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April 2018 Q4

A

Actuary@2024

Made first post
In the examiner's report section, it is mentioned:

"Although, if the proportion is significantly higher, then the mortality of the option policy may tend to the ultimate mortality if there are not a lot of selective withdrawals in advance of the option date. Therefore, the additional mortality risk of the higher uptake is offset by a reduction in the additional mortality in the option policy."

can someone please explain the second statement?
 
Actuary@2024 said:
In the examiner's report section, it is mentioned:

"Although, if the proportion is significantly higher, then the mortality of the option policy may tend to the ultimate mortality if there are not a lot of selective withdrawals in advance of the option date. Therefore, the additional mortality risk of the higher uptake is offset by a reduction in the additional mortality in the option policy."

can someone please explain the second statement?
Click to expand...
Hi

The mortality risk is made up of two parts: the number of people that take up the option and the average mortality of the people that take up the option.

This point is saying that the risk of a large number of people taking up the option is offset to some extent by a fall in the average mortality of the people that take up the option.

For example, if only a few people exercised the option then their average mortality might be very bad, indicating a high level of anti-selection. However, if very large numbers of people exercised the option then their mortality might be reasonably close to the population average.

Best wishes

Mark
 
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