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IAI Actuarial Core Principles · Risk Modelling and Survival Analysis · Concepts of survival models

An aggregate mortality table is constructed from a population containing newly selected lives and long-standing policyholders. Which is the main limitation when it is used to price a newly underwritten policy for a person aged 45?

An aggregate table blends lives at all durations since selection, so it can overstate mortality for newly underwritten lives, whose initial selection effect makes them lighter risks than the average. It still depends on age and can give survival probabilities.

  1. AIt ignores age entirely
  2. BIt cannot be used to compute survival probabilities
  3. CIt may overstate mortality for newly selected lives because it blends in the experience of lives with longer durations since selectionCorrect
  4. DIt always understates mortality at all ages
  5. It requires the select period to be exactly one year

Explanation

An aggregate table averages over all durations since selection, so for lives just underwritten it generally gives heavier mortality than a select table, because select lives are lighter initially. The other options misstate what aggregate tables do.

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