Author: Dr. Wayne Simpson with the advise and assistance of Ms. Andrea Sherry and Mr. Peter Dyck (for CAC Manitoba).
The purpose of Rate Stabilization Reserve (RSR) is to protect motorists from rate increases made necessary by unexpected events and losses arising from nonrecurring events or factors.
The appropriate RSR should be a range, not a target, to perform the function of rate stabilization or protection from rate shock arising from unforeseen events. An annual RSR target may be better than no RSR in terms of rate stabilization.
An alternative to the proprosed RSR rebuilding fee of 1% and front loaded rate increase of 2.4% in 2015/16, followed by RSR rebuilding fees of 1% in the next three years and no rate inreases, would be a stable increase of 1.6% in each of the next four years. The latter seems more reasonable in a relatively stable inflationary environment of 2% provided that MPI can demonstrate that its proposed expenditures are efficient and reasonable.