Specimen exam question under chapter 11, For mortality risk, I came out a point with "if more deaths than expected, future charges will be lower, and hence the profitability reduces". This kind of point is not in the solution, am I right by saying that?
Chapter 11 already! well done. Yep you make a fair point. It overlaps a little with the first point made in the mortality section about asset shares being less than the death benefit early on. We need the later charges from survivors to recoup those early losses. If we have more early deaths, and hence less later charges, then we'll make less profits. We tend to see your point made more frquently in relation to surrenders than deaths; perhaps because there's often a higher sum assured on death and so we're more worried about paying a big sum assured than losing a few charges. It's equally as valid here, although hopefully the mortaliy experience is better and less uncertain than the withdrawal experience.
