1. Note Financial assets and liabilities classified as fair value through profit or loss on initial recognition Financial assets and liabilities at amortised cost PPS ProfitShare accounts and reinsurance contracts Total carrying amount Fair value 7 15 691 – – 15 691 15 691 7 6 607 – – 6 607 6 607 7 20 042 – – 20 042 20 042 7 57 – – 57 57 7 11 500 – – 11 500 11 500 9 – – 1 382 1 382 1 382 13 – 1 069 – 1 069 1 069 14 – 2 915 – 2 915 2 915 10 – – (32 293) (32 293) (32 293) – – (7 290) (7 290) (7 290) – – (240) (240) (240) 9 – – (118) (118) (118) 15 (4 495) – – (4 495) (4 495) 16 (15 086) – – (15 086) (15 086) 9 – – (13) (13) (13) 20 – (221) – (221) (221) (a) * Fair value analysis of financial statement line items with a fair value (continued) The note has been restated to align with IFRS 17 disclosures and to remove prepayments from the table Qualifying policyholders’ residual interest in the net assets of the PPS Group Group R’m 2022 Restated* Equity securities(a) Local listed International listed Debt securities(a) Government and local bonds International listed Unit trusts and pooled funds(a) Reinsurance contract assets Receivables Cash and cash equivalents PPS Profit-Share accounts Liability for remaining coverage and incurred claims Short-term insurance policy liabilities Investment contract liabilities Debt securities are designated at fair value through profit and loss and Equity securities and Unit trusts and pooled funds are mandatorily held at fair value through profit and loss. Payables Liabilities to unit trust holders Reinsurance contract liabilities NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2023 33 37. 37.2 a) b) 2023 2022 65.1% 64.9% Loss history Net claims paid and provided % of net earned premiums Reinsurance Risk Management Reinsurance risk is the risk that the reinsurance cover placed is inadequate and/or inefficient relative to the Group’s risk management strategy and objectives. The Group obtains third-party short-term reinsurance cover to reduce risks from single events or accumulations of risk that could have a significant impact on the current year’s earnings or the Group’s capital. It is believed that the reinsurance programme suits the risk management needs of the business. The cost-of-capital approach will result in different levels of sufficiency per class underwritten so as to capture the differing levels of risk inherent within the different classes. This is in line with the principles of risk-based solvency measurement. The net claims ratio for the Group, which is important in monitoring short-term insurance risk is summarised below: Group The Head of Actuarial Function reviews and attests annually on the reliability and adequacy of technical provisions and the Solvency Capital Requirement. He expresses an opinion on the Underwriting Policy as well as the soundness of the premium rates in use and the profitability of the business. The Group currently calculates its short-term insurance technical reserves on two different methodologies, namely the ‘percentile approach’ and the ‘cost-of-capital approach’. The ‘percentile approach’ is used to evaluate the adequacy of technical reserves for financial reporting purposes, while the ‘cost-of-capital approach’ is used as one of the inputs for regulatory reporting purposes. Percentile approach Under this methodology, reserves are held to be at least sufficient at the 60th percentile of the ultimate loss distribution. The first step in the process is to calculate a best-estimate reserve. Being a best-estimate, there is an equally likely chance that the actual amount needed to pay future claims will be higher or lower than this calculated value. The next step is to determine a risk margin. The risk margin is calculated such that there is now at least a 75% probability that the reserves will be sufficient to cover future claims. For more detail on the reserving techniques used in this approach, refer to note 36.2. Cost-of-capital approach The cost-of-capital approach to reserving is aimed at determining a market value for the liabilities on the statement of financial position. This is accomplished by calculating the cost of transferring the liabilities, including their associated expenses, to an independent third party. The cost of transferring the liabilities off the statement of financial position involves calculating a best-estimate of the expected future cost of claims, including all related run-off expenses, as well as a margin for the cost of capital that the independent third party would need to hold to back the future claims payments. Two key differences between the percentile and cost-of-capital approaches are that under the cost-ofcapital approach, reserves must be discounted using a term-dependent interest rate structure and that an allowance must be made for unallocated loss adjustment expenses. Management of risks (continued) Insurance product risk management (continued) (continued) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 210 Notes to the Consolidated Financial Statements
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