Question
9. SA Logistix is a transport company that operates across South Africa. The company has a fleet of specialised vehicles to transport a wide range
9. 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. 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. The board of Logistix stated in the last annual report that the company adopted a conservative risk appetite. 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 INFLATION RATE | ZAR/USD | % OF CLAIMS COST IN FX | NUMBER OF VEHICLES | BUDGETED COST PER VEHICLE | NUMBER OF ACCIDENTS | AVERAGE DAMAGE PER ACCIDENT | CLAIMS ADMIN |
| 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 |
Question
Calculate the total cost per event for the year 2013 by incorporating the information provided in the table above.
a.
R60 000
b.
R40 000
c.
R109 000
d.
R100 000
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