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RSK4803: Risk Financing
May/June Examination 2026 Preparation Guide
Covering Past Papers: 2023 – 2024 – 2025
⋆ ⋄ ⋆ ⋄ ⋆ ⋄ ⋆ ⋄ ⋆
Risk Management and Banking — UNISA
Exam Revision Guide
RSK4803
Module Code:
Risk Financing
Module Name:
May/June 2023, May/June 2024, May/June 2025
Papers Covered:
May/June 2026
Target Exam:
100 marks (per paper)
Total Marks:
4 Hours (open-book online assessment)
Duration:
This guide follows a Question then Answer format across all three past papers, end-
ing with a set of probable questions for the 2026 sitting. Study for understanding —
the examiner rewards applied reasoning.
Exam Revision Notes | RSK4803 | Covers 2023–2025
,RSK4803 | Risk Financing Exam Revision May/June 2026 Exam Preparation
PART 1: MAY/JUNE 2023 EXAMINATION
RSK4803 Risk Financing | Total: 100 Marks | Duration: 4 Hours
Page 2 of 28
,RSK4803 | Risk Financing Exam Revision May/June 2026 Exam Preparation
Question 1 [20 marks]
(a) [8 marks]
Question: With reference to the concept of the cost of risk, identify and explain the
FOUR components that make up the total cost of risk for an organisation. Use a practical
example from a South African manufacturing company to illustrate each component.
Answer: The total cost of risk (TCOR) is the full financial burden an enterprise
bears in managing its risk exposures — not just the premium it pays for insurance.
There are four components.
1. Insurance premiums and retained losses. This is what most people think of
first. Premiums paid to insurers to transfer risk, plus any losses the firm absorbs
within deductibles or self-insured layers. A steel manufacturer paying R2m in annual
premiums and absorbing the first R500 000 of every claim — that combined figure is
this component.
2. Risk control costs (loss prevention and reduction). Spending on measures
that reduce the frequency or severity of losses — safety training, fire suppression
equipment, CCTV systems, preventive maintenance. These costs are real and belong
in the TCOR calculation. The same manufacturer spending R300 000 per year on
machine guards and employee training is incurring risk control costs.
3. Risk management administration costs. Salaries of the risk management team,
cost of risk information systems, consultant fees, legal and actuarial costs, and the
time senior managers spend overseeing risk governance. Often overlooked — yet
easily R400 000 to R1m annually in a medium-sized operation.
4. Residual uncertainty (cost of unreimbursed losses). Losses that fall through
the cracks — uninsured losses, underinsurance gaps, franchise deductibles, reputa-
tional damage not covered by any policy. When the manufacturer suffers a R5m fire
but the sum insured was R3m, that R2m gap is residual uncertainty materialising.
Key Concept
TCOR = Insurance Premiums + Risk Control Costs + Administration Costs +
Residual/Unreimbursed Losses. The goal of risk financing strategy is to minimise
TCOR over time, not just the insurance line.
Page 3 of 28
, RSK4803 | Risk Financing Exam Revision May/June 2026 Exam Preparation
Exam Tip
Examiners expect you to name all four components AND explain them. If a case
study is provided, link each component to a specific fact in the scenario. One sen-
tence per component is not enough for 8 marks — aim for 2–3 sentences and a
short example each.
(b) [6 marks]
Question: Distinguish between risk retention and risk transfer as risk financing
strategies. Discuss THREE factors that would influence a risk manager’s decision to
retain rather than transfer a risk.
Answer: Risk retention means the organisation absorbs the financial consequences of
a loss from its own resources — whether deliberately (active retention) or because cover
is unavailable (passive retention). Risk transfer shifts that financial burden to a third
party, most commonly an insurer, via a premium payment.
The distinction matters because both have a cost. Transfer eliminates uncertainty but
introduces premium cost and policy conditions. Retention keeps cash in the business but
exposes it to loss volatility.
Three factors that push towards retention:
• High frequency, low severity losses. If a risk triggers many small, predictable
losses, insuring it is economically inefficient — the premium will exceed expected
losses plus the insurer’s expense and profit loading. A fleet operator with minor
repair claims averaging R8 000 each is better off self-funding.
• Strong financial capacity and cash flow. Retention only makes sense if the
organisation can actually absorb losses without threatening solvency. Larger firms
with healthy reserves and stable revenue streams can retain risks that would cripple
a smaller competitor.
• Unavailability or prohibitive cost of insurance. Sometimes the market simply
won’t cover a risk, or the premium quoted is so high that retention — even with
occasional large losses — is cheaper in expected value terms. South African firms
post-2019 have faced this with certain cyber and civil unrest covers.
Page 4 of 28
]]
⋆ ⋆
RSK4803: Risk Financing
May/June Examination 2026 Preparation Guide
Covering Past Papers: 2023 – 2024 – 2025
⋆ ⋄ ⋆ ⋄ ⋆ ⋄ ⋆ ⋄ ⋆
Risk Management and Banking — UNISA
Exam Revision Guide
RSK4803
Module Code:
Risk Financing
Module Name:
May/June 2023, May/June 2024, May/June 2025
Papers Covered:
May/June 2026
Target Exam:
100 marks (per paper)
Total Marks:
4 Hours (open-book online assessment)
Duration:
This guide follows a Question then Answer format across all three past papers, end-
ing with a set of probable questions for the 2026 sitting. Study for understanding —
the examiner rewards applied reasoning.
Exam Revision Notes | RSK4803 | Covers 2023–2025
,RSK4803 | Risk Financing Exam Revision May/June 2026 Exam Preparation
PART 1: MAY/JUNE 2023 EXAMINATION
RSK4803 Risk Financing | Total: 100 Marks | Duration: 4 Hours
Page 2 of 28
,RSK4803 | Risk Financing Exam Revision May/June 2026 Exam Preparation
Question 1 [20 marks]
(a) [8 marks]
Question: With reference to the concept of the cost of risk, identify and explain the
FOUR components that make up the total cost of risk for an organisation. Use a practical
example from a South African manufacturing company to illustrate each component.
Answer: The total cost of risk (TCOR) is the full financial burden an enterprise
bears in managing its risk exposures — not just the premium it pays for insurance.
There are four components.
1. Insurance premiums and retained losses. This is what most people think of
first. Premiums paid to insurers to transfer risk, plus any losses the firm absorbs
within deductibles or self-insured layers. A steel manufacturer paying R2m in annual
premiums and absorbing the first R500 000 of every claim — that combined figure is
this component.
2. Risk control costs (loss prevention and reduction). Spending on measures
that reduce the frequency or severity of losses — safety training, fire suppression
equipment, CCTV systems, preventive maintenance. These costs are real and belong
in the TCOR calculation. The same manufacturer spending R300 000 per year on
machine guards and employee training is incurring risk control costs.
3. Risk management administration costs. Salaries of the risk management team,
cost of risk information systems, consultant fees, legal and actuarial costs, and the
time senior managers spend overseeing risk governance. Often overlooked — yet
easily R400 000 to R1m annually in a medium-sized operation.
4. Residual uncertainty (cost of unreimbursed losses). Losses that fall through
the cracks — uninsured losses, underinsurance gaps, franchise deductibles, reputa-
tional damage not covered by any policy. When the manufacturer suffers a R5m fire
but the sum insured was R3m, that R2m gap is residual uncertainty materialising.
Key Concept
TCOR = Insurance Premiums + Risk Control Costs + Administration Costs +
Residual/Unreimbursed Losses. The goal of risk financing strategy is to minimise
TCOR over time, not just the insurance line.
Page 3 of 28
, RSK4803 | Risk Financing Exam Revision May/June 2026 Exam Preparation
Exam Tip
Examiners expect you to name all four components AND explain them. If a case
study is provided, link each component to a specific fact in the scenario. One sen-
tence per component is not enough for 8 marks — aim for 2–3 sentences and a
short example each.
(b) [6 marks]
Question: Distinguish between risk retention and risk transfer as risk financing
strategies. Discuss THREE factors that would influence a risk manager’s decision to
retain rather than transfer a risk.
Answer: Risk retention means the organisation absorbs the financial consequences of
a loss from its own resources — whether deliberately (active retention) or because cover
is unavailable (passive retention). Risk transfer shifts that financial burden to a third
party, most commonly an insurer, via a premium payment.
The distinction matters because both have a cost. Transfer eliminates uncertainty but
introduces premium cost and policy conditions. Retention keeps cash in the business but
exposes it to loss volatility.
Three factors that push towards retention:
• High frequency, low severity losses. If a risk triggers many small, predictable
losses, insuring it is economically inefficient — the premium will exceed expected
losses plus the insurer’s expense and profit loading. A fleet operator with minor
repair claims averaging R8 000 each is better off self-funding.
• Strong financial capacity and cash flow. Retention only makes sense if the
organisation can actually absorb losses without threatening solvency. Larger firms
with healthy reserves and stable revenue streams can retain risks that would cripple
a smaller competitor.
• Unavailability or prohibitive cost of insurance. Sometimes the market simply
won’t cover a risk, or the premium quoted is so high that retention — even with
occasional large losses — is cheaper in expected value terms. South African firms
post-2019 have faced this with certain cyber and civil unrest covers.
Page 4 of 28
