Professional Documents
Culture Documents
MBA REGIS Quanti MiniApplication of Monte Carlo
MBA REGIS Quanti MiniApplication of Monte Carlo
By Rafi Delica This was submitted as a mini-application paper in a Quanti subject in AGSB
BACKGROUND
Thousands 3,500 3,000 2,500 2,000 1,500 1,000 500 40000 35000 30000 25000 20000
3.27M motorcycles, 0.98M are in NCR 18.5K motorcycle accidents, mostly in NCR
15000
10000 5000 0
Others
NCR Motorcycles
Motorcycle Accidents
* Forecasted using linear regression with 97% and 99% goodness of fit for number of vehicles and number of accidents, respectively.
* Sources of Data: NSO, LTO, AAP Rafi Delica TSQuanti MBA AGSB-Regis 2012
PROBLEM
GRP3 Insurance Company is planning to offer low cost accident insurance to motorcycle owners/drivers. The insurance would cost P500 yearly and will have a maximum accident coverage of P10,000 and accidental death benefit of P100,000.
The management would like to know the following: a) If an annual gross margin of 33% is the target, how many policies should be sold at the minimum? b) if GRP3 Insurance Company was able to secure a contract with LTO to provide 30% or 40% of a mandatory accident insurance for all registered motorcycles in Metro Manila, what is the cheapest policy cost that can be allowed and still maintain 33% gross margin? c) How much average monthly revenue, expenses and margin can be expected? d) What are the risks in cash flow and liquidity?
months (trials) The corresponding percentage of fatal and injured accidents were also generated for each month (trial). The insurance coverage (expense) was computed using the Accidental Death Coverage amount and the Hospitalization coverage amount
*at 10000 trials, the variation in average number accidents, fatality and injury is below 1% and we consider this as sufficient
number of trials
SNAP SHOT
RESULTS
Policy Amount Death Coverage Injury Coverage Expected Motorcycles in NCR Target Gross Margin (GM) Annual Death Annual Accident Total Annual Coverage Number Policies to Break-even* With 30% LTO With 40% LTO @ 50% GM Contract Contract PHP 500 PHP 617 PHP 463 PHP 100,000 PHP 10,000 981,485 50% PHP 115,444,560 PHP 5,714,368 PHP 121,158,928 242,318
Need to sell 242,318 policies to break-even At 363.5k policies sold, there will be an average of P5M monthly gross margin. If a contract is secured for 40% of registrants, the policy cost can be lowered to P463 and still get P5M monthly gross margin
363,477
294,446 PHP 181,738,391 PHP 121,158,928 PHP 15,144,866 PHP 10,096,577 PHP 5,048,289 PHP PHP PHP PHP PHP 181,738,391 121,158,928 15,144,866 10,096,577 5,048,289 PHP PHP PHP PHP PHP 392,594 181,738,391 121,158,928 15,144,866 10,096,577 5,048,289
*GM is gross only of revenues from policy. Expenses are for coverage only. *Reinvestment of funds, operating expenses, time value of money are not considered in the calculation
RISK ANALYSIS
Using the histogram, mean and standard deviations of monthly payout, we get the following probabilities for monthly payout reaching specific amounts:
Payout Probability