2020 INTEGRATED REPORT

Reinsurance Risk Management Reinsurance risk is the risk that the reinsurance cover placed is inadequate and/or inefficient relative to the Group’s risk management strategy and objectives. The Group obtains third-party short-term reinsurance cover to reduce risks from single events or accumulations of risk that could have a significant impact on the current year’s earnings or the Group’s capital. It is believed that the reinsurance programme suits the risk management needs of the business. The core components of the reinsurance programme comprise: ~ A Whole Account Clash & Catastrophe Excess of loss treaty with five layers. PPS Short-term Insurance ('PPS STI') retains the first R2.5 million of each and every claim, excluding reinstatement premiums as a result of a claim against the cover; ~ A 10%/90% Quota Share Arrangement in respect of the Health Professions Indemnity liability product. PPS STI retains 10% of all premiums and claims. The Head of Actuarial Function reviews and attests annually on the adequacy of reinsurance risk transfer. The latest report concluded that the reinsurance arrangements adequately cover the insurance risks faced by PPS Short-Term Insurance. The PPS Short-term Insurance board approves the reinsurance renewal process on an annual basis. The reinsurance programme is placed with external reinsurers that are registered with the Prudential Authority, or enjoy equivalent jurisdiction status under the Prudential Authority, and have a domestic credit rating /rating equivalent to a domestic credit rating, of no less than A-. Risk exposure and concentrations of risk The following table shows the Group’s exposure to short-term insurance risk (based on the carrying value of the insurance liabilities at the reporting date) per category of business: % of Net % of Net Earned Earned Premium Premium Group 2020 2019 Motor 62% 65% Property 35% 34% Liability 3% 1% Other <1% <1% 100% 100% Risk management relating to investment contracts The Group commenced selling investment products from 2007 through its subsidiary PPS Investments (Proprietary) Limited (‘PPS Investments’). For these contracts the investment risk is carried by the policyholders. In PPS Investments there is a risk of reduced income from fees where these are based on the underlying value of the invested assets. There is furthermore a reputational risk if actual investment performance is not in line with contract holders’ expectations. These risks are managed through a rigorous multi-manager investment research process applied by PPS Investments’ investment managers, which includes both technical and fundamental analysis. The investment contracts underwritten by PPS Insurance are the PPS Endowment, the PPS Corporate Endowment and the PPS Living Annuity. PPS INTEGRATED REPORT 2020 | 189