1. a. Inland Transport Limited ("Inland Transport") has a fleet of 800 trucks, vans and private cars. To restrain the soaring costs of insurance premium, Inland Transport has retained all the property damage losses of its fleet under the company's retention programme. Distinguish active retention from passive retention' and cite an example of each in the context of Inland Transport. 4 Marks b. Assume that the number of property damage losses for Inland Transports fleet is normally distributed with a mean (m) of 300 and a standard deviation (s) of 60. i. What is the probability that between 240 and 360 property damage losses will occur? ii. What number of property damage claims does the highest 15 percent of x values fall? 6 Marks c. Inland Transport is considering a project involving replacing the old trucks, which will cost about $5,000,000 and generate the following cash flows: Year Cash Flow 0 -$5,000,000 $1,500,000 $1,500,000 $1,600,000 $1,800,000 2 3 4 Applying the NPV rule, determine if Inland Transport will implement the project if the corporation requires an 8% return on its investment. Explain your answer and show all your calculations. 4 Marks d. Louisa wants to start her own business and sell homemade food online. The food are sold directly to limited customers who live near Louisa. She has considered to buy product liability insurance but the cost of insurance is high for her. She is now considering to use other techniques to treat the loss exposure. Explain the following risk management techniques and advise the specific action Louisa would take in dealing her business' liability exposure: i. Avoidance ii. Loss prevention iii. Noninsurance transfers 7 Marks 1. a. Inland Transport Limited ("Inland Transport") has a fleet of 800 trucks, vans and private cars. To restrain the soaring costs of insurance premium, Inland Transport has retained all the property damage losses of its fleet under the company's retention programme. Distinguish active retention from passive retention' and cite an example of each in the context of Inland Transport. 4 Marks b. Assume that the number of property damage losses for Inland Transports fleet is normally distributed with a mean (m) of 300 and a standard deviation (s) of 60. i. What is the probability that between 240 and 360 property damage losses will occur? ii. What number of property damage claims does the highest 15 percent of x values fall? 6 Marks c. Inland Transport is considering a project involving replacing the old trucks, which will cost about $5,000,000 and generate the following cash flows: Year Cash Flow 0 -$5,000,000 $1,500,000 $1,500,000 $1,600,000 $1,800,000 2 3 4 Applying the NPV rule, determine if Inland Transport will implement the project if the corporation requires an 8% return on its investment. Explain your answer and show all your calculations. 4 Marks d. Louisa wants to start her own business and sell homemade food online. The food are sold directly to limited customers who live near Louisa. She has considered to buy product liability insurance but the cost of insurance is high for her. She is now considering to use other techniques to treat the loss exposure. Explain the following risk management techniques and advise the specific action Louisa would take in dealing her business' liability exposure: i. Avoidance ii. Loss prevention iii. Noninsurance transfers 7 Marks
