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302 September 2003 Qn 4 (iii)

G

Genesiss

Member
Am wondering how the Examiners calculated the 57% expected increase in new business volumes and the 36% values
 
Hello

Assume that the insurer sold 100 policies. Sales then dropped 30% to 70. But the insurer wanted to target sales to rise 10% to 110. So sales must rise by 40 to achieve the target ie 40/70 or 57%.

Overall profitability is the number of policies sold multiplied by the profit per policy. If sales rise by 57%, but profit per policy falls by 36% then overall profit is unchanged ie 1.57 x (1 - 0.36) = 1.

Best wishes

Mark
 
thanks a lot Mark
my problem was that I was assuming the company was targeting the 10% increase from the 70 policies it was selling after the 30% drop.
I guess the question was a bit grey on this one coz one could argue either way?
If I calculate the 10% increase from the 70 and state that assumption in my calculations, will I be penalised?
 
Yes, I think the question was a bit vague. Its always worth stating any assumptions you need to make whenever there's anything numerical - often there are marks available for this. If you state what you have done then you should pick up most of the marks.

Best wishes

Mark
 
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