B
Benjamin
Member
Hi,
CMP question 18.3 asks about the mortality risk faced on two books:
- RP NP WoL contracts taken out 30yrs ago by men aged 30
- RP NP WoL contracts taken out in the last year by men aged 60
The answer says that the impact is much greater in the second case as in the first case, reserves are large so impact of deaths on net assets is smaller.
I realised I'm not clear on the concept of raising reserves as I thought the reserves would be the same either way, due to the reserve having to reflect the ultimate liability (being that a man now aged 60 dies whenever). I get that relative to policy inception, the asset share will be positive in the first case and probably negative in the second case...
My understanding of what happens at policy inception is that the capital requirement is the difference between the expected liability and the asset share, which is fronted from surplus assets but not clear on how the amount of reserve released each year is determined and ultimately, in the year of death, the company still needs the value of the benefit on hand to pay out the policy so is this not the reserve, which must always be the full amount?
CMP question 18.3 asks about the mortality risk faced on two books:
- RP NP WoL contracts taken out 30yrs ago by men aged 30
- RP NP WoL contracts taken out in the last year by men aged 60
The answer says that the impact is much greater in the second case as in the first case, reserves are large so impact of deaths on net assets is smaller.
I realised I'm not clear on the concept of raising reserves as I thought the reserves would be the same either way, due to the reserve having to reflect the ultimate liability (being that a man now aged 60 dies whenever). I get that relative to policy inception, the asset share will be positive in the first case and probably negative in the second case...
My understanding of what happens at policy inception is that the capital requirement is the difference between the expected liability and the asset share, which is fronted from surplus assets but not clear on how the amount of reserve released each year is determined and ultimately, in the year of death, the company still needs the value of the benefit on hand to pay out the policy so is this not the reserve, which must always be the full amount?