106 / 203
105
are established at the time the contract is issued and updated on an annual basis at reporting
date to reflect current expectations. The policy liabilities also make provision for future profit
declarations to policyholders. The profits provided for are in line with the Group’s interpretation
of policyholder reasonable benefit expectations. The policy liabilities are discounted using an
asset-backed rate.
Compulsory margins for adverse deviations are included in the assumptions as required in
terms of SAP 104.
The contracts issued contain a DPF component that entitles the holder to receive, as a
supplement to the sickness and permanent incapacity benefits, additional benefits or profits.
These non-vesting profits are declared annually.
The terms and conditions of these contracts set out the bases for the determination of the
amounts on which the additional discretionary benefits are based (the DPF component of the
policy liabilities) and within which the Group may exercise its discretion as to the quantum and
timing of their payment to contract holders. These benefits consist of a non-vesting allocation of
profits or losses of PPS Insurance and investment returns thereon, as determined by the Group.
Where the same policy includes both insurance and investment components and the policy is
classified as an insurance policy in terms of IFRS 4, the liability for the insurance benefits and
investment benefits are valued. To avoid premature recognition of future profit, in the policy
valuation, compulsory and discretionary margins are added to the best estimate assumptions,
profits are only recognised to the extent of the initial acquisition costs, thus no separate deferred
acquisition cost is recognised.
The Group has an obligation upon death or retirement to pay contract holders the DPF
component of their benefits (the members’ apportionment and special benefit account) with
a certain deduction on resignation. This deduction that is not paid out is retained as a liability
for the benefit of all contract holders until paid to them individually in future periods.
The premium component relating to the DPF element cannot be determined and separated
from the fixed and guaranteed terms and is therefore recognised as revenue as described below.
Recognition: insurance contracts
Premiums
From inception of the policy, premiums are recognised on a monthly basis. Premiums are before
deduction of expenses for the acquisition of insurance contracts, and before the deduction
of reinsurance premiums. Premium income received in advance is included in insurance and
other payables.
Insurance benefits
Insurance benefits and claims are recorded as an expense gross of any reinsurance recovery when
they relate to the sickness, permanent incapacity, disability, death, retirement or resignation of
a member. These claims are recognised when notified. These claims also include the movement
in incurred but not reported benefits.
Unintimated claims (IBNR) are defined as ‘incurred but not reported’ claims. This liability is
held in respect of the sickness and permanent incapacity policies, life and disability policies,
the professional health preserver policies and the life and disability assurance group policy.
The reserve is measured using a management estimate, by making assumptions about future
trends in reporting of claims. It has been calculated using a consistent methodology and on a
statistical basis as for previous years’ reporting. The calculation is based primarily on a weighted
average historic claims payout rate. The profile of claims run-off (over time) is modelled by using
historic data of the Group. The profile is then applied to actual claims data of recent periods
for which the run-off is not complete. The IBNR is included in the insurance policy liabilities.