Members will hopefully have listened to the BBC Radio 4 documentary ‘The Equity Release Trap’ which was broadcast on Tuesday 7th August. UKSA member Dr Dean Buckner was interviewed during the programme.
If anyone would like to study the interview with Dr Buckner in more detail the link here will take you to a transcript of the interview. The link is to the website of the Eumaeus Project which aims to keep a watchful eye on the goings-on in the corridors of power within the financial system.
Those who missed the programme can listen to it on the BBC iPlayer here.
The documentary investigated the claims of Professor Kevin Dowd, professor of Finance and Economics at the University of Durham, that the equity release sector has been seriously under-valuing embedded guarantees, and that the regulator, the Prudential Regulation Authority, has only made half-hearted attempts to address these under-valuations while permitting them anyway. The implications for some of the firms involved could be profound.
The BBC interviewer compares the insurance companies' practice of using the 'Matching Adjustment' to a punter asking a bookie to pay out the winnings on a horse before the race has taken place, on the basis that the form of the horse is so strong that it can't possibly fail to win. Likewise (although he doesn’t spell this out) insurance companies book profits on risky residential property positions before the property prices have actually gone up, on the assumption that they have always gone up in the past.
In the event, the horse which the BBC interviewer was backing at Leicester Racecourse, and on which he suggested the bookie should pay out his winnings in advance of the race, came in third!'