involve a no-negative equity guarantee (NNEG) by which the lender guarantees that the borrower (or their estate, if they have passed away by then) will never need to pay back more than the value of their house when the loan is repaid.

The valuation of these NNEGs has suddenly become a hot issue in light of this week’s two reports – Howard Mustoe’s BBC story “Home equity release may cost pension firms billions” and my report, “Asleep at the Wheel: the Prudential Regulation Authority and the Equity Release Sector” – and a BBC Radio 4 programme “The Equity Release Trap” aired last Tuesday (8 August 2018) at 8 pm.

These reports and some of the reaction to them show that there is considerable confusion about the valuation of these NNEG guarantees.

There shouldn’t be.

Continue reading “The UK Equity Release Industry is Undervaluing its Guarantees”