Company rejects the 'longevity risk'

Happy Life Insurance Co is the only Chinese insurance provider that has proposed a tangible reverse mortgage product.

However, six other companies the government invited to submit products have failed to do so, according to public records.

Meng Xiaosu, former chairman of the board at Happy Life Insurance, said many heads of insurance companies are concerned about the possible collapse of China's real estate market, something which Meng - who has an unshakable faith in the long-lasting property bull market - firmly dismisses.

"Ten years ago, I said to them, 'Let's do it.' They said no. Now houses prices have risen tenfold, so I ask them 'Do you have regrets'? They say yes. So I propose again, 'Let's do it.' And guess what? They still say no," he said.

Looking at the design of reverse mortgage products, it's easy to see that the value of the property is the major risk. As long as it keeps rising or remains stable, the company will almost certainly recoup its investment, but in the event of the housing bubble deflating, selling a severely depreciated property will not guarantee a basic return, and that's providing there is a buyer in the first place.

The other scenario in which insurance companies stand to lose money is more theoretical and less threatening - systemic longevity. Life expectancy in China has reached 76.1 years for both sexes, according to the World Health Organization's 2016 Global Health Observatory.

Insurance companies such as Happy Life design their products based on certain expectations, which in the case of a reverse mortgage means the older the policyholder is, the lower the risk for the company. However, if the policyholder exceeds national life expectancy by a large margin, they may end up getting more money than the mortgage is worth. In the jargon of the Chinese insurance business, it's the "longevity risk".

"What's wrong with people's ethics? Are they afraid the elderly won't die on time?" asked Meng, who was born in 1949, as he analyzed the risks of a reverse mortgage. "The so-called longevity risk is the most unethical term in the insurance business. It's shameless."

He cited a study that claims people tend to live longer, sometimes two years longer, when they live in their own home. "Happy Life Insurance should aim to help the elderly to live longer," he said.