2020 INTEGRATED REPORT

CEO’S MESSAGE TO MEMBERS (CONTINUED) of new business was from our internally employed financial advisers, and this channel experienced growth of 3.4% on 2019, an achievement that we are proud of. Life premium revenue reached R5.12 billion in 2020, up 7% on 2019, and supported by lower than expected lapses. Claims came in significantly more than budgeted, as expected in a pandemic year. Total claims of R3.245 billion were 41% more than in 2019. Between March and December 2020, we paid 4 201 COVID-19 sickness and death benefits claims to the value of R389.8 million. Our foremost purpose is to assist our members in times of need, which means paying valid claims; making a profit is a secondary objective. Due to our mutual model, if we were to experience a claims overrun (on budgeted numbers) it simply means that more money is distributed to those (unfortunate) claimants and less to the general pool in the form of Profit-Share. Despite the significant overruns against what was budgeted for claims, PPS remains in a strong financial position to honour the long-term future commitments to our members. Management expenses constitute the only ‘leakage’ of money from the pool that will eventually be returned to our members, either as a claim payment or as Profit-Share. Hence, efficiency ratios are important metrics that we as a management team keep tracking. We managed to stay well within the expense ratio target that the Board had set for us. In fact, management expenses of R983 million were 7% within budget and only 2% higher than in 2019. PPS INVESTMENTS (PPSI) The business faced obvious challenges during the pandemic year, yet it delivered record new business figures of R7.5 billion, which beat last year’s record number by 22%. Profit-Share allocations distributed to PPSmembers invested in our investments products and in our portfolios of R19.5 million grew by 29% from the previous year. The good numbers were mainly due to the good new business performance, recovery of the investment markets towards the end of the year, and a strong financial discipline in expense management. Retail and institutional investment performance (relative to benchmarks and peers) is at historic highs. Total assets under management increased from R37.8 billion at the end of 2019 to R43.1 billion at the end of 2020. OPPORTUNITIES AND STRATEGY Between the two extreme ends on the continuum of how to strategically respond to a crisis, on the one end becoming extremely risk-averse, cutting all new investment and battening down the hatches, and on the other end accelerating new investments and projects by doubling down, research has shown that the best approach is somewhere in the middle: being tough on expenses, yet throwing some fertiliser for the future in a responsible manner. A crisis often presents good opportunities. The social distancing restrictions prevented the senior team and our non-executives from having physical offsite strategy discussions in 2020. However, we participated in a thorough virtual programme that stretched over many weeks, with input from many external experts. This resulted in the fine-tuning of our strategic agenda, which remains centred around the following seven aspects:  Our exclusive member value proposition.  Digitalisation of our services for members.  Expanding our value proposition to financial advisers.  Developing holistic solutions and raising awareness of these products and services.  Creating alternative revenue streams to boost the value that we can return to our members.  Positioning the PPS brand as the financial services provider of choice for professionals.  Shaping the PPS community culture (where community includes staff and members). I believe our strategic agenda is robust and well developed. PERFORMANCE SNAPSHOTS FOR 2020 PPS INSURANCE The annual premium income of new life insurance business written in 2020 was R222.6 million, which is (only) 11.3% down on 2019. Given the professional segment that we serve, the nature of our income protection and life products is such that advice is an important ingredient in the process. Hence, our (only) distribution channel is face-to-face financial advisers, both internal and external to PPS. About 75% of new business flows to PPS in 2020 were through external (independent) financial advisers. They remain important business partners to us, serving our professional members. The other 25% 46 | PPS INTEGRATED REPORT 2020