,JAN/FEB 2025
1 QUESTIONS
Question 1 [40 Marks]
SA Logistix is a transport company that operates across South Africa. The company has a
fleet of specialised vehicles to transport a wide range of products such as fresh foodstuffs,
chemicals, and hazardous products.
The company is preparing for the annual insurance review. The Board of SA Logistix has
instructed the Chief Financial Officer (CFO) and the Chief Risk Officer (CRO) to determine the
appropriate risk financing strategies for the fleet. To determine the risk financing alternatives,
the CRO recommended that the maximum probable yearly aggregate loss (MPY) must be
calculated for the fleet. The historical financial data of the fleet is incomplete and certain critical
components need to be calculated.
Exchange rates have a significant effect on claims inflation as 40% of claims cost is in foreign
currency. Refer to the table for the annual inflation rate and appropriate exchange rate. The
historical information available for the fleet is as follows:
YEAR ANNUAL ZAR/USD % OF NUMBER BUDGETED NUMBER AVERAGE CLAIMS
INFLATION CLAIMS OF COST PER OF DAMAGE PER ADMIN
RATE COST IN VEHICLES VEHICLE ACCIDENTS ACCIDENT
FX
2013 4,56% 11,2 40% 120 R 1 800 000 50 R 100 000 R 9 000
2014 4,89% 12,5 40% 120 R 1 900 000 60 R120 000
2015 5% 13,2 40% 120 R 2 000 000 60 R135 000
2016 5,32% 15,9 40% 150 R 2 100 000 70 R150 000
2017 5,42% 15,8 40% 150 R 2 200 000 70 R170 000
2018 5,75% 16,7 40% 150 R 2 300 000 90 R200 000
2019 5,83% 17,5 40% 150 R 2 700 000 90 R230 000
2020 7,13% 19,8 40% 150 R 2 750 000 80 R255 000
2021 7,43% 20,6 40% 150 R 2 800 000 100 R270 000
2022 7,80% 22,5 40% 150 R 2 850 000 90 R300 000
,1.a. The administration cost per claim was R9 000 in 2013. Calculate the claims administration
cost per claim for the period by incorporating the information provided in the table
above. (Show all calculations). (5)
, 1.b. The average damage per accident in 2013 was R100 000 and the administration cost R9
000 per claim, which gives an average of R109 000 for 2013, and total claims cost of R5
450 000 for the year. Claims inflation forms a significant component of the total claims
cost per accident and for that reason it is important to include claims inflation in the data.
For the purpose of this exercise, the CRO defined claims inflation as the administration
cost and effect of exchange rate fluctuation. Calculate the expected total claims cost per
annum for the projected period by incorporating the information provided in the table
above. (Show all calculations). (15)
1.c. The board of Logistix stated in the last annual report that the company adopted a
conservative risk appetite. Advise the board on the three methods to calculate the MPY.
Which method will you recommend given the risk appetite of the company? (15)
1.d. Calculate the MPY according to the Chebyshev method. The k-value as determined by
the Risk Department is 1.05. (Show all calculations) (5)
Question 2 [10 Marks]
ABC (Pty)Ltd is an SME furniture retailing business. On the 1st of January 2024, the premises
were subject to a serious fire which destroyed the building, all contents and stock. Despite an
effort to find alternative temporary premises, nothing suitable could be located before expiry
of the maximum indemnity period (MIP). The insured are tenants in the building and only insure
Contents, Stock and BI under their policy. There is a cessation of rent clause within the lease
with the landlord. The policy is subject to average. BI insurance is provided as follows:
• Gross Profit sum insured R200,000
• Maximum Indemnity Period 12 months
• Uninsured Working Expenses as stated in the policy are:
• Purchases, net of stock movement
• Delivery charges
• Bad debts
The company continued to pay staff during the interruption period and all other costs remained
the same.
Turnover for the years before the fire was as follows:
• 2021 R959,591
• 2022 R1,165,775
• 2023 R1,088,819
Financial details for the year ending 31 December 2023:
Sales R1,088,819
Finance commission
Income from concession
Turnover R1,088,819
Opening stock R21,367
1 QUESTIONS
Question 1 [40 Marks]
SA Logistix is a transport company that operates across South Africa. The company has a
fleet of specialised vehicles to transport a wide range of products such as fresh foodstuffs,
chemicals, and hazardous products.
The company is preparing for the annual insurance review. The Board of SA Logistix has
instructed the Chief Financial Officer (CFO) and the Chief Risk Officer (CRO) to determine the
appropriate risk financing strategies for the fleet. To determine the risk financing alternatives,
the CRO recommended that the maximum probable yearly aggregate loss (MPY) must be
calculated for the fleet. The historical financial data of the fleet is incomplete and certain critical
components need to be calculated.
Exchange rates have a significant effect on claims inflation as 40% of claims cost is in foreign
currency. Refer to the table for the annual inflation rate and appropriate exchange rate. The
historical information available for the fleet is as follows:
YEAR ANNUAL ZAR/USD % OF NUMBER BUDGETED NUMBER AVERAGE CLAIMS
INFLATION CLAIMS OF COST PER OF DAMAGE PER ADMIN
RATE COST IN VEHICLES VEHICLE ACCIDENTS ACCIDENT
FX
2013 4,56% 11,2 40% 120 R 1 800 000 50 R 100 000 R 9 000
2014 4,89% 12,5 40% 120 R 1 900 000 60 R120 000
2015 5% 13,2 40% 120 R 2 000 000 60 R135 000
2016 5,32% 15,9 40% 150 R 2 100 000 70 R150 000
2017 5,42% 15,8 40% 150 R 2 200 000 70 R170 000
2018 5,75% 16,7 40% 150 R 2 300 000 90 R200 000
2019 5,83% 17,5 40% 150 R 2 700 000 90 R230 000
2020 7,13% 19,8 40% 150 R 2 750 000 80 R255 000
2021 7,43% 20,6 40% 150 R 2 800 000 100 R270 000
2022 7,80% 22,5 40% 150 R 2 850 000 90 R300 000
,1.a. The administration cost per claim was R9 000 in 2013. Calculate the claims administration
cost per claim for the period by incorporating the information provided in the table
above. (Show all calculations). (5)
, 1.b. The average damage per accident in 2013 was R100 000 and the administration cost R9
000 per claim, which gives an average of R109 000 for 2013, and total claims cost of R5
450 000 for the year. Claims inflation forms a significant component of the total claims
cost per accident and for that reason it is important to include claims inflation in the data.
For the purpose of this exercise, the CRO defined claims inflation as the administration
cost and effect of exchange rate fluctuation. Calculate the expected total claims cost per
annum for the projected period by incorporating the information provided in the table
above. (Show all calculations). (15)
1.c. The board of Logistix stated in the last annual report that the company adopted a
conservative risk appetite. Advise the board on the three methods to calculate the MPY.
Which method will you recommend given the risk appetite of the company? (15)
1.d. Calculate the MPY according to the Chebyshev method. The k-value as determined by
the Risk Department is 1.05. (Show all calculations) (5)
Question 2 [10 Marks]
ABC (Pty)Ltd is an SME furniture retailing business. On the 1st of January 2024, the premises
were subject to a serious fire which destroyed the building, all contents and stock. Despite an
effort to find alternative temporary premises, nothing suitable could be located before expiry
of the maximum indemnity period (MIP). The insured are tenants in the building and only insure
Contents, Stock and BI under their policy. There is a cessation of rent clause within the lease
with the landlord. The policy is subject to average. BI insurance is provided as follows:
• Gross Profit sum insured R200,000
• Maximum Indemnity Period 12 months
• Uninsured Working Expenses as stated in the policy are:
• Purchases, net of stock movement
• Delivery charges
• Bad debts
The company continued to pay staff during the interruption period and all other costs remained
the same.
Turnover for the years before the fire was as follows:
• 2021 R959,591
• 2022 R1,165,775
• 2023 R1,088,819
Financial details for the year ending 31 December 2023:
Sales R1,088,819
Finance commission
Income from concession
Turnover R1,088,819
Opening stock R21,367
