When setting assumptions on a best estimate basis (i.e. for internal accounts) that we would remove the underwriting adjustment to the mortality assumption. Why is this? I can understand that well into the contract the select effect will have worn off and no longer be relevant, so do we do this just to add an element of prudence?? On a realistic basis, I'd have thought that there would be some underwriting effect on the mortality so long as we're still open for new business. Thanks for any help in advance.
The policies we are considering here will already have been sold. So the majority of policies will be old enough for the selection effect to have disappeared. You are correct that some of the recently written policies will still be within the select period. However, these will not be a very large proportion of the overall business so its unlikely that using ultimate mortality will change the answer very much. So, for simplicity its best to use ultimate mortality for all lives (unless the company is new or has expanded substantially recently). Question 19.1 in the notes also looks at this point. Best wishes Mark
