RMI 5345
Spring 2022
Mid-Term Exam
Directions: You may use your text, notes, and other reference material in the completion
of this exam. You cannot work with anyone else (from the class or elsewhere). All answers
submitted must be your own. Please cite any material you use in your answers. To receive
credit, I must receive all of the needed files in a virus-free, usable condition. The exam
must be uploaded to the assignment section for the midterm.
Your answers should be typed, double spaced, and presented in a professional manner. The
workbooks should only be backup data. Those should be emailed. The file containing
your answers for the exam should be uploaded in the assignments section through TurnIt
In. You should copy any relevant information into the answer sheet you prepare as a Table
or Figure. DO NOT simply refer to worksheets for the information. I have provided
guidelines in terms of the length of answers throughout the document. These are intended
to help you focus the time and energy you spend on the process. Please adhere to these
guidelines as much as possible. While going over a few lines is fine, please do not
significantly exceed the guidelines.
Writing style counts as does citations. Plagiarism in any form will not be tolerated. Please
carefully document your work.
For the midterm exam, you will serve as a consultant for The Radcliff House, Inc. The
operations and financial condition of the firm are described in the case material posted in
the mid-term module. This is a case firm, so you will not be able to do further research on
the firm.
Risk Management Consulting project for the Radcliff House
The owners of Radcliff House have hired you to help them with their risk management and
insurance needs. They have always dealt with risk issues as they arise and left many of the
decisions to their insurance agent(s). They are trying to decide if a more comprehensive
approach is need but are skeptical that this is just a scam by consultants to get their money.
There are several areas that they are concerned with. The issues are outlined below.
1.
a. a. Help the firm define what ERM is and whether it is better than
approaching potential risks as they arise and/or just using insurance. (7
points)
b. Briefly, how does a comprehensive risk management program adds value to
a firm such as Radcliff House, (About a page between the two parts)
(3points)
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2. The owners are trying to move forward with an ERM plan for their firm. They
understand the first step is risk identification. They also have heard the risk
mapping provides some advantages to firms. (25 points)
a. Provide a brief description to the owners on how the risk mapping process
works. (4 points)
b. Explain how this process would be valuable to the firm. (3 points)
c. Provide an example of a firm that has successfully used risk mapping.
(About a page and a half for parts 2 a, b, and c.) (3 points)
d. Create a basic risk map to get the firm started. Show 10 significant
exposures for this firm. Describe the exposures and their placement. Your
answer should include a risk map as well as a description of each exposure
and why it is placed where it is on the map. The description can be separate
from the map but you should copy the image of your map into the exam
answer. (I am more concerned with your overall logic on this portion of the
exam. While you should pick what you feel are important exposures, do
not spend hours going through the case to find the 10 perfect exposures to
discuss. Skim the case and pick 10 relatively important issues.) (Depending
on the size of your map the length will vary. Please make sure each risk
has a description of the risk and why it is placed where it is on the map.)
(15 points)
3. Radcliff House, current workers compensation carrier has provided Radcliff
House, with a forecasted amount for 2021s workers compensation claims. The
total projected losses for 2021 are almost twice the firms average incurred losses
for the last three years. The owners of Radcliff House would like for you to provide
the following analysis. (30 points)
a. Using the data provided about the firms losses, please forecast total losses
for 2021. A summary of workers compensation claims is provided at the
end of the case. A spreadsheet has been provided to help you with this
process. You can simply forecast total losses. You do not have to forecast
both incident rate and severity as you did in the homework. You can just
use total losses in the regression. Please describe your calculation in your
written answer as well as cut and paste your regression output into the
answer.
Just realized the rest of the questioned were cut-off. See remaining questions below:
Radcliff House, current workers compensation carrier has provided Radcliff
House, with a forecasted amount for 2021s workers compensation claims. The
total projected losses for 2021 are almost twice the firms average incurred losses
for the last three years. The owners of Radcliff House would like for you to provide
the following analysis. (30 points)
a. Using the data provided about the firms losses, please forecast total losses
for 2021. A summary of workers compensation claims is provided at the
end of the case. A spreadsheet has been provided to help you with this
process. You can simply forecast total losses. You do not have to forecast
both incident rate and severity as you did in the homework. You can just
use total losses in the regression. Please describe your calculation in your
written answer as well as cut and paste your regression output into the
answer.
NOTE: The workers compensation carrier does allow the firm to use an
excess loss limit of $50,000. This means that both the paid and incurred
losses should be capped at $50,000 for each claim. The claims workbook
contains a listing of all of workers compensation claims recorded for the
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last three years. The loss limitation has been applied to the claims entered
into the workbook. A copy of the loss runs, with added detail, is contained
in the case. If you wish, you are welcome to make changes to the losses
that you think are important, just comment on the changes and reasons for
the changes in your write-up. You are not required to do so. Note that I
have done most of the data entry for you so that you can just focus on the
forecasting of 2021 total losses. Again, you DO NOT have to forecast
incident rate and average severity. You can just forecast total losses or the
transformed version if needed. Please copy and paste your table for the
data, graphs, and regression output in the text of your answer.
b. In your written answer, you should briefly describe the process you used to
forecast total losses, any assumptions made, and your results. You should
comment on the validity of your forecast as well as any potential limitations.
You should include key statistics in the answer.
c. Describe other factors that should be considered. At least two.
d. Based on your findings, do you agree with the workers compensation
carrier? If so why, if not, why not. Justify your answer. Make sure to
include the appropriate statistics and graphs. (The text portion of parts a-d
will likely be about 2-2.5 pages)
e. Radcliff House, insurance carrier has suggested that they consider using loss
control to reduce their losses. The owners of Radcliff House, feel that since
this is just the insurance companys way of trying to get out of paying future
claims and that there is no real benefit to Radcliff House. Provide a (tactful)
response to the firm outlining why you agree or disagree with them. Be sure
to justify your point of view. (Under a page.)
4. The owners of Radcliff House have heard that you can retain risk rather than buy
insurance for everything. They are very interested in this idea because they feel
that insurance is expensive and a scam. They have the following questions. (20
points)
a. Based on the financial condition of Radcliff House, please provide your
assessment of an appropriate overall retention level for Radcliff House. For
your convenience, the financial data for Radcliff House, as well as the
industry ratios, have been entered in the workbook for you. You should
both state a suggested level of retention as well as explain to the owners why
you selected that level. Make sure to touch on the aspects of the firms
financial position that impacted your choices. Your explanation should be
under three pages including detail from your excel files. You do not need to
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cut and paste financial statements into your answer. You should include
information on the favorable/unfavorable status of the ratios as well as
house you calculated the retention levels.
b. There are a variety of factors that go into deciding what risks are appropriate
to retain. You should comment on at least three of these issues and discuss
how the issue applies to Radcliff House. This can be done in terms of
providing examples of risks to retain or transfer and/or commenting on traits
of the firm. Do not duplicate the issues discussed in part a of this question.
Make sure to explain your logic. Your answer should be about a page.
5. Identify two emerging risks that Radcliff House should consider in their risk
management plan. At least one should be specific to their industry. Provide
documentation for your answer. Make sure it is clear to Radcliff House
management why this is an emerging risk for their firm and the potential impact.
Their attention spans are short so keep your answer to under a page and a half. (15
points)