Overview It is my privilege to report to members that PPS has experienced an exceptional year in 2021 in terms of supporting our members and returning value to them. In our unique mutual model, premiums that members pay to our insurance businesses – with investment growth – are returned to them, either as claims or as allocations to their Profit-Share Accounts when they hold qualifying products. The only flow out of the Group, is of course the management expenses to run the business. From this perspective, 2021 has been a most astonishing year. As is to be expected during a worldwide pandemic, life insurance claims payments have exceeded anything that we have ever witnessed in our 80-year history. The investment markets also experienced a very good year and the investment returns that we can distribute to our members in the form of Special Benefit allocations to their Profit-Share Accounts have exceeded those of any previous year. Collectively, the value that was returned to members through claims in 2021, supporting them in times of need, and the value added to their Profit-Share Accounts due to investment returns on accumulated past profits, is extraordinary. The claims experience in 2021 (and more on this below) of course reduced operating profit. In fact, COVID-19 claims resulted in our operating profit for 2021, which is basically underwriting profit net of investment returns, ending the year marginally positive. During a pandemic, and especially given the extraordinary events of the past two years, the focus is (and should be) on claims, which were met expeditiously. We continuously adapted our claims protocols so that we could assist our members as much as possible while trying to ensure fairness between different cohorts of members (for example between those that have suffered a certain condition and those who have not). As a company that is founded on the ethos of mutuality, we were able to do this as there are no shareholder interests to protect or serve. As a result, we went further than what our competitors were able to do with their protocols. The COVID-19 pandemic provided a brilliant opportunity to stay true to our purpose of assisting our professionals in protecting their income and assets, and enhancing their financial security. And yet, despite the enormous value that was returned to members through claim payments, we were still able to declare a small operating profit. Our diversification strategy helped us achieve profits in our subsidiary businesses as PPS Insurance did not achieve an underwriting profit. An immediate word of caution is also appropriate regarding the investment returns. A good financial adviser will, after a period of very good investment market returns, advise his/her clients that they should not expect such experience to continue. Growth assets are inherently volatile and might yield negative returns in future. And, after a period of sub-optimal returns, he/she would remind his/her clients of the nature of growth assets and keep their focus on the longer term. In other words, a good adviser talks good returns down and offers words of encouragement after market corrections. At PPS we follow a well-diversified and long-term approach in our investment strategy. We can afford to have a long-term view because our members’ policies generally stay on the books for a generation or more. This long-term perspective is a competitive investment edge. It allows us to not knee-jerk after significant market movements, and to invest more in growth assets. The 2021 calendar year was a very strong year in the investment markets. Our funds performed brilliantly. It is exactly those years that help longer-term average returns to beat their targets. You do not want to miss out on these years. But, like a good adviser, I must caution that past performance is no guarantee of future results. As I am writing this report, the Russian/Ukrainian conflict has escalated into a war, which is likely to have a significant impact on global supply chains, world economic growth and investment markets. We must accept that the prevailing geo-political world situation is quite negative for 2022 investment returns. I mentioned in last year’s report that a crisis can either expose the flaws in a model and a team or prove its robustness and make a team stronger. The 2021 year that we report on was a challenging one in many ways. Staff were stretched. Members can, for example, appreciate the strain that our claims staff had to work under through most of the year, with claims volumes double those of a normal year. In addition, our IT and operational staff had to navigate through a cyber event. Our channels had to chase targets given a weak economic backdrop. And, in our daily lives, most of us had to deal with trauma of some form. I again count myself fortunate to be part of a team and a model that can look back on 2021 with pride. We continue to be humbled by the niche market segment that we serve, which includes some of South Africa and Namibia’s most educated and influential individuals in the various professions. It is a privilege and, at the same time, a PPS Integrated Report 2021 CEO’s message to members | 48
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