The Research About The Impact Of Longevity Risk On Reverse Mortgages

With economic development,human living conditions and medical conditions have been greatly improved,and the length of human life has been extended,which brings the problem of an aging population.According to the UN report,the proportion of the world's population aged 60 and above in the total population was only 8 percent,but this proportion had risen to 11 percent in 2009 and will reach 22%by 2050.In China,population aging problem also exists,and has brought about tremendous pressure on the society.The pricing of the main pension products today depends on the established mortality and empirical data,then the increasing life expectancy will increase payment cycle of the pension plan,which leads to that expenditures exceed revenue in the long run.This phenomenon calls longevity risk.In order to solve the huge pension pressure,foreign scholars have proposed reverse mortgage.It refers that the older people mortgage their houses to financial institutions and obtain pension loans from financial institutions periodically.Loans do not need to repay in the years of living life,while older people use the first mortgage property to repay the loans.Longevity risk is an important factor influencing the reverse mortgage loan pricing,so the research of this paper on it has important practical significance.Therefore,this paper studies the impact of longevity risk in China on the reverse mortgages.This paper,based on the actuarial principle that expected income is equal to the expected expenditure,establishes the pricing model of reverse mortgage.Relevant data is obtained from the male(CL3)table and the female table(CL4)of the pension business table(hereinafter referred to as the official table)in the Chinese life insurance industry experience life table(2000-2003),and the 2023 part in the 1994-2025 Chinese future life prediction table(hereinafter referred to as the prediction table).The prediction table is the official form through the Lee-Carter model calculation,is a reflection of the longevity risk factors of life table.Firstly,this paper calculates the life expectancy according to the two tables,and draws the difference between the two.Then the data of the two tables is substituted into the pricing model of reverse mortgage to calculate the annuity,so we can compare annuity differences.Then,the paper makes the sensitivity analysis about interest rates and growth rate of house prices in the pricing model of reverse mortgage.The results show that,the impact of longevity risk on reverse mortgages exits;the impact will be greater if the borrower is older when he applies to the reverse mortgage.The degree of the impact is affected by changes in the interest rates and changes in the growth rate of house prices.Therefore,we believe that financial institutions should take measures to prevent the impact of longevity risk on reverse mortgages,pay close attention to the changes in the interest rates and growth rate of house prices,and develop different strategies depending on the situation;government should promote reverse mortgages vigorously,and make reverse mortgages to be implemented as soon as possible.At present,few people concerned about the specific impact of longevity risk on reverse mortgages.Therefore,this research may have some forward-looking,lay the foundation for Chinese reverse mortgage,and help financial institutions to prevent the impact of longevity risk on reverse mortgages.