PPS Integrated Report 2021 Notes to the Consolidated Financial Statements | 202 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2021 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 2021 2020 Motor 60% 62% Property 35% 35% Liability 4% 3% 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. 38.3 Financial risk management The Group is exposed to financial risk through its financial assets, financial liabilities (including investment contracts), reinsurance assets and insurance policy liabilities. In particular the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance contracts. The most important components of this financial risk are market risk (comprising interest rate risk, equity price risk and foreign currency risk), liquidity risk and credit risk. The participating nature of the contracts issued results in the financial risk being carried by the insured parties by means of variations in the amounts allocated to the DPF element. However, the Group continues to manage the financial risk in order to maximise the benefits available to policyholders. These financial risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The primary risk that the Group faces arises from the impact of volatility in equity prices and interest rates on the value of assets and liabilities. The Group manages exposure to investment volatility as part of a regular review of the assets held to back the insurance policy liabilities using asset liability modeling techniques. The asset-liability risk management policy allows for asset liability modeling to drive the optimal long-term asset class composition. This approach ensures the expected return on assets is sufficient to fund the required return on the risk reserves and to maximise the rate of return on the balance of the policy liabilities subject to acceptable levels of risk. Asset class composition is reviewed on a quarterly basis with the respective asset managers. 38. MANAGEMENT OF RISKS (continued) 38.2 Insurance product risk management (continued)
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