| Summary: | 碩士 === 東吳大學 === 商用數學系 === 96 === As longevity risk is a major concern for any annuity provider, ESRD annuity should also be a concern. We propose a mortality bond featuring bond coupon payments to address the ESRD mortality rate, as purposed by Lin and Cox (2005). This paper will demonstrate how insurance providers can reduce financial risk by securitizing insurance products.
According to the 2007 United States Renal Data System, Taiwan had the highest incidence and prevalence rate for end stage renal disease (ESRD) among countries surveyed in 2005. The increase of incidence and prevalence of ESRD in Taiwan may be attributed to the increase of the elderly population and the high incidence of chronic disease diagnosis. Currently, there are several treatments for ESRD, including hemodialysis, peritoneal dialysis, and renal transplantation. These treatments are both complex and expensive, but the survival rate for ESRD is high. However, the high survival rates mean that prolonged and regular medical treatment is required for ERSD patients, resulting in high costs for treatment.
Statistics collected from Taiwan’s National Health Insurance Program (NHIP) indicate that the total amount in benefits claimed by ESRD patients is the greatest among all major illnesses. Even though the ratio of ESRD patients to cancer patients is less than one to five, the total monetary amount claimed in benefits by ESRD patients is greater than the monetary amount claimed in benefits by cancer patients.
Insurance providers offer critical illness coverage, which includes coverage for ESRD treatment. To further supplement health insurance coverage for ESRD, we suggest the securitization of insurance products to reduce the financial risk of ERSD coverage to the insurance provider. The results from our study may be used to analyze similar measures for coverage for other critical illness.
The data for this study was taken from Taiwan's National Health Insurance Research Database (NHIRD). Ten-year longitudinal data (from 1996 to 2005) was extracted from the NHIRD. In this study, we assumed that the age-at-onset to be between 35 to 85 years old. We used a two-factor stochastic mortality mode – originally purposed by Cairns, Blake, and Dowd (2006) – to fit the ESRD mortality data. One of the two factors in the model characterizes the influence on mortality-rate dynamics each year for patients diagnosed with ESRD; the other factor affects mortality-rate more at old age levels. We priced health insurance products with ESRD annuities with data from the two-factor model. The price of the mortality-linked security is based on the birth cohort effect of ESRD patients (Lin, 2007).
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