HEALTHY FISH LTD

Healthy Fish Ltd. insures against accidents of its motor fleet. The fleet consists of highly specialised, imported refrigerator trucks. Contributing factors to the high number of incidents are the poor conditions of the municipal and provincial roads.

Table 1: Loss experience of the motor fleet over the last five years

Year

No. of vehicles

Average event

lossper

No of accidents

Total cost for the year

1

20

R1,500,000

10

R15,000,000

2

20

R2,200,000

12

R26,400,000

3

25

R1,750,000

15

R26,250,000

4

30

R2,000,000

20

R40,000,000

5

50

R3,500,000

25

R87,500,000

Table 2: Quotations under consideration for the insurance of the motor fleet

Quote number

Quoted annual premium

Annual limit for damage to motor fleet

Deductible

1

R15,000,000.00

R60,000,000

R0

2

R10,000,000.00

R30,000,000

R25,000

3

R8,500,000.00

R25,000,000

R50,000

4

R6,000,000.00

R20,000,000

R70,000

5

R5,000,000.00

R10,000,000

R100,000

Question 1

a. Calculate the optimum deductible according to the total expected cost (TEC) rule Show all calculations.(8 marks)