CP3 Sept 2017

[Helloall]

Hi,
I was just wondering why this made sense in the essay question -

"Average premiums much smaller for YOUTHSURE… [1]
• Therefore they require more sales… [1]
• To achieve meaningful absolute profits [1]
• Fortunately sales have been steadily increasing…
• … ten fold growth in 2 years"

Average premiums are much smaller for Youthsure (1/10 compared to Prestigelife) however it has an approximately 40 times greater profit margin.

Does this not mean that for every policy sold you still make 4 times the amount of profit for Youthsure compared to Prestigelife?

If so then why does the answer above make sense? For instance why does Youthsure need more sales to make more meaningful absolute profits, as on average for each policy sold Youthsure will earn more.

 

[Lindsay Smitherman]

Hi: yes, agree with your analysis here of the premium and profit relationships. The second and third points that you quote (from the Examiners' specimen solution) seem to have been shortened from the more illuminating: ‘Therefore, all else being equal, Youthsure would need to sell more in order to make more profit. However, this is more than offset by the higher profit margins on Youthsure’s product.’ And then could also note Youthsure’s significant increase in sales volumes.

If you look at ActEd’s version of Sept 2017 in ASET, we express this differently and have also broken the points in the marking schedule down in a different way, to better reflect these interacting impacts.