INTERIM: Actuarial management of equity release mortgages 

Current practices and issues in the actuarial management of ERMs in the UK 

by T. Kenny*, C. Golding, G. Craske, A. Dobinson, S. Gunter, O. Griffiths, N. Hayes, A. Mockridge, S. Robertson, R. Saundh, J. Thorpe

Introduction 

This is an interim paper by the Equity Release Mortgage working party. The paper is still going through the Peer Review process and additional sections are expected to be added as part of finalising the paper, but has been released in its current form to facilitate discussion at the sessional event on 11 December 2018 and to receive feedback on the current interim paper. The finalised paper is expected to be released in early Q1 2019. 

Abstract 

The aim of this paper is to provide an update on the current actuarial practices in the management of equity release mortgages in the UK. With the implementation of the Solvency II Directive on 1 January 2016, there have been a number of changes to the way equity release mortgages are managed so that investors can benefit from the Matching Adjustment under Solvency II. This has led to investors establishing processes to internally securitise equity release mortgages, including attributing an internal credit rating for the notes. We have also seen a number of consultation papers from the Prudential Regulation Authority in the UK in respect of the amount of Matching Adjustment investors should be recognising on their balance sheets. This is essentially a question on what is the correct way to determine the level of risk embedded within equity release mortgages and this paper looks to provide some discussion on this subject, particularly approaches to valuing the no-negative equity guarantee. We also discuss the approaches to valuing equity release mortgages under International Financial Reporting Standards and Solvency II.