GROUP ACCOUNTING POLICIES (continued) 5. Insurance, investment and reinsurance contracts (continued) 5.1 Classification of contracts (continued) 5.1.1 Unit of account including separating components and level of aggregation The Group manages insurance contracts issued by product lines, where each product line includes contracts that are subject to similar risks. These risks include premium risk, reserve risk and catastrophe risk amongst others. In grouping insurance contracts into portfolios, the Group considers the similarity of risks rather than the specific labelling of product lines. The Group has determined that all contracts within each product line, as defined for management purposes, have similar risks. Therefore, when contracts are managed together, these represent a portfolio of contracts. All insurance contracts within a product line represent a portfolio of contracts. Each portfolio is further disaggregated into groups of contracts that are issued within a calendar year (annual cohorts) and are: a) contracts that are onerous at initial recognition; b) contracts that at initial recognition have no significant possibility of becoming onerous subsequently; or c) a group of remaining contracts. These groups represent the level of aggregation at which insurance contracts are initially recognised and measured. Such groups are not subsequently reconsidered. Portfolios of reinsurance contracts held are assessed for aggregation separately from portfolios of insurance contracts issued. Applying the grouping requirements to reinsurance contracts held, the Group aggregates reinsurance contracts held concluded within a calendar year (annual cohorts) into groups of: a) contracts for which there is a net gain at initial recognition, if any; b) contracts for which, at initial recognition, there is no significant possibility of a net gain arising subsequently; and c) remaining contracts in the portfolio, if any. Reinsurance contracts held are assessed for aggregation requirements on an individual contract basis. The Group tracks internal management information reflecting historical experiences of such contracts’ performance. This information is used for setting pricing of these contracts such that they result in reinsurance contracts held in a net cost position without a significant possibility of a net gain arising subsequently. Before the Group accounts for an insurance contract based on the guidance in IFRS 17, it analyses whether the contract contains components that should be separated. IFRS 17 distinguishes three categories of components that have to be accounted for separately: • cash flows relating to embedded derivatives that are required to be separated; • cash flows relating to distinct investment components; and • promises to transfer distinct goods or distinct services other than insurance contract services. The Group applies IFRS 17 to all remaining components of the contract. The Group does not have any contracts that require further separation or combination of insurance contracts. As a result of the PPS’ mutual operating model, accumulated profits/losses belong to qualifying policyholders of PPS Insurance Company Limited and PPS Insurance Company (Namibia) Limited, allocated to their PPS Profit-Share accounts. All of the policyholder "equity" in their capacity as policyholders and those with the most residual interest is therefore reported as a component of PPS Profit-Share accounts and Liability for remaining coverage under IFRS 17. Each year, any profits or losses arising on the non-participating portfolio are allocated to the participating portfolio as part of the profit and losses attributable to PPS members for the year, qualifying members who form part of the participating portfolio. Participating insurance contracts have a PPS Profit-Share feature and non-participating contracts do not have this feature. 113 Group Accounting Policies
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