Practical Considerations in Evaluating a Long-term Care Securitization

In many countries seniors requiring long-term care (LTC) are required to pay much of the cost of care themselves. Private LTC insurance has had relatively low take-up rates. In countries such as Canada and England a significant amount of seniors’ accumulated savings is represented by the equity in their homes. Traditional equity release products also have relatively low take-up rates. At the IAA Colloquium in Hong Kong in 2012, Andrews presented an outline of a public-private-partnership that might be used to release home equity for the purpose of financing LTC expenses that would involve a securitization. For this paper, the authors obtained data from various sources to attempt to price this LTC equity release securitization. They encountered a number of practical problems, such as inconsistencies in the housing data, determination of suitable LTC incidence rates, how to apply the housing data to longer time periods, and they developed some practical solutions. This paper presents some of the problems encountered and the solutions developed.