we know that if mortality is worse then SV will increase (prospectively) as Ax will increase and ax will decrease. it says that if we understate longevity (so basically lighter mort) we will assume better mortality (ok so far) and will lead to higher SV being paid . why is that? thanks
because the Q you reference is about surrendering an immediate annuity? prospective SV for annuity = annuity benefit multiplied by ax + expenses multiplied by ax (with inflation) [and no deduction for premiums as is single premium] lower mortality -> higher ax -> higher SV BTW I think you mean overstate longevity (= lighter mortality)?
