The reverse mortgage market has been expanding rapidly in developed
economies in recent years. Reverse mortgages provide an alternative source of
funding for retirement income and health care costs. We often hear the phrase
“house rich and cash poor” to refer the increasing number of elderly persons
who hold a substantial proportion of their assets in home equity. Reverse
mortgage contracts involve a range of risks from the insurer’s perspective.
When the outstanding balance exceeds the housing value before the loan is
settled, the insurer suffers an exposure to crossover risk induced by three risk
factors: interest rates, house prices, and mortality rates. In this context,
Covid-19 has occurred and the insurer is faced with this additional source of
risk. We analyse the combined impact of these risks on the pricing and the risk
profile of reverse mortgage loans. We consider a CIR process for the evolution
of the interest rate, a Black & Scholes model for the dynamics of house prices
and the Gompertz model for the trend in mortality Our results show that the
decrease in the mortality curve due to Covid exposes the insurer to higher risks
once the shock is reabsorbed. The risk is higher the higher the age of entry.
Only a significant reduction of the shock adjustment coefficient will return the
situation to normalit