Part of Q&A Bank 3.3 (ii) solution: "Risk premium (RP) reinsurance is often based on the sum at risk and so would specifically target the mortality / morbidity risk. This would therefore usually be more suitable for protection products, unless reserves are small." I don't follow the "unless reserves are small" part? Aren't most low cost protection policies set up so that their reserves are small? Isn't that the point of using RP on these where we have higher amounts at risk? I know this is ST2 ground and if the exam was in 2 or 3 months time I'd go digging but unfortunately don't have the luxury... Any help would be much apreciated - thanks
Errrrmmmm, if reserves are small, then SUM AT RISK would remain relatively stable. Hence there would be no need to target the sum at risk, you could just target the sum assured. Hope it helps
