Hi Tutors This question was really difficult for me and I failed to understand the solution. Initially, I had thought that the A to C will be in decreasing order of severity of diseases with C having the least severe diseases. Considering multiple mortality rates e.g. 2 times can be severe. I think I may be missing something. Can someone please explain?
Hi nyaman, I think it's a bit more complicated than saying A-C goes in decreasing severity. Option A means that mortality for impaired lives is in proportion to that of standard lives, ie their level of impairment speeds up their death at the same rate at all ages. It therefore has a bigger absolute effect when mortality is higher, ie at older ages. This would be the case for medical conditions that become more severe with age, ie progressive diseases such as degenerative brain disorders, where the impairment will continue throughout life. Option B means that mortality for impaired lives is a fixed amount higher than that of standard lives, ie the level of impairment increases mortality by the same amount at all ages. However, since mortality is lower for younger people, it will have a relatively bigger effect for younger ages. This might mean that it is more suitable for fairly severe medical conditions, such as moderately aggressive types of cancer, or conditions that might be detected at an early stage. Option C means that mortality for the impaired lives is higher than that of standard lives, but the rates of mortality of the two groups of lives get closer as age increases, ie their level of impairment is higher at younger ages, but this diminishes with age. This would be the case for medical conditions that are more likely to increase mortality considerably more for younger people, ie conditions that are likely to lead to death relatively soon following diagnosis (very severe medical conditions). However, since the loading decreases with age, the medical condition is likely to either “kill or cure”. I hope this helps! Anna
Hi Anna Can you please explain what does option C mean? Does it means mortality rates are lowerd for standard lives and kept at the original level for impaired lives? And why did you mention that the rates for normal and impaired lives will become closer with age?
Hi Komal No that's not what it means. The question says "the marketing manager has suggested the following approaches to allow for the higher mortality rates for impaired life immediate annuitants", so it is talking about impaired lives here. So as Anna says, the mortality for the impaired lives is higher than that of standard lives, but the rates of mortality of the two groups of lives get closer as age increases. For example the impaired lives might have 100% higher mortality at younger ages and 40% higher mortality at older ages. Best wishes Mark
