Hi, I'm working on the Apr 2012 Q7, asking about the risks of writing a UL WOL where additional SA (on top of Unit Fund) is payable on death, and I'm a bit confused on the suggested solutions. Mortality risk "The company is exposed to the risk that deaths occur earlier than expected as accumulated value of charges will be lower than the sum assured".-From ASET. My first attempt would be that "Death on early years when AS is negative or AS is less than death benefit (in this case UF + additional SA) would lead to a loss." Would I score a mark by saying this? Then I found that it seems that the suggested solution goes to the direction without unit fund, I would re-phase my solution as "The company is exposed to the risk that deaths occur earlier than expected as accumulated value of charges net of outgo (covering expense, mortality costs etc.) will be lower than the sum assured". May I know why the outgo part is not considered in the suggested solution? Have I missed anything important knowledge here? Thanks for your help in advance!!
Hi I think this is a less than ideal way to express the point as it might suggest that you're not picking up on the fact that the death benefit has 'a deduction of any outstanding "initial charges" '? The main reason we often see AS < DB in the early years of UL policies is because of the impact of initial expenses, but the very unusual definition of the DB in this question removes this part of the risk. I don't think you've missed anything important here. The Examiners' Report writes this idea as : 'Because the additional sum assured is a fixed amount, there is a risk of earlier deaths than expected. The relative size of this risk depends on the level of additional fixed sum assured applied.' which suggests that more detail wasn't needed to score the available mark here. Thanks Lynn
