RISK FINANCING

PLEASE READ THE QUESTION AND ANSWER EVERYTHING IN FULL.

PLEASE RESEARCH THE QUESTION AND ANSWER VERY ACCURATELY.

DO NOT RUSH THROUGH THE QUESTIONS.

PLEASE TAKE TIME AND RESEARCH THE QUESTION TO ENSURE 100% ACCURACY.

Round calculations to two decimal places.

QUESTION 2

Use the following information to CALCULATE THE COST OF RISK.

The Chief Risk Officer of Fast Learning Academy Ltd wants to include the total cost of risk for the company in his presentation at the next board meeting. The information obtained from the risk managers include the following:

The monthly insurance premiums are R962 500 per month. The premiums provide insurance cover for items such as property, furniture and office equipment, business interruption and liability. The premium for unemployment insurance fund (UIF) is R400 000 per month. The contributions to Compensation for Injuries and Diseases are R462 000 per month.

The company has submitted several claims through the past year. A total of 120 laptops were stolen at an average cost of R25 000 per laptop. An excess payment of R3 000 per claim is applicable for laptops. The academy has a fleet of 40 cars. An excess of R5 000 per claim is payable. The average damage per accident was R65 000 and 15 claims were submitted. The fleet is also equipped with tracking devices with a total cost of R760 000.

The academy has cyber risk cover for R5 000 000, with an excess payment of R50 000 per claim. The insurance policy states that the insurer must approve all payments for claims to be entertained. In July, the academy paid a ransom of R7 000 000 for ransomware attack before notifying the insurer.

The finance departed indicated that R3 000 000 of outstanding student fees had to be written off as the debtor's department did not follow up outstanding debt. EXCO approved a contract for a debt collector to collect outstanding debt, A payment of R120 000 was made in the current financial year.

The budget for the risk management department is R9 000 000. Risk management staff attended courses and seminars to the value of R500 000 and subscriptions to professional bodies of R45 000.

The fire suppression systems in the main building were upgraded with a total cost of R6 000 000. The total depreciation that can be related to risk management systems is R6 230 000 for the year.

The academy can earn 4% for money market deposits.

QUESTION (50 MARKS)

CALCULATE THE COST OF RISK. (Show ALL calculations)

THIS QUESTION CARRIES A LOT OF MARKS, PLEASE RESEARCH, CALCULATE WITH 100% ACCURACY.