2019 Integrated Report

PPS INTEGRATED REPORT 2019 | 165 Two key differences between the percentile and cost-of-capital approaches are that under the cost-of-capital approach, reserves must be discounted using a term-dependent interest rate structure and that an allowance must be made for unallocated loss adjustment expenses. The cost-of-capital approach will result in different levels of sufficiency per class underwritten so as to capture the differing levels of risk inherent within the different classes. This is in line with the principles of risk-based solvency measurement. The net claims ratio for the Group, which is important in monitoring short-term insurance risk is summarised below: Group 2019 2018 Loss history Net claims paid and provided % of net earned premiums 69.20% 76.90% 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 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 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 and have 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: Group Motor Property Liability Miscellaneous 2019 R'000 R'000 R'000 R'000 Gross 17 076 6 816 7 099 18 Reinsurance – 1 263 5 231 – Net of reinsurance 17 076 5 553 1 868 18 Group Motor Property Liability Miscellaneous 2018 R'000 R'000 R'000 R'000 Gross 14 171 5 837 527 – Reinsurance – 957 – – Net of reinsurance 14 171 4 880 527 –