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RSK4803
April 2024
RSK4803
RISK FINANCING
FI Assessment
Total: 100 marks
Duration: 3,5 hours
SPECIFIC INSTRUCTIONS FOR THE EXAMINATION
1. State your name, student number and the module code on the first page of you answer
script.
2. Include your student number in the heading on each page.
Structure of answers
3. Answer ALL the questions.
4. Do NOT rewrite the questions.
5. Start each question on a new page.
6. Use the exact number sequence for your answers as is used for the questions.
7. Show ALL calculations.
8. Round calculations to two decimal places.
Preparing for upload
9. Use the following naming convention for your answer file:
Student number_RSK4803_Exam
10. Ensure that the pages in the answer file are in the correct sequence.
11. You may only upload one document – combine all the pages into one PDF document.
Declaration of own work
By submitting my answers to the examination paper, I hereby declare that I was admitted to
the examination, downloaded the examination myself, that the answer file is my own work and
that I have not received assistance from other students or people in completing this
assessment.
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Open Rubric
Page 2 of 9
RSK4803
April 2024
Question 1
35 marks
The Chief Risk Officer of Fast-Learning Academy Ltd wants to include the total cost of risk
for the institution in the presentation at the next Board meeting. The information obtained
from the risk managers include the following:
The total annual insurance premium for the policy covering property, business interruption,
liability, and information and communication technology (ICT) is R800 900. The premium for
the statutory Unemployment Insurance (UIF) is R80 000 per month. The contributions to the
statutory Compensation for Injuries and Diseases (COID) fund are R120 000 per month. Last
year, one of the lecturers of the academy fell on the stairs while attending a lecture and was
severely injured.
The academy submitted the claim on behalf of the lecturer and was
compensated R70 000 by the fund.
The academy has submitted several claims throughout the past year. A total of 31 laptops
were stolen with an average cost of R32 500 per laptop. An excess payment of R3 500 per
claim is applicable for laptops. The academy has a fleet of 50 cars including 10 cars which are
not yet insured as they were recently delivered. Currently, an excess of R5 000 per claim is
payable and the average damage per accident is R45 000. The academy submitted 13 motor
claims, including 3 claims of uninsured cars. The fleet is also equipped with tracking devices
with a total cost of R100 000 per annum.
The academy has cyber risk cover for R5 000 000, with an excess payment of R15 000. The
insurance policy states that the insurer must approve all payments for claims to be entertained.
Last year, the academy paid a ransom of R7 000 000 for ransomware attack before notifying
the insurer. The insurer only paid R1 000 000 for this claim as an ex-gratia payment due to
long standing relationship with the Fast-Learning Academy Ltd.
The finance department indicated that R4 000 000 of outstanding student fees had to be
written off as the debtor’s department did not follow up on outstanding debt. The Executive
Committee (EXCO) approved a contract for a debt collector to collect outstanding fees. A
payment of R150 000 was made in favour of the debt collector. So far 10% of the outstanding
fees has been recovered following the appointment of the debt collector.
The budget for the risk management department is R7 300 000. Only 85% of the budget was
used during the year. Risk management staff attended courses and seminars to the value of
R80 000 and subscriptions of R30 000 were paid to professional bodies.
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Page 3 of 9
RSK4803
April 2024
The fire suppression systems in the main building were upgraded with a total cost of
R6 400 000. The total depreciation that can be related to risk management systems is
R600 000 for the year.
1.1 Direct insurance cost (ignore tax and opportunity cost) is…
(5)
a. R673 400
b. R1 673 500
c. R2 527 500
d. R3 200 900
1.2 Unreimbursed losses element is…
(5)
a. R173 500
b. R10 335 000
c. R10 735 000
d. R10 508 500
1.3 Risk control and loss prevention expense is …
(3)
a. R220 000
b. R6 400 000
c. R6 620 000
d. R6 730 000
1.4 Administration expense is …
(3)
a. R6 205 000
b. R7 300 000
c. R7 380 000
d. R7 410 000
1.5 Funded retained risk cost is …
(3)
a. R108 500
b. R158 500
c. R173 500
d. R188 500
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Page 4 of 9
RSK4803
April 2024
1.6 Which of the following options is not part of the three complementary strategies for
mitigating risks of complex systems?
(2)
a. Assess the risks to make better informed decisions.
b. Spot vulnerabilities and fix them before catastrophic events occur.
c. Design out weaknesses through resilience.
d. Identify threats and measure their impact.
1.7 Which of the following options is correct about managing complexity risk?
(2)
a. Isolated risk factors and cascading failures may result in catastrophic events.
b. Interconnected risk factors and cascading failures may result in catastrophic events.
c. Single risks occurring in a changing environment could cause a disaster.
d. The impact of single risks could be the same as that of intercommoned risk factors.
1.8 Beyond risk mitigation approach emphasizes the use of scenario planning in complex
business environment. Scenario planning is preferred because it…
(2)
a. put an organisation in a better position to formulate entrepreneurial response to external
shocks.
b. enables an organisation to respond successfully to external shocks which may have an
impact to its objectives.
c. considers possible events that could, albeit remotely, occur within the internal
environment.
d. enables organisations to be free from the threat and impact of external shocks in
achieving their objectives.
1.9 The use of scenario planning as a tool to respond to external shocks requires an
organisation to…
(2)
a. move from risk mitigation to opportunity recognition.
b. recognise that uncertainty in the organisation’s environment is an indicator of potential
threats.
c. use scenario planning resulting from internal shocks to identify unique opportunities.
d. undertake avoidance strategies so that internal shocks do not materialise.
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RSK4803
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April 2024
1.10 Which of the following statements is correct when integrating enterprise risk
management and governance?
(2)
a. Enterprise risk management establishes the strategy and policies for conducting
business while governance provides a framework for evaluating and monitoring risks.
b. Governance establishes the strategy and policies for conducting business while
enterprise risk management provides a framework for evaluating and monitoring risks.
c. Failure to identify significant potential risks results from an integrated approach between
governance and enterprise risk management.
d. Governance and enterprise risk management should not be integrated so as to
maximise from the strength of each when managing risks.
1.11 The Minister of State-Owned Enterprises is reported to have said that the board of
directors has sufficient knowledge, experience, and independence to understand and
oversee the key strategic risks. In terms of integrating risk management and
governance this statement means public enterprises…
(2)
a. integrated enterprise risk management and governance to improve the quantity and
quality of risk management tools.
b. integrated enterprise risk management and governance to improve the effectiveness
and quality of risk management tools.
c. provided assurance that integrated enterprise risk management and gov ernance to
improve the effectiveness and adequacy of risk management tools.
d. integrated enterprise risk management and governance to ensure their financial
performance and sustainability.
1.12 The following statement is not a requirement for effective integration of enterprise risk
management and governance.
(2)
a. A structured and well-defined risk management framework.
b. A framework which includes effective policies, procedures, risk tools and escalation to
management and the board.
c. The roles of individuals, business unit and group need to be clearly defined.
d. Risk management processes and responsibilities should not be matrixed.
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RSK4803
April 2024
1.13 Failure to integrate enterprise risk management and governance could…
(2)
a. ensure all managers are skilled and understand the underlying risk of an organisation.
b. cause a lack of transparency regarding risk exposures.
c. allow organisations to grow slower than its risk management practices and governance.
d. allow management to implement basic controls such as policies and procedures.
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Page 7 of 9
RSK4803
April 2024
Question 2
20 marks
The results of a study conducted on the banking sector of a country resulted in the
classification of banking institutions into the VUCA categories as follows:
Sector
Commercial
Mutual
Cooperative
V
23
10
4
U
11
15
7
C
8
12
9
A
5
13
2
2.1 Explain the acronym “VUCA”.
(2)
2.2 Describe the distinguishing feature of each VUCA element
(4)
2.3 Describe the purpose of using VUCA.
(4)
2.4 The bank ombudsman selected a bank to verify the findings of the study, what is the
probability that the selected bank is in the cooperative sector?
(3)
2.5 The regulator selected a bank to verify the findings of the study, what is the probability
that the selected bank is in the “C” element of VUCA?
(3)
2.6 The Governor of the Reserve Bank selected a bank to verify the findings of the study, what
is the probability that the selected bank is in the “A” element of VUCA and in the
commercial sector?
(4)
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RSK4803
April 2024
Question 3
25 marks
Lala Chain Stores will be opening several branches across the country in the logistics
business. In the first board meeting held in January 2024, the board requested the director of
risk management to present in the next meeting on different deductible options available in
the industry. The board will use this information to decide and approve the preferred deductible
for Lala Chain Stores.
In preparation for the next board meeting, the director of risk management has obtained the
following information from both the internal and external sources:
Lala Chain Stores motor information
• 60 vehicles will be purchased at a cost of R8 000 000.
• The estimated annual maintenance for all vehicles is R800 000.
Industry information
The following information was obtained from the Industry Bureau of Statistics where Lala
Chain Stores is operating:
•
•
•
•
•
•
•
•
The average payment by the insurer is R58 300 per single claim.
The average loss resulting from submitted claims is R73 000 per claim.
The commonly used recapture capture factor is 3%.
Some industry role players prefer that the insurer pays once a year when the amount
exceeds R1 500 000.
Others prefer the insurer to pay when the vehicle losses exceed 25% of the book value
per vehicle.
The average number of vehicles involved in accidents per year is 20.
The average excess is R15 000 per car claim.
The average book value is R102 806 for each vehicle involved in an accident.
3.1 Describe the different types of deductibles to Lala Chain Stores.
(4)
3.2 Determine the different deductibles available to Lala Chain Stores.
(18)
3.3 Briefly explain why deductibles apply in the insurance contracts.
(3)
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Page 9 of 9
RSK4803
April 2024
Question 4
20 marks
4.1 Describe five key features of Alternative Risk Transfer (ART)
(10)
4.2 Describe the principles of finite risk reinsurance
(10)
[TOTAL: 100 MARKS]
END OF PAPER
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