Pooling Mortality and (Long-Term) Care Risks: Life-Care Tontines

Pooling Mortality and (Long-Term) Care Risks: Life-Care Tontines


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According to figures by United Nations, the number of elderly people, i.e. older than 65, is projected to triple from 2020 to 2080 to reach 2.2 billion. The global share of the elderly population is expected to rise from 9.4% in 2020 to 20.6% in 2080.

This suggests an increased financing need both for private retirement income and long-term care expenses.

In this talk, first a mutual insurance scheme sharing mortality risks within a pool of policyholders is presented. Subscribers of the scheme receive – in addition to a predetermined fixed payoff – mortality credits that depend on age, amount invested and possibly other health-related risk factors. The scheme allows to pool different age-cohorts actuarially fair. In a second step, we aim for a scheme that additionally increases benefits in case of dependency („Life-Care Tontine“). Pooling mortality and long-term care (morbidity) risks is advangageous as these risks are competing: A person moving into dependency receives higher benefits but suffers fom a decrease in life expectancy. From a risk management perspective, a product that protects against both risks benefits from this inherent natural hedge.

In an example on French long-term care (LTC) data, the practical applicability of the mutual scheme is demonstrated.


Article: https://ssrn.com/abstract=3688386

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