ActuarialKropotkin
Member
A question in the chapter on Surrender Values asks, "The Core Reading suggests that smoothing investment earnings is more likely for regular premium contracts than single premium contracts. Why?"
The solution given states, "Policyholders are more likely to be exercising financial selection against the company when purchasing a single premium contract. It should therefore be longer before a company considers letting them benefit from investment smoothing."
I don't know what financial selection is and a 'Ctrl + F' search finds no other mention of the term 'financial selection' in the notes. Is this related to the risks that we try to mitigate with financial underwriting? If so, how is a single premium policyholder more likely to exercise financial selection?
Thanks.
The solution given states, "Policyholders are more likely to be exercising financial selection against the company when purchasing a single premium contract. It should therefore be longer before a company considers letting them benefit from investment smoothing."
I don't know what financial selection is and a 'Ctrl + F' search finds no other mention of the term 'financial selection' in the notes. Is this related to the risks that we try to mitigate with financial underwriting? If so, how is a single premium policyholder more likely to exercise financial selection?
Thanks.