Hi In April 22 ,Q-1 i) Why are we not mentioning the NB contribution as the new business would earn some investment return? In Q-3iii) Please explain how the equity release product can be a good match for annuity cashflows The products can provide a good yield to match the immediate annuity cashflows [½] and match the longevity risk given the duration [½] Thanks.
Sorry, not sure I understand. The question is asking why they decided not to enter the market? This is because the stream of future expected redemption payouts on the equity release plans will be a good match for annuity payments. The company may, with the use of securitisation of the future cashflows arising on the equity release plans, be able to benefit from the matching adjustment applied to the discount rate used to discount the annuity liabilities. This is described in Section 6.3 of Chapter 13. In relation to longevity: The equity release asset may provide a longevity hedge as it reduces the reinvestment risk that arises in investing in alternative shorter-life matching assets. Also, note that these assets may have positive exposure to increased longevity (if the customer lives longer in their own home, the loan is inforce and accrues interest for longer).
Hi Sorry,my bad.I mentioned the question number incorrectly.Its Q-2 part i) and not Q-1 i) : April 22 ,Q-2 i) Why are we not mentioning the NB contribution as the new business would earn some investment return?
The impact from new business through the year will have its own step and any return from NB will be analysed at this stage.
