I
Ivanhoe
Member
Regarding the mortality risk of with profit endowment assurance policies policies..
The insurer will deduct mortality charges from the asset share of each policy
to pay for the mortality risk that the policy represents.
Apart from early deaths, the risks to the insurer are:
(a) at a portfolio level, that there are generally more deaths than expected
such that the mortality charges taken in aggregate are insufficient to
meet the death benefits paid out in excess of asset shares.
(b) that policyholders generally die earlier than expected, meaning that,
under the waiver of premium benefit, the premiums are paid by the
insurance company for a longer period than expected i.e. the company
has underestimated the cost of providing the waiver of premium
benefit.
The mortality charge is deducted from the asset share of a with profits policy based on the number of actual deaths (probably,smoothed). How can it be insufficient? In Unit Linked, the charges are prefixed and hence I understand could be insufficient
Also, I came across this bifurcation of "generally more deaths " and "earlier than expected deaths". How are they different from each other? If 12 policyholders die and 10 were expected to die, I can state it either ways, because 2 people died earlier than expected. Could you please explain?
The insurer will deduct mortality charges from the asset share of each policy
to pay for the mortality risk that the policy represents.
Apart from early deaths, the risks to the insurer are:
(a) at a portfolio level, that there are generally more deaths than expected
such that the mortality charges taken in aggregate are insufficient to
meet the death benefits paid out in excess of asset shares.
(b) that policyholders generally die earlier than expected, meaning that,
under the waiver of premium benefit, the premiums are paid by the
insurance company for a longer period than expected i.e. the company
has underestimated the cost of providing the waiver of premium
benefit.
The mortality charge is deducted from the asset share of a with profits policy based on the number of actual deaths (probably,smoothed). How can it be insufficient? In Unit Linked, the charges are prefixed and hence I understand could be insufficient
Also, I came across this bifurcation of "generally more deaths " and "earlier than expected deaths". How are they different from each other? If 12 policyholders die and 10 were expected to die, I can state it either ways, because 2 people died earlier than expected. Could you please explain?