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Other Life Insurance Risks

The most significant other insurance risks arise from the uncertainty related to the behaviour of the policyholders.

The policyholders have the right to cease paying premiums (lapse risk) and the possibility to interrupt their policies (surrender risk). Being able to keep lapse and surrender rates in a low level are crucial success factors especially for the expense result of unit-linked business. From ALM point of view surrender and lapse risks are immaterial because in Mandatum Life, approximately 90 per cent of with-profit policies are pension policies in which surrender is possible only in exceptional cases. For ALM risk, surrender risk is therefore only relevant in individual life and capital redemption policies. In these policies, the risk is reduced by the relatively short maturity of the contracts. Furthermore, the supplements to liabilities are not paid out at surrender which also reduces the surrender risk related to the with-profit policies.

Surrender and lapse risks are taken into account when the company is analysing its ALM risk. This is described in more detail in the Market risks section.

The company is also exposed to expense risk because expense charges may not be enough to cover the realised expenses.

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