X2.3 (v)(b) The solution mentions that positive correlation (20%) between lapse and mortality is justified for UL business if there are guaranteed death benefits.
How are the two risks related for the above scenario? If there is guaranteed death benefit for UL contracts, why would it trigger selective withdrawal if mortality increases? Logically, if mortality increases then people will automatically get the GMDB. In the early years of the policy, this guarantee would bite for the company. Why would anyone selectively lapse their policy?
How are the two risks related for the above scenario? If there is guaranteed death benefit for UL contracts, why would it trigger selective withdrawal if mortality increases? Logically, if mortality increases then people will automatically get the GMDB. In the early years of the policy, this guarantee would bite for the company. Why would anyone selectively lapse their policy?