2005 8G #7c

[Fotheringay-Phipps]

I believe the answer - and apparently the question as well - is internally inconsistent. Because if you trend the manual rates back to the relevant time period, as per instructions and the sample answer, the amount of premium that should have been charged to that group is not the amount that is given in the case study. The sample solution uses the actual premium charged as the basis for the expense and investment figures (including the 6% profit margin), but does not use the differential in premium versus claims and expenses as the basis for the profit.

If you actually add up the expected profit from the various sources listed in the answer it is not the same as that produced by the actual premium minus various claims and expenses. I have not spent a whole lot of time trying to reconcile it, but it would appear that the basis for the discrepancy is the fact that projected premiums versus actual premiums are unreconciled.

In sum, you couldn't have used all the assumptions given and expected to make the amount of profit given if you charged the actual premiums - you would have to have expected to make a different amount of profit or expected to charge a different amount of premium. Either way, the difference between actual and expected would be another source of profit.