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Mortality Risk link to low interest rate environment

Discussion in 'SA2' started by Viki2010, Jul 28, 2017.

  1. Viki2010

    Viki2010 Member

    ASET September 2016 - Q1 ii - Product B solution on mortality risk on page 6 - last paragraph in ACTED notes states:

    "the mortality risk on early deaths is also reduced by the current low interest rate environment....." - can I please ask for an explanation of this point or some examples?
     
    Viki2010, Jul 28, 2017
    #1
  2. Lindsay Smitherman

    Lindsay Smitherman ActEd Tutor Staff Member

    The product is described as being a single premium endowment assurance where the amount payable on death equals the amount payable on maturity.

    If the amount payable on death was instead the discounted value of the maturity benefit (ie discounted back from the maturity date to the date of death) then there wouldn't be any material mortality risk. The risk arises because the benefit hasn't been discounted in this way.

    But in a low interest rate environment, there is less difference between a discounted value and an undiscounted value. Hence reduced mortality risk.
     
    Lindsay Smitherman, Jul 31, 2017
    #2

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