2020 INTEGRATED REPORT

For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the Group faces under its insurance contracts is that the actual claims and benefit payments exceed the allowance made for the payments of these benefits. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are random and the actual number and amount of claims and benefits will vary from year-to- year from the estimate established using statistical techniques. Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The Group has developed its insurance underwriting strategy to appropriately charge for the insurance risks accepted. The Group has implemented a comprehensive reinsurance strategy to mitigate the risks of variability in the frequency and severity of claims on different portfolios of insurance contacts. This strategy continues to be effective in reducing the impact on PPS of variability in claims. The table below provides an overview of the types of products and the terms and conditions of short- term insurance contracts written by the Group: Type of contract Terms and conditions Motor Covers damage or loss resulting from the possession, use or ownership of motor vehicles operating on land, excluding railway rolling stock and warranty business. Property Covers damage to or loss resulting from the possession, use or ownership of property, other than business covered under other classes indicate in the Insurance Act, 2017. Legal expense Covers legal expenses in costs of litigation. Transport Covers damage or loss resulting from the conveyance, storage, treatment and handling of goods in transit, irrespective of the form of transit. Liability Covers liability to another person, including professional indemnity. Accidental and health Covers costs or loss of income resulting from a disability or death event caused by an accident or a health event other than costs or services regulated under the Medical Schemes Act, 1988. Reinsurance Proportional reinsurance in respect of professional indemnity liability business. Insurance contracts – Long-term a. Frequency and severity of claims The most significant factors that could increase the overall frequency of mortality and morbidity claims are diseases (such as Aids), epidemics (such as Covid-19), economic conditions, abnormal weather conditions, quality of healthcare and widespread changes in lifestyle, such as eating, smoking and exercise habits, resulting in earlier or more claims than expected. The Group has comprehensive claims assessing processes and protocols in terms of which all claims received are assessed. Delegation of authority levels are applied to ensure that larger claims and repeat claims are assessed by senior assessors and management, and the forensics team if required, before being paid. The Group also conducts regular claims investigations to monitor experience. PPS INTEGRATED REPORT 2020 | 185