Integrated Report 2018

GROUP ACCOUNTING

POLICIES

(continued)

PPS

INTEGRATED REPORT 2018

104

• that are contractually based on:

i. the performance of a specified pool of contracts or a specified type of contract;

ii. realised and/or unrealised investment returns on a specified pool of assets held by the issuer; or

iii. the profit or loss of the company, fund or other entity that issues the contract.

The classification of contracts is performed at the inception of each contract. The classification of the

contract at inception remains the classification of the contract for the remainder of its lifetime, unless

the terms of the contract change to such an extent that it is treated as an extinguishment of the existing

contract and the issuance of a new contract.

Insurance contracts

The Group issues long-term insurance contracts that transfer insurance risk and include a DPF component.

Such contracts may also transfer financial risk. The DPF component in the Group’s insurance contracts

cannot be determined and separated from the insurance component from inception. The respective

cash flows relating to each component are also not independent of each other.

Each year, any profits or losses arising on the non-DPF component are allocated to the DPF component.

In this way a significant portion of the insurance risk is carried by the policyholder in the DPF component

of their benefits. The profits or losses will include the impact of changes in the underlying assumptions

or estimates on the non-DPF policy liabilities. The DPF component cannot therefore be unbundled or

accounted for as a separate investment contract. In such cases, IFRS 4 accepts that the entire insurance

contract is accounted for as a liability with movements through the Statement of Profit or Loss and

other Comprehensive Income.

Short-term insurance contracts provide benefits under short-term policies, which include motor,

household and professional indemnity, or a combination of any of those policies. Short-term insurance

contracts are further classified into the following categories:

–– Personal insurance, consisting of insurance provided to individuals and their personal property; or

–– Commercial insurance, providing cover on the assets and liabilities of business enterprises.

4.2

Valuation and recognition

4.2.1

Long-term Insurance contracts

Principles of valuation and profit recognition

The accounting policy for the measurement of liabilities in respect of insurance contracts has

been determined having regard to the Standard of Actuarial Practice (SAP’s) and Advisory

Practice Notes (APN’s) issued by the Actuarial Society of South Africa (ASSA). Of particular

relevance to the insurance liability calculations, are the following actuarial guidance notes:

SAP 104: Life Offices – Valuation of Long-Term Insurers;

APN 102: Life Offices – HIV/AIDS;

APN 105: Recommended AIDS extra mortality bases.

Valuation

The insurance contracts are valued in terms of the financial soundness valuation (‘FSV’) basis

contained in SAP 104 issued by the ASSA. A liability for contractual benefits that are expected to

be incurred in the future, (the non-DPF component of the policy liabilities) is recorded in respect

of the existing policy book when the premiums are recognised. The liability is determined as the

sum of the expected discounted value of the benefit payments and the future administration

expenses that are directly related to the contract, less the expected discounted value of the

premiums to be paid in terms of the policy contract. The liability is based on best-estimate

assumptions as to mortality, persistency, maintenance expenses and investment income that

4. INSURANCE AND INVESTMENT CONTRACTS

(continued)

4.1

Classification of contracts

(continued)