Pricing Research Of China’s Housing Reverse Mortgage Endowment Insurance

For the past few years,China’s aging has been increasing,and the dependency ratio of the aging population is growing rapidly,the burden of national pensions is further increasing.The basic endowment insurance,the first pillar of the three pillars of old-age pension in China,is unable to support itself,and the social pension fund is facing a deficit.In order to promote the development of the third pillar,housing reverse mortgage endowment insurance was introduced into China as a product that has been operating relatively maturely in foreign countries.From proposing the relevant concept to realizing local pilot projects and then completing the national promotion,it has experienced more than ten years of development in China,but its actual operation in China is not effective,encountering the development difficulties of both the supply side and the demand side.Presently,there are two housing reverse mortgage endowment insurance products in the market,named Fanglaibao and Anjule,and the first is the main product running in the market.The few products which have single product solutions further reduce the motivation of consumer participation on the demand side.In order to study the development dilemma of the supply side and achieve reasonable pricing of products,we analyze the pricing risks of the products.After combing through the current domestic and international literature on the pricing models of home reverse mortgages,we argue that Chinese insurance companies face three typical pricing risks when conducting housing reverse mortgage endowment insurance business: interest rate volatility risk,house price volatility risk,and longevity risk.Under the assumption based on risk neutrality,the Vasicek model is applied to fit the dynamic changes of interest rate.The geometric Brownian motion model is selected to fit the changes of house price index fluctuation,and the dynamic mortality rate derived from the Lee-Carter model is used to replace the static mortality rate of the traditional life table.After introducing pricing risk models into the pricing models,we complete the construction of the lump-sum benefit model and the annuity benefit model.Then,the parameters of the three pricing risk models are estimated by using relevant domestic sample data.The lump-sum model and annuity model are further solved.The sensitivity analysis of the parameters of the pricing risk model is also done.The results show that the influence of the house price volatility parameter plays a dominant role in the pricing model,which means a small increase in the house price volatility leads to a significant decrease in the amount of insurance benefits received by the insured.Second,the fluctuation of interest rate fluctuation parameter mainly affects the change of annuity benefit amount,and the influence of interest rate fluctuation parameter on the pricing model is much lower than that of house price fluctuation parameter.Further,dynamic mortality rates are used in the pricing model instead of the static mortality rates in traditional life tables.After taking into account mortality fluctuation risk,the improvement in the policyholder’s mortality rate reduces the amount of benefits they can receive.Finally,the premium rate parameters also have an impact on the results of the pricing model,where the annual premium rate has a greater impact than the initial premium rate.To sum up,by considering three typical pricing risks of home reverse mortgage pension insurance,we come up with the corresponding lump-sum benefit and annuity benefit pricing models,which enriches the research related to the pricing model of housing reverse mortgage endowment insurance in China and has theoretical and practical significance.