A Risk‐Adjusted Analysis of LTC Insurance

In this article, we analyze the cash flows associated with a homogeneous portfolio of Long-Term Care (LTC) insurance contracts, taking into account key sources of risk that may affect the profitability of such products. LTC policies generate long-term positive impacts, both socially and economically, and insurers may actively support the establishment of a fair and sustainable care system. To this aim, managing the impact of the possible risks on the profit flows plays a central role, from the insurer’s point of view. We present a forward-looking actuarial analysis of the time-evolving profitability of the portfolio and analyze the impact of system- atic risk resulting from inaccuracies in the estimation of claim frequencies, and explore the sensitivity of financial outcomes to different technical assumptions. To broaden our investigation, we construct a risk-adjusted constant relative risk aversion (CRRA) utility function that enables integrating stochastic variability in claim events hypothesis with the insurer’s personal risk tolerance. We introduce a dynamic risk score that may reflect both contract-specific risk factors as well as wider strategic considerations, proposing some numerical evidence.