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Home Equity Release

Home Equity Release. Demystifying and re-igniting the category. HER – A complex Product. Attitudes to HER have changed over time Family home hard to plan as inheritance NNEG critical element of HER loan HER annuities an attractive product

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Home Equity Release

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  1. Home Equity Release Demystifying and re-igniting the category

  2. HER – A complex Product Attitudes to HER have changed over time Family home hard to plan as inheritance NNEG critical element of HER loan HER annuities an attractive product Reversions provide maximum cash but create winners and losers – higher LVR alternative?

  3. HER Interest Bases – a range of alternatives Fixed for term or life – penalties on VMO an issue Interest linked to CPI Variable interest best – perhaps with CAP

  4. New Zealand Age Profile An aging population requires a radical shift in thinking Source: NZ Dept of Statistics Projections

  5. HER model operates under a range of assumptions Adjusted Population Mortality Move-to-Care developed from AIHW statistics Voluntary-Move-Out often health related Joint lives – adjusted single life Interest differential over HPI – about 4.5% a year Issue expenses relatively high

  6. Solvency Reserving for HER

  7. Simulation – modelled to reflect market reality Base pattern of cyclical rates of interest and HPI • Adjust each run for Normal stdev of 5% each year Regional and individual variations on each loan of Normal stdev 7.5% each year Random by probability rate for exits, top-ups Discounted profit-flows sorted in ascending order to assess VaR and tVaR at various %

  8. Funding has always been the main consideration HER a strong match with Annuities – achieved by Pension Fund investing in HER - or HER investing in annuities Securitization another long term funding mechanism Rating agencies extended RMBS thinking to HER without re-assessing long term interest HPI assumptions – ultra conservative assumptions will hinder HER product development

  9. Cash-Flow Example

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