Quantification of the natural hedge characteristics of combination life or annuity products linked to long-term care insurance

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By Linda Chow, Carl A. Friedrich, Dawn E. Helwig | 19 March 2012

This research report highlights the natural hedge characteristics of combination products that link life insurance or annuities with long-term care insurance (LTCI).

The study includes an overview of the market for stand-alone long-term care insurance and both life and annuity combination products, including a summary of key design considerations and a market outlook for these plans. It also includes a review of key pricing considerations for these products.

The report culminates with quantification of profitability for each product, and summarizes the changes to profit results under a range of sensitivity tests conducted on key pricing parameters. Observations are provided to assist in the understanding of the factors that explain the sensitivity results and the natural hedging against major risks that inherently is present within the linked products.

This report was prepared for the Society of Actuaries and the ILTCI Conference Association and was first published at soa.org.