Annexure D - MMI Holdings Integrated Report 2017mmiholdingsintegratedreport2017.com/pdf/Annexure_D.pdf · through income and are not equity accounted where they back contract holder

258 | MMI HOLDINGS INTEGRATED REPORT 2017

Annexure DSIGNIFICANT GROUP ACCOUNTING POLICIES

1. NEW IFRS STANDARDS AND AMENDMENTS

Standards, amendments to and interpretations of published standards that are not yet effective and have not been early adopted by the group• IAS7(amendment)–Cashflowstatementsdisclosureinitiative(effectivefromannualperiodsbeginningonorafter

1 January 2017).• IAS12(amendment)–Recognitionofdeferredtaxassetsforunrealisedlosses(effectivefromannualperiodsbeginningonor

after1January2017).• IFRS15–Revenuefromcontractswithcustomers(effectivefromannualperiodsbeginningonorafter1January2018).• IFRS9–Financialinstruments(effectivefromannualperiodsbeginningonorafter1January2018).• IFRS2(amendment)–Classificationandmeasurementofshare-basedpaymenttransactions(effectivefromannualperiods

beginningonorafter1January2018).• IFRS4(amendments)–RegardingtheimplementationofIFRS9(effectivefromannualperiodsbeginningonorafter

1 January 2018).• IAS40(amendments)–Transfersofinvestmentproperty(effectivefromannualperiodsbeginningonorafter1January2018).• IFRIC22–Foreigncurrencytransactionsandadvanceconsideration(effectivefromannualperiodsbeginningonorafter

1 January 2018).• IFRS16–Leases(effectivefromannualperiodsbeginningonorafter1January2019).• IFRIC23–Uncertaintyoverincometaxtreatments(effectivefromannualperiodsbeginningonorafter1January2019).• IFRS17–Insurancecontracts(effectivefromannualperiodsbeginningonorafter1January2021).• IFRS10andIAS28(amendments)–Saleorcontributionofassetsbetweenaninvestoranditsassociateorjointventure(postponed).

Initialhigh-levelassessmentsindicatethatIFRS9willresultmainlyinchangestothecategoriesoffinancialassetspresentedinthestatementoffinancialposition,aswellascausingfairvaluemovements(relatingtoowncreditrisk)onfinancialliabilitiesdesignatedas at fair value through income to be recorded in other comprehensive income. Management is currently assessing the impact of the above amendments in more detail.

Improvements project amendments• IFRS1(amendment)–First-timeadoptionofIFRS(effectivefromannualperiodsbeginningonorafter1January2017).• IFRS12–Disclosureofinterestsinotherentities(effectivefromannualperiodsbeginningonorafter1January2017).• IAS28–Investmentsinassociatesandjointventures(effectivefromannualperiodsbeginningonorafter1January2018).

Managementiscurrentlyassessingtheimpactoftheseimprovements,butitisnotexpectedtobesignificant.

2. CONSOLIDATION

2.1 SubsidiariesSubsidiariesareallentities(includingstructuredentities)overwhichthegrouphascontrol.Thegroupcontrolsanentitywhenthegroupisexposedto,orhasrightsto,variablereturnsfromitsinvolvementwiththeentityandhastheabilitytoaffectthosereturnsthroughitspowerovertheentity.Subsidiariesarefullyconsolidatedfromthedateonwhichcontrolistransferredtothegroupuntilthedaythatcontrolislost.Allmaterialsubsidiarieshavefinancialyearsendingon30Juneandareconsolidatedtothatdate.Subsidiarieswithfinancialyear-endsotherthan30Juneareconsolidatedusingauditedorreviewedresults(wherenecessary)fortherelevantperiodended30June.Theaccountingpoliciesforsubsidiariesareconsistent,inallmaterialrespects,withthepoliciesadopted by the group. Separate disclosure is made of non-controlling interests. All intra-group balances and unrealised gains andlossesontransactionsbetweengroupcompaniesareeliminated.Whencontrolislost,anyremaininginterestintheentityisremeasured to fair value, and a gain or loss is recognised in the income statement.

InitialmeasurementTheacquisitionmethodofaccountingisusedtoaccountfortheacquisitionofsubsidiaries/businesscombinationsbythegroup.Thecostofabusinesscombinationisthefairvalueoftheassetsgivenatthedateofacquisition,equityissuedandliabilitiesassumedorincurred(includingcontingentliabilities).Thisincludesassetsorliabilitiesrecognisedfromcontingentconsiderationarrangements.SubsequentchangestothefairvalueofthecontingentconsiderationthatisdeemedtobeanassetorliabilityisrecognisedinaccordancewithIAS39inprofitandloss.Costsdirectlyattributabletothebusinesscombinationareexpensedasincurred.Theexcessofthecostofacquisitionoverthefairvalueofthegroup’sshareoftheidentifiableassets,liabilitiesandcontingentliabilitiesacquiredisrecordedasgoodwill.Ifthecostofacquisitionislessthanthefairvalueofthenetassetsofthesubsidiaryacquired,thedifferenceisrecogniseddirectlyintheincomestatement.Thegrouprecognisesanynon-controllinginterestintheacquireeonanacquisition-by-acquisitionbasis,eitheratfairvalueoratthenon-controllinginterest'sproportionateshareoftherecognisedamountsoftheacquiree'sidentifiablenetassets.Totalcomprehensiveincomeisattributedtotheownersoftheparentandtothenon-controllinginterestshareholdersevenifthisresultsinthenon-controllinginterestshareholdershavingadeficitbalance.

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2. CONSOLIDATION continued

2.1 Subsidiaries continuedDisposalsIfthegrouplosescontrolofasubsidiarycompany,thegainorlossondisposaliscalculatedasthedifferencebetweenthefairvalueoftheconsiderationreceived,andthecarryingamountofthesubsidiary'snetassetsandanynon-controllinginterest.Gainsandlosses on disposal of subsidiaries are included in the income statement as realised and fair value gains. Any gains or losses in other comprehensiveincomethatrelatetothesubsidiaryarereclassifiedtotheincomestatementatthedateofdisposal.

Transactionswithnon-controllinginterestshareholdersTransactionswithnon-controllinginterestshareholdersaretreatedastransactionswithequityparticipantsofthegroup.Disposalsto/acquisitionsfromnon-controllinginterestshareholdersresultingainsandlossesforthegroupthatarerecordedinequity.Anydifferencebetweenanyconsiderationpaid/receivedandtherelevantshareacquired/soldofthecarryingvalueofthenetassetsofthe subsidiary is recorded in equity.

Measurement–MMIHoldingsLtdseparatefinancialstatementsInvestment in subsidiary companies are stated at cost less any impairment losses. The carrying amount of these investments is assessed annually for impairment indicators. If an indicator exists, the investment is impaired to the higher of the investment's fair value less costs to sell and value in use.

2.2 AssociatesAssociatesareallentitiesoverwhichthegrouphassignificant influencebutnotcontrol.Thegroup’sinvestmentinassociatesincludesgoodwill,identifiedonacquisition,netofanyaccumulatedimpairmentloss.Theaccountingpoliciesforassociatesareconsistent, in all material respects, with the policies adopted by the group.

Profitsandlossesresultingfromtransactionsbetweengroupcompaniesarerecognisedinthegroup’sresultstotheextentofthegroup’sunrelatedinterestsintheassociates.Gainsandlossesarisingonthedilutionofinvestmentsinassociatesarerecognisedinthe income statement.

MeasurementInvestmentsinassociatecompaniesareinitiallyrecognisedatcost,includinggoodwill,andthecarryingamountisincreasedordecreasedwiththegroup’sproportionateshareofpost-acquisitionprofitsorlosses,usingtheequitymethodofaccounting.Underthismethod,thegroup’sshareoftheassociate'spost-acquisitionprofitsorlossesisrecognisedintheincomestatementanditsshareofpost-acquisitionmovementsinothercomprehensiveincomeisrecognisedinothercomprehensiveincome.Thecumulativepost-acquisitionprofitorlossandmovementsinothercomprehensiveincomeareadjustedagainstthecarryingamountoftheinvestments.Theequitymethodisdiscontinuedfromthedatethatthegroupceasestohavesignificant influence over the associate. When significant influence islost,anyremaininginterestintheentityisremeasuredtofairvalue,andagainorlossisrecognised in the income statement.

Investmentsincollectiveinvestmentschemeswherethegrouphassignificant influence are designated as investments at fair value throughincomeandarenotequityaccountedwheretheybackcontractholderliabilities,basedonthescopeexemptioninIAS28–Investmentsinassociatesforinvestment-linkedinsurancefunds.Initialmeasurementisatfairvalueontradedate,withsubsequentmeasurement at fair value based on quoted repurchase prices at the close of business on the last trading day on or before the reportingdate.Fairvalueadjustmentsoncollectiveinvestmentschemesarerecognisedintheincomestatement.Therelatedincome from these schemes is recognised as interest or dividends received, as appropriate.

ImpairmentUndertheequitymethod,thecarryingvalueistestedforimpairmentatreportingdatesbycomparingtherecoverableamountwiththecarryingamount.Whenthegroup’sshareoflossesinanassociateequalsorexceedsitsinterestintheassociate,nofurtherlossesarerecognisedunlessthegrouphasincurredobligationsormadepaymentsonbehalfoftheassociate.Thegroupresumesequityaccountingonlyafteritsshareoftheprofitsequalstheshareoflossesnotrecognised.

Measurement–MMIHoldingsLtdseparatefinancialstatementsAssociated companies are carried at cost less impairment.

2.3 Joint arrangementsThegroupappliesIFRS11toalljointarrangements.UnderIFRS11investmentsinjointarrangementsareclassifiedaseitherjointoperationsorjointventuresdependingonthecontractualrightsandobligationsofeachinvestor.Jointventuresareaccountedforusing the equity method.

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Annexure D (continued)SIGNIFICANT GROUP ACCOUNTING POLICIES continued

2. CONSOLIDATION continued

2.3 Joint arrangements continuedMeasurementInterestsinjointventuresareinitiallyrecognisedatcostandadjustedthereaftertorecognisethegroup’sshareofthepost-acquisitionprofitsorlossesandmovementsinothercomprehensiveincome.Whenthegroup’sshareoflossesinajointventureequalsorexceedsitsinterestinthejointventure,thegroupdoesnotrecognisefurtherlosses,unlessithasincurredobligationsormade payments on behalf of the joint venture.

Unrealisedgainsontransactionsbetweenthegroupanditsjointventuresareeliminatedtotheextentofthegroup’sinterestinthejointventures.Unrealisedlossesarealsoeliminatedunlessthetransactionprovidesevidenceofanimpairmentoftheassettransferred.Accountingpoliciesofthejointventureshavebeenchangedwherenecessarytoensureconsistencywiththepoliciesadopted by the group.

3. FOREIGN CURRENCIES

Functional and presentation currencyItemsincludedinthefinancialstatementsofeachentityinthegrouparemeasuredusingthecurrencythatbestreflectstheprimaryeconomicenvironmentinwhichtheentityoperates(thefunctionalcurrency).TheconsolidatedfinancialstatementsarepresentedinSouthAfricanrand(thepresentationcurrency),whichisthefunctionalcurrencyoftheparent.

Transactions and balancesTransactionsinforeigncurrenciesaretranslatedintothefunctionalcurrencyusingtheexchangeratesprevailingatthedatesofthetransactions,orvaluationwhereitemsareremeasured.Foreignexchangegainsandlossesresultingfromthesettlementofsuchtransactionsandfromthetranslationatyear-endexchangeratesofmonetaryassetsandliabilitiesdenominatedinforeigncurrencies are recognised in the income statement.

Translationdifferencesonnon-monetaryfinancialassetsandliabilities,measuredatfairvaluethroughincome,arerecognisedaspartoftheirfairvaluegainorloss.Translationdifferencesonnon-monetaryitemsclassifiedasavailable-for-salefinancialassetsareincludedintheavailable-for-salereserveinothercomprehensiveincome.Translationdifferencesonmonetaryitemsclassifiedasavailable-for-sale are recognised in the income statement when incurred.

Subsidiary undertakingsForeignentitiesareentitiesofthegroupthathaveafunctionalcurrencydifferentfromthepresentationcurrency.Assetsandliabilitiesoftheseentitiesaretranslatedintothepresentationcurrencyattheratesofexchangerulingatthereportingdate.Incomeandexpenditurearetranslatedintothepresentationcurrencyattheaveragerateofexchangefortheyear.

Onconsolidation,exchangedifferencesarisingfromthetranslationofthenetinvestmentinforeignentitiesarerecognisedintheforeigncurrencytranslationreserveinothercomprehensiveincome.Ondisposal,suchexchangedifferencesarerecognisedintheincome statement as part of net realised and fair value gains.

Goodwillandfairvalueadjustmentsarisingontheacquisitionofaforeignentityaretreatedasassetsandliabilitiesoftheforeignentityandtranslatedattheclosingrate.

4. INTANGIBLE ASSETS

4.1 GoodwillRecognitionandmeasurementGoodwillrepresentstheexcessofthecostofabusinesscombinationovertheinterestacquiredinthenetfairvalueoftheidentifiableassets,liabilitiesandcontingentliabilitiesattheacquisitiondate.Subsequenttoinitialmeasurement,goodwilliscarriedat cost less accumulated impairment losses.

Goodwillonacquisitionofsubsidiariesisincludedinintangibleassetswhereasgoodwillonacquisitionofassociatesisincludedininvestment in associates.

Whentheinterestacquiredinthenetfairvalueoftheidentifiableassets,liabilitiesandcontingentliabilitiesexceedsthecostofthebusinesscombination,thedifferenceisrecogniseddirectlyintheincomestatement.

Gainsandlossesonthedisposalofanentityincludethecarryingamountofgoodwillrelatingtotheentitysold.


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4. INTANGIBLE ASSETS continued

4.1 Goodwill continuedImpairmentAttheacquisitiondate,goodwillacquiredinabusinesscombinationisallocatedtocash-generating units that are expected to benefitfromthesynergyofthecombinationinwhichthegoodwillarose.Cash-generating units to which goodwill has been allocatedareassessedannuallyforimpairment,ormorefrequentlyifeventsorchangesincircumstancesindicateapotentialimpairment. An impairment loss is recognised whenever the carrying amount of the cash-generating unit exceeds its recoverable amount,beingthehigherofvalueinuseandthefairvaluelesscoststosell.Anyimpairmentlossesareallocatedfirsttoreducethecarryingamountofanygoodwillallocatedtoacash-generatingunitandthentoreducethecarryingamountofotherassetsonapro rata basis. Impairment losses on goodwill are not reversed.

4.2 Value of in-force business acquiredOnacquisitionofaportfolioofinsuranceorinvestmentwithDPFcontracts,thegrouprecognisesanintangibleassetrepresentingthevalueofin-forcebusinessacquired(VOBA).VOBArepresentsthepresentvalueoffuturepre-taxprofitsembeddedintheacquired insurance or investment with DPF contract business. The VOBA is recognised gross of tax, with the deferred tax liability accountedforseparatelyinthestatementoffinancialposition.

MeasurementThefairvaluecalculationofVOBAonacquisitionisbasedonactuarialprinciplesthattakeintoaccountfuturepremiumandfeeincome,claimoutgo,mortality,morbidityandpersistencyprobabilitiestogetherwithfuturecostsandinvestmentreturnsontheunderlyingassets.Theprofitsarediscountedatarateofreturnallowingfortheriskofuncertaintyofthefuturecashflows.Thiscalculationisparticularlysensitivetotheassumptionsregardingdiscountrate,futureinvestmentreturnsandtherateatwhichpoliciesdiscontinue.

Theassetissubsequentlyamortisedovertheexpectedlifeofthecontractsastheprofitsoftherelatedcontractsemerge.

ImpairmentVOBAisreviewedforimpairmentlossesthroughtheliabilityadequacytestandwrittendownforimpairmentifnecessary.

4.3 Customer relationshipsCustomerrelationshipsrelatetorightstoreceivefeesforservicesrenderedinrespectofacquiredinvestmentcontractbusiness,groupriskbusinesswithannuallyrenewablecontracts,administeredretirementfundschemes,healthadministrationandassetadministration.Anintangibleassetisrecognisedwhenrightscanbeidentifiedseparatelyandmeasuredreliablyanditisprobablethat the cost will be recovered.

MeasurementTheassetrepresentsthegroup’srighttobenefitfromtheaboveservicesandisamortisedonastraight-linebasisovertheperiodinwhich the group expects to recognise the related revenue, which is between three and 10 years.

ImpairmentThe right is reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recognised in the income statement for the amount by which the carrying amount of the asset exceeds its recoverable amount.

4.4 Deferred acquisition costs (DAC)On long-term investment businessIncrementalcoststhataredirectlyattributabletosecuringrightstoreceivefeesforassetmanagementservicessoldwithinvestmentcontractsarerecognisedasanassetiftheycanbeidentifiedseparatelyandmeasuredreliably,andifitisprobablethattheywillberecovered.Theassetrepresentsthecontractualrighttobenefitfromreceivingfeesforprovidinginvestmentmanagementservices,andisamortisedovertheexpectedlifeofthecontract,asaconstantpercentageofexpectedgrossprofitmargins(includinginvestmentincome)arisingfromthecontract.Thepatternofexpectedprofitmarginsisbasedonhistoricalandexpectedfutureexperienceandisupdatedattheendofeachaccountingperiod.

On short-term insurance businessRefertotheshort-terminsurancecontractssectionoftheaccountingpolicies.

ImpairmentAnimpairmenttestisconductedannuallyatreportingdateontheDACbalancetoensurethattheamountwillberecoveredfromfuture revenue generated by the applicable remaining investment management contracts. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount.

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4. INTANGIBLE ASSETS continued

4.5 Brand and broker networkBrandandbrokernetworkintangibleassetshavebeenrecognisedbythegroupaspartofabusinesscombination.Theassetsarerecognisedwhentheyareseparatelyidentifiable,itisprobablethatthefutureeconomicbenefitswillflowtothegroupandtheassets have a cost or value that can be measured reliably.

MeasurementThebrandandbrokernetworksareinitiallymeasuredatfairvalue.Asthereisgenerallynoactivemarketfortheseintangibles,thefairvalueisdeterminedwithreferencetothepricethatwouldbereceivedtosellanassetinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate,onthebasisofthebestinformationavailable.Indeterminingthisamount,thegroupconsiderstheoutcomeofrecenttransactionsforsimilarassets,forexample,thegroupappliesmultiplesreflectingcurrentmarkettransactionstofactorsthatdrivetheprofitabilityoftheasset(suchasoperatingprofitandVNB).

Subsequently,thebrandandbrokernetworksareamortisedovertheirexpectedusefullivesusingthestraight-linemethod.Thebrandsareamortisedover20yearsandthebrokernetworksoverfiveto20years.

ImpairmentThe brand and broker networks are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount, being the value in use.

4.6 Computer softwareRecognitionandmeasurementAcquired computer softwareAcquiredcomputersoftwarelicencesarecapitalisedonthebasisofthecostincurredtoacquireandbringtousethespecificsoftware.Thesecostsareamortisedonthebasisofanexpecteduseful life of three to 10 years, which is assessed annually using the straight-line method.

Internally developed computer softwareCostsdirectlyassociatedwithdevelopingsoftwareforinternalusearecapitalisedifthecompletionofthesoftwaredevelopmentistechnically feasible, the group has the intent and ability to complete the development and use the asset, the asset can be reliably measuredandwillgeneratefutureeconomicbenefits.Directlyassociatedcostsincludeemployeecostsofthedevelopmentteamandanappropriateportionofrelevantoverheads.Computersoftwaredevelopmentcostsrecognisedasassetsareamortisedovertheir useful lives, up to 10 years, using the straight-line method.

Costsassociatedwithresearchormaintainingcomputersoftwareprogrammesarerecognisedasanexpenseasincurred.

ImpairmentComputersoftwarenotreadyforuseistestedforimpairmentannually.Computersoftwareinuseisreviewedforimpairmentlosseswhenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recognisedfortheamountbywhichthecarryingamountoftheassetexceedsitsrecoverableamount,thelatterbeingthehigherofthe fair value less cost to sell and the value in use.

5. OWNER-OCCUPIED PROPERTIES

Owner-occupiedpropertiesareheldforuseinthesupplyofservicesorforadministrativepurposes.Wherethegroupoccupiesasignificantportionoftheproperty,itisclassifiedasanowner-occupiedproperty.

MeasurementOwner-occupiedpropertiesarestatedatrevaluedamounts,beingfairvaluereflectiveofmarketconditionsatthereportingdate.

FairvalueisdeterminedusingDCFtechniqueswhichpresentvaluethenetrentalincome,discountedforthedifferenttypesofpropertiesatthemarketratesapplicableatthereportingdate.Whereconsiderednecessary,significantpropertiesarevaluedexternallybyanindependentvaluator,atleastinathree-yearcycle,toconfirmthefairvalueoftheportfolio.

Increasesinthecarryingamountarisingonrevaluationofbuildingsarecreditedtoalandandbuildingrevaluationreserveinothercomprehensiveincome.Decreasesthatoffsetpreviousincreasesinrespectofthesameassetarechargedagainsttherevaluationreserve, and all other decreases are charged to the income statement.


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5. OWNER-OCCUPIED PROPERTIES continued

Measurement continuedSubsequentcostsareincludedintheasset’scarryingamountorrecognisedasaseparateasset,asappropriate,onlywhenitisprobablethatfutureeconomicbenefitsassociatedwiththeitemwillflowtothegroupandthecostoftheitemcanbemeasuredreliably.Allotherrepairsandmaintenancecostsarechargedtotheincomestatementduringthefinancialperiodinwhichtheyareincurred.

DepreciationOwner-occupied property buildings are depreciated on a straight-line basis, over 50 years, to allocate their revalued amounts lesstheirresidualvaluesovertheirestimatedusefullives.Propertyandequipmentrelatedtothebuildingsaredepreciatedoverfiveto20years.Landisnotdepreciated.Theresidualvaluesandusefullivesarereviewedateachreportingdateandadjustedifappropriate.

Accumulateddepreciationrelatingtothesepropertiesiseliminatedagainstthegrosscarryingamountofthepropertiesandthenetamountisrestatedtotherevaluedamount.Subsequentdepreciationchargesareadjustedbasedontherevaluedamountforeachproperty.Anydifferencebetweenthedepreciationchargeontherevaluedamountandtheamountwhichwouldhavebeenchargedunderhistoriccostistransferred,netofanyrelateddeferredtax,betweentherevaluationreserveandretainedearningsasthepropertyisutilised.

DisposalsWhenowner-occupiedpropertiesaresold,theamountsincludedinthelandandbuildingsrevaluationreservearetransferredtoretained earnings.

6. INVESTMENT PROPERTIES

Investmentpropertiesareheldtoearnrentalsorforcapitalappreciationorbothandarenotsignificantlyoccupiedbythegroup.Investmentpropertiesincludepropertyunderdevelopmentforfutureuseasinvestmentproperty.

MeasurementInvestmentpropertiescomprisefreeholdlandandbuildingsandarecarriedatfairvalue,reflectiveofmarketconditionsatthereportingdate,lesstherelatedcumulativeacceleratedrentalincomereceivable.Fairvalueisdeterminedasbeingthepresentvalueofnetrentalincome,discountedforthedifferenttypesofpropertiesatthemarketratesapplicableatthereportingdate.Allpropertiesareinternallyvaluedonanannualbasisandwhereconsiderednecessary,significantpropertiesarevaluedexternallybyanindependentvaluator,atleastinathree-yearcycle,toconfirmthefairvalueoftheportfolio.Theacceleratedrentalincomereceivablerepresentsthecumulativedifferencebetweenrentalincomeonastraight-linebasisandtheaccrualbasis.Subsequentexpenditureischargedtotheasset’scarryingvalueonlywhenitisprobablethatthefutureeconomicbenefitsassociatedwiththeitemwillflowtothegroupandthecostcanbemeasuredreliably.Allotherrepairsandmaintenancecostsarechargedtotheincomestatementduringthefinancialperiodinwhichtheyareincurred.

Investmentpropertiesthatarebeingredevelopedforcontinuinguseasinvestmentproperty,orforwhichthemarkethasbecomelessactive,continuetobemeasuredatfairvalue.

Undevelopedlandisvaluedatfairvaluebasedonrecentmarketactivityinthearea.

TransferstoandfrominvestmentpropertiesIfaninvestmentpropertybecomesowner-occupied,itisreclassifiedunderowner-occupiedproperties,anditsfairvalueatthedateofreclassificationbecomesitscostforsubsequentaccountingpurposes,andviceversa.

PropertiesheldunderoperatingleasesPropertiesheldunderoperatingleasesareclassifiedasinvestmentpropertiesaslongastheyareheldforlong-termrentalyieldsandnotoccupiedbythegroup.Theinitialcostofthesepropertiesisthelowerofthefairvalueofthepropertyandthepresentvalueoftheminimumleasepayments.Thesepropertiesarecarriedatfairvalueafterinitialrecognition.

Gains and lossesUnrealisedgainsorlossesarisingonthevaluationordisposalofinvestmentpropertiesareincludedintheincomestatementinnetrealisedandfairvaluegainsandlosses.Thesefairvaluegainsandlossesareadjustedforanydoublecountingarisingfromtherecognitionofleaseincomeonthestraight-linebasiscomparedtotheaccrualbasisnormallyassumedinthefairvaluedetermination.

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7. FINANCIAL ASSETS

ClassificationThegroupclassifiesitsfinancialassetsintothefollowingcategories:

• Financialassetsatfairvaluethroughincome,includingderivativefinancialinstruments• Loans and receivables• Held-to-maturityfinancialassets• Available-for-salefinancialassets

Theclassificationdependsonthepurposeforwhichthefinancialassetswereacquired.Managementdeterminestheclassificationofitsfinancialassetsatinitialrecognition.

• Financial assets at fair value through incomeThiscategoryhastwosub-categories:financialassetsheldfortradingandthosedesignatedatfairvaluethroughincomeatinception.

Afinancialassetisclassifiedasheldfortradingatinceptionifitisacquiredprincipallyforthepurposeofsellingintheshortterm.Derivativesareclassifiedasheldfortrading,unlesstheyaredesignatedashedges.

Financialassetsaredesignatedatfairvaluethroughincomeatinceptioniftheyare: − heldtomatchinsuranceandinvestmentcontractliabilitiesthatarelinkedtothechangesinfairvalueoftheseassets,therebyeliminatingorsignificantlyreducinganaccountingmismatchthatwouldotherwisearisefrommeasuringassetsandliabilitiesorrecognisingthegainsandlossesonthemondifferentbases;

− managed,withtheirperformancebeingevaluatedonafairvaluebasis,inaccordancewithportfoliomandatesthatspecifytheinvestmentstrategy;or

− afinancialinstrumentthatincludesasignificantembeddedderivativethatclearlyrequirebifurcation.

• Loans and receivablesLoansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinan activemarket,otherthanthoseclassifiedasheldfortradingandthosedesignatedatfairvaluethroughincomeoravailable-for-sale assets.

• Held-to-maturity financial assetsHeld-to-maturityfinancialassetsarenon-derivativefinancialassetswithfixedordeterminablepaymentsandfixedmaturities–otherthanthosethatmeetthedefinitionofloansandreceivables–thatmanagementofthegrouphasthepositiveintentionand ability to hold to maturity.

• Available-for-sale financial assetsAvailable-for-salefinancialassetsarenon-derivativefinancialassetsthatareeitherdesignatedinthiscategoryornotclassifiedinany of the other categories.

Recognition and measurementAfinancialassetisrecognisedinthestatementoffinancialpositionwhen,andonlywhen,thegroupbecomesapartytothecontractual provisions of the instrument.

Purchasesandsalesoffinancialassetsarerecognisedontradedate,beingthedateonwhichthegroupcommitstopurchaseorsellthefinancialassets.Financialassetsareinitiallyrecognisedatfairvalueplus,inthecaseofafinancialassetnotatfairvaluethroughincome,transactioncoststhataredirectlyattributabletotheacquisitionoftheasset.Transactioncoststhatarenotrecognisedaspartofthefinancialassetareexpensedintheincomestatementinnetrealisedandfairvaluegains.Financialassetsatfairvaluethrough income and available-for-sale assets are subsequently carried at fair value. Loans and receivables and held-to-maturity assetsarerecognisedinitiallyatfairvalueandsubsequentlycarriedatamortisedcost,usingtheeffective interest rate method less provision for impairment.

Thefairvalueoffinancialassetstradedinactivemarketsisbasedonquotedmarketpricesatthereportingdate.Collectiveinvestmentsarevaluedattheirrepurchaseprice.Forunlistedequityanddebtsecurities,unquotedunit-linkedinvestments andfinancialassetswherethemarketisnotactive,thegroupestablishesfairvaluebyusingvaluationtechniquesdisclosedinAnnexureE.TheseincludeDCFanalysisandadjustedprice-earningsratiosallowingforthecreditriskofthecounterparty. Unquotedsecuritiesarevaluedattheendofeveryreportingperiod.


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7. FINANCIAL ASSETS continued

Impairment of financial assets• Financial assets carried at fair value – available-for-sale

Equity investmentsAteachreportingdatethegroupassesseswhetherthereisobjectiveevidencethatanavailable-for-salefinancialassetisimpaired,includingasignificantorprolongeddeclineinthefairvalueofthesecuritybelowitscostinthecaseofequityinvestmentsclassifiedasavailable-for-sale.Ifanysuchevidenceexistsforavailable-for-salefinancialassets,thecumulativeloss–measuredasthedifferencebetweentheacquisitioncostandcurrentfairvalue,lessanyimpairmentlossonthefinancialassetpreviouslyrecognisedinprofitandloss–isremovedfromothercomprehensiveincomeandrecognisedintheincomestatement.Impairment losses on equity instruments recognised in the income statement are not subsequently reversed in the income statement.Increasesinfairvalueofequityinstrumentsafterimpairmentarerecognisedinothercomprehensiveincome.

DebtsecuritiesFordebtsecurities,thegroupusesthecriteriareferredtounderloansandreceivablesbelow.If,inasubsequentperiod,thefairvalueofadebtinstrumentclassifiedasavailable-for-saleincreasesandtheincreasecanbeobjectivelyrelatedtoaneventoccurringaftertheimpairmentlosswasrecognisedinprofitorloss,theimpairmentisreversedthroughtheincomestatement.

• Financial assets carried at amortised cost – loans and receivablesA provision for impairment is established when there is objective evidence that the group will not be able to collect all amounts dueaccordingtotheoriginaltermsoftheassetsconcerned.Theamountoftheprovisionisthedifferencebetweenthecarryingamountoftheassetandthepresentvalueofestimatedfuturecashflows,discountedattheoriginaleffective interest rate. The movement in the current year provision is recognised in the income statement.

If,inasubsequentperiod,theamountoftheimpairmentlossdecreasesandthedecreasecanberelatedobjectivelytoaneventoccurringaftertheimpairmentlosswasrecognised,thereversalofthepreviouslyrecognisedimpairmentlossisrecognisedinthe income statement.

Amountschargedtotheprovisionaccountaregenerallywrittenoffwhenthereisnoexpectationofrecoveringadditionalcash.

Derecognition of financial assetsFinancialassetsarederecognisedwhentherighttoreceivecashflowsfromthefinancialassethasexpiredorhasbeentransferred,andthegrouphastransferredsubstantiallyallrisksandrewardsofownership.Thegroupalsoderecognisesafinancialassetwhenthe group retains the contractual rights of the assets but assumes a corresponding liability to transfer these contractual rights to anotherpartyandconsequentlytransferssubstantiallyalltherisksandbenefitsassociatedwiththeasset.

Realised and unrealised gains and lossesFinancial assets at fair value through incomeRealisedandunrealisedgainsandlossesarisingfromchangesinthevalueoffinancialassetsatfairvaluethroughincomeareincludedintheincomestatementintheperiodinwhichtheyarise.Interestanddividendincomearisingonfinancialassetsaredisclosed separately under investment income in the income statement.

Available-for-sale assetsUnrealisedgainsandlossesarisingfromchangesinthefairvalueofavailable-for-salefinancialassetsarerecognisedinothercomprehensive income. When these assets are sold or impaired, the accumulated fair value adjustments are included in the income statement as net realised and fair value gains or losses. Interest and dividend income arising on these assets are recognised and disclosed separately under investment income in the income statement.

Changesinthefairvalueofequitysecuritiesdenominatedinaforeigncurrencyandclassifiedasavailable-for-salearerecognised inothercomprehensiveincome.Changesinthefairvalueofdebtsecuritiesdenominatedinaforeigncurrencyandclassified asavailable-for-saleareanalysedbetweentranslationdifferencesresultingfromchangesintheamortisedcostofthesecurity andotherchangesinthecarryingamountofthesecurity.Translationdifferencesresultingfromchangesintheamortisedcost arerecognisedintheincomestatement;translationdifferencesresultingfromotherchangesarerecognisedinothercomprehensive income.

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7. FINANCIAL ASSETS continued

OffsettingFinancialassetsandliabilitiesaresetoffandthenetbalancereportedinthestatementoffinancialpositionwherethereisalegallyenforceablerighttosetoff,whereitistheintentiontosettleonanetbasisortorealisetheassetandsettletheliabilitysimultaneously,wherethematuritydateforthefinancialassetandliabilityisthesame,andwherethefinancialassetandliabilityare denominated in the same currency.

Scrip lendingTheequitiesorbondsonloan,andnotthecollateralsecurity,arereflectedinthestatementoffinancialpositionofthegroupatyear-end.Scriplendingfeesreceivedareincludedunderfeeincome.Thegroupcontinuestorecognisetherelatedincomeontheequitiesandbondsonloan.Collateralheldisnotrecognisedinthefinancialstatementsunlesstherisksandrewardsrelatingtotheasset have passed to the group. If the asset is sold, the gain or loss is included in the income statement.

8. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Derivativesareinitiallyrecognisedatfairvalueonthedateonwhichaderivativecontractisenteredintoandaresubsequentlyremeasuredattheirfairvalue.Themethodofrecognisingtheresultingfairvaluegainorlossdependsonwhetherthederivativeisdesignated as a hedging instrument, and if so, the nature of the item being hedged. Fair values are obtained from quoted market pricesinactivemarkets,includingrecentmarkettransactions,andvaluationtechniques,includingDCFandoptionspricingmodels,asappropriate.Allderivativesarecarriedasassetswhenfairvalueispositiveandasliabilitieswhenfairvalueisnegative,subjecttotheoffsettingprinciplesasdescribedunderthefinancialassetsaccountingpoliciesabove.

Thebestevidenceofthefairvalueofaderivativeatinitialrecognitionisthetransactionprice(thatis,thefairvalueoftheconsiderationgivenorreceived)unlessthefairvalueofthatinstrumentisevidencedbycomparisonwithotherobservablecurrentmarkettransactionsinthesameinstrument(thatis,withoutmodificationorrepackaging),orisbasedonavaluationtechniquewhose variables include only observable market data.

Whenunobservablemarketdatahasanimpactonthevaluationofderivatives,theentireinitialchangeinfairvalueindicatedbythevaluationmodelisnotrecognisedimmediatelyintheincomestatementbutoverthelifeofthetransactiononanappropriatebasis,orwhentheinputbecomesobservable,orwhenthederivativematuresorisclosedout.

Thesubsequentfairvalueofexchange-tradedderivativesisbasedonaclosingmarketpricewhilethevalueofover-the-counterderivativesisdeterminedbyusingvaluationtechniquesthatincorporateallfactorsthatmarketparticipantswouldconsiderinsettingtheprice.

Embeddedderivativesareseparatedandfair-valuedthroughincomewhentheyarenotcloselyrelatedtotheirhostcontractsandmeetthedefinitionofaderivative,orwherethehostcontractisnotcarriedatfairvalue.

Thegroupdesignatescertainderivativesaseither:(i)hedgesofthefairvalueofrecognisedassetsorliabilitiesorofafirmcommitment(fairvaluehedges);or(ii)hedgesofhighlyprobableforecasttransactions(cashflowhedges).

Thegroupdocumentsattheinceptionofthetransactiontherelationshipbetweenhedginginstrumentsandhedgeditems,aswellasitsriskmanagementobjectiveandstrategyforundertakingvarioushedgingtransactions.Thegroupalsodocumentsitsassessment,bothathedgeinceptionandonanongoingbasis,ofwhetherthederivativesthatareusedinhedgingtransactionsareexpectedtobeandhavebeenhighlyeffectiveinoffsettingchangesinfairvaluesorcashflowsofhedgeditems.

Fair value hedgesChangesinthefairvalueofderivativesthataredesignatedandqualifyasfairvaluehedgesarerecordedintheincomestatementas part of net realised and fair value gains and losses, together with any changes in the fair value of the hedged asset or liability thatareattributabletothehedgedrisk.Thegainorlossrelatingtotheeffectiveportionofinterestrateswapsisrecognisedintheincomestatementwithininterestincomeorfinancecosts.Botheffectivechangesinfairvalueofcurrencyfuturesandthegainorlossrelatingtotheineffectiveportionarerecognisedintheincomestatementwithinnetrealisedandfairvaluegainsandlosses.

Ifthehedgenolongermeetsthecriteriaforhedgeaccounting,theadjustmenttothecarryingamountofahedgeditemforwhichtheeffectiveinterestmethodisused,isamortisedtotheincomestatementovertheperiodtomaturity.

Derivatives that do not qualify for hedge accounting Certainderivativeinstrumentsdonotqualifyforhedgeaccounting.Changesinthefairvalueofallsuchderivativeinstrumentsarerecognised immediately in the income statement within net realised and fair value gains and losses.


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9. CASH AND CASH EQUIVALENTS

Cashandcashequivalentsarecarriedinthestatementoffinancialpositionatcost,whichapproximatesfairvalue.Cashandcashequivalents comprise cash on hand, deposits held at call with banks and other short-term, highly liquid investments with original maturitiesofthreemonthsorlessandaresubjecttoaninsignificantriskofchangeinvalue.Bankbalancesheldtomeetshort-termcash commitments are included in funds on deposit and other money market instruments with a maturity of three months or less. Operatingbankbalancesareincludedinbankandothercashbalances.

10. LONG AND SHORT-TERM INSURANCE AND INVESTMENT CONTRACTS

Thecontractsissuedbythegrouptransferinsurancerisk,financialriskorboth.Asaresultofthedifferentriskstransferredbycontracts,contractsareseparatedintoinvestmentandinsurancecontractsforthepurposesofvaluationandprofitrecognition.Insurancecontractsarethosecontractsthattransfersignificantinsurancerisktothegroup,whereasinvestmentcontractstransferfinancialrisk.

Theclassificationofcontractsisperformedattheinceptionofeachcontract.Theclassificationofthecontractatinceptionremainstheclassificationofthecontractfortheremainderofitslifetime.Thereisoneexceptiontothisprinciple:

• Ifthetermsofaninvestmentcontractchangesignificantly,theoriginalcontractisderecognisedandanewcontractisrecognisedwiththenewclassification.

Classification of contractsInvestment contractsInvestmentcontractsarethosewhereonlyfinancialriskistransferred.

Financialriskistheriskofapossiblefuturechangeinoneormoreofaspecifiedinterestrate,financialinstrumentprice,commodityprice,foreignexchangerate,indexofpricesorrates,creditratingorcreditindexorothervariable,providedthatinthecaseofanon-financialvariable,thevariableisnotspecifictoapartytothecontract.

For cell captivebusiness,contractsthattransferfinancialriskwithnosignificantinsuranceriskareaccountedforasfinancialinstruments(investmentcontractsdesignatedatfairvaluethroughincome)egfirst-partycells.Forthesearrangements,onlyfeeincome,investmentincomeandnetrealisedandfairvaluegainsareincludedinthegroup’sincomestatement.Onthestatementoffinancialposition,premiumdebtorsandinsuranceliabilitiesrelatingtothesearrangementsareexcluded.

Insurance contractsInsurancecontractsarethoseunderwhichthegroupacceptssignificantinsuranceriskfromanotherparty(contractholder)byagreeingtopaycompensationifaspecifieduncertainfutureevent(theinsuredevent)adverselyaffectsthecontractholder.

Insuranceriskisrisk,otherthanfinancialrisk,transferredfromtheholderofacontracttotheissuer.Insuranceriskisdeemedsignificantifaninsuredeventcouldcauseaninsurertopaybenefits(netofaccumulatedincomeandaccountbalances)ontheoccurrenceofaninsuredeventthataresignificantlymorethanthebenefitspayableiftheinsuredeventdidnotoccur.

For cell captive business, insurance policies are issued in third-party cell captivestructuresorcontingencypolicies.Thecompanyalsoacceptsinsuranceandreinsuranceinwardsrisksdirectly,egwherethepromotercellsharesintheunderwritingexperienceofselectedcallarrangements.Allitemsrelatingtothesearrangementsareincludedinthegroup’sincomestatementandstatementoffinancialposition,exceptforcontractmanagementfees.

Insurancecontractsmaytransferfinancialriskaswellasinsurancerisk.However,inallinstanceswheresignificantinsuranceriskistransferred,thecontractisclassifiedasaninsurancecontract.

Contracts with DPFThe group issues long-term insurance and investment contracts containing DPF. These contracts are smoothed bonus and conventionalwith-profitbusiness.AllcontractswithDPFareaccountedforinthesamemanneraslong-terminsurancecontracts.WhereacontracthasbothinvestmentwithDPFandinvestmentcomponents,thepolicyisclassifiedasinvestment with DPF.

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10. LONG AND SHORT-TERM INSURANCE AND INVESTMENT CONTRACTS continued

Long-term insurance contracts and investment contracts with DPFMeasurementTheliabilitiesrelatingtolong-terminsurancecontractsandinvestmentcontractswithDPFaremeasuredinaccordancewiththeFSVbasisassetoutinSAP104–Calculationofthevalueoftheassets,liabilitiesandCARoflong-terminsurers.TheFSVbasisisbasedonbestestimateassumptionsregardingfutureexperiencepluscompulsory marginsandadditionaldiscretionary margins for prudenceanddeferralofprofitemergence.

Assumptionsusedinthevaluationbasisarereviewedatleastannuallyandanynon-economicchangesinestimatesarereflectedintheincomestatementastheyoccur.Economicchangesinestimatearestabilisedastheyoccurandarereflectedintheincomestatementaccordingtoaspecifiedreleasepattern.

Thevaluationbasesusedforthemajorclassesofcontractliabilities,beforetheadditionofthemarginsdescribedundertheheadingof compulsory and discretionary margins below, were as follows:

• For group smoothed bonus business, the liability is taken as the sum of the fund accounts,beingtheretrospectiveaccumulationofpremiumsnetofchargesandbenefitpaymentsatthedeclaredbonusrates.

• For individual smoothed bonus business, the liability is taken as the sum of the fund accounts less the present value of future chargesnotrequiredforriskbenefitsandexpenses.

• Forwith-profitannuitybusiness,theliabilityistakenasthediscountedvalueofprojectedfuturebenefitpaymentsandexpenses.Future bonuses are provided for at bonus rates supported by the assumed future investment return.

• Fortheabovethreeclassesofbusiness,BSAsareheldinadditiontotheliabilitiesdescribedabove.Inthecaseofsmoothedbonusbusiness,theBSAisequaltothedifferencebetweenthemarketvalueoftheunderlyingassetsandthefund accounts. In thecaseofwith-profitannuitybusiness,theBSAisequaltothedifferencebetweenthemarketvalueoftheunderlyingassetsandthediscountedvalueofprojectedfuturebenefitpaymentsandexpenses.BSAsareincludedincontractholderliabilities.

• Forconventionalwith-profitbusiness,theliabilityisthepresentvalueofbenefitslesspremiums,wherethelevelofbenefitsisset to that supportable by the asset share.

• For individual market-related business, the liability is taken as the fair value of the underlying assets less the present value of futurechargesnotrequiredforriskbenefitsandexpenses.

• Forconventionalnon-profitbusiness,includingnon-profitannuitiesandGroupPHIbusiness,theliabilityistakenasthedifferencebetweenthediscountedvalueoffutureexpensesandbenefitpaymentsandthediscountedvalueoffuturepremiumreceipts.

• Provisionismadefortheestimatedcostofincurredbutnotyetreported(IBNR)claimsforallrelevantclassesofbusinessasatthereportingdate.IBNRprovisionsarecalculatedusingrun-offtrianglemethodsorpercentagesofpremiumbasedonhistoricalexperience or else implicit allowance is made where appropriate. Outstanding reported claims are disclosed in other payables.

• Anumberofcontractscontainembeddedderivativesintheformoffinancialoptionsandinvestmentguarantees.Liabilitiesinrespectofthesederivativesarefair-valuedinaccordancewiththeguidelinesinAPN110–Allowanceforembeddedinvestmentderivatives.Stochasticmodelsareusedtodetermineabestestimateofthetimevalueaswellastheintrinsicvalueofthesederivatives.

CompulsoryanddiscretionarymarginsInthevaluationofliabilities,provisionismadefortheexplicitcompulsory marginsasrequiredbySAP104–Calculationofthevalueoftheassets,liabilitiesandCARoflong-terminsurers.Discretionary marginsareheldinadditiontothecompulsory margins. These discretionary marginsareusedtoensurethatprofitandriskmarginsinthepremiumsarenotcapitalisedprematurelysothatprofitsare recognised in line with product design, and in line with the risks borne by the group.

The main discretionary marginsutilisedinthevaluationareasfollows:

• AdditionalBSAsareheldforthebenefitofshareholderstoprovideanadditionallayerofprotectionunderextrememarketconditionsagainsttheriskofremovalofnon-vestedbonusescausedbyfluctuationsinthevaluesofassetsbackingsmoothedbonusliabilities.ThisliabilityisinadditiontothepolicyholderBSAdescribedelsewhere,andisnotdistributedasbonusestopolicyholdersundernormalmarketconditions.

• Forcertainbooksofbusinesswhicharering-fencedperhistoricmergerortake-overarrangements,appropriateliabilitiesareheldtoensureappropriatecapitalisationoffutureprofitsinlinewiththetermsoftherelatedagreements.

• Anadditionalmarginisheldtoreducetheriskoffuturelossescausedbytheimpactofmarketfluctuationsoncapitalisedfeesandontheassetsbackingguaranteedliabilities.Thisliabilityisbuiltupretrospectivelyandutilisedifadversemarketconditionscauseareductioninthecapitalisedvalueoffeesorinthevalueofassetsbackingguaranteedliabilities.

• Additionalprospectivemarginsareheldinrespectofpremiumanddecrementassumptionsandasset-relatedfeesoncertainproductlinestoavoidtheprematurerecognitionofprofitsthatmaygiverisetofuturelossesifclaimsexperienceturnsouttobeworsethanexpected.Thisallowsprofitstoberecognisedintheperiodinwhichtherisksarebornebythegroup.


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Long-term insurance contracts and investment contracts with DPF continuedCompulsoryanddiscretionarymarginscontinued• For certain books of business, future charges arising from the surrender of smoothed bonus individual policies are not

recogniseduntilsurrenderoccurs.• Liabilitiesforimmediateannuitiesaresetequaltothepresentvalueofexpectedfutureannuitypaymentsandexpenses,

discountedusinganappropriatemarket-relatedyieldcurveasatthereportingdate.Theyieldcurveisbasedonrisk-freesecurities(eitherfixedorCPI-linked,dependingonthenatureofthecorrespondingliability),adjustedforcreditandliquidityspreadsoftheassetsactuallyheldintheportfolio.Implicitallowanceismadeforexpectedcreditlossestoavoidareductioninliabilitiescausedbycapitalisationofcreditspreads.

• For cell captive business, the tax charged to each cell does not always equal the total tax liability of the company since certain cellshavecalculatedtaxlosses.Insteadofcreditingthecellswiththeresultingtaxasset,thetaxassetsareaccumulatedinaseparatecell,andnotionallyallocatedtotheirrespectivecells.Theamountinthiscellisraisedasadiscretionarymargin.Intheeventthatacellwithataxassetisabletoutilisethatassetagainstafuturetaxliability,thetaxassetwillbereducedoreliminated accordingly.

EmbeddedderivativesThegroupdoesnotseparatelymeasureembeddedderivativesthatmeetthedefinitionofaninsurancecontractandtheentirecontractismeasuredasaninsurancecontract.Allotherembeddedderivativesareseparatedandcarriedatfairvalue,inaccordancewithAPN110,iftheyarenotcloselyrelatedtothehostinsurancecontractbutmeetthedefinitionofaderivative.Embeddedderivativesthatareseparatedfromthehostcontractarecarriedatfairvaluethroughincome.

Liability adequacy testThe FSV methodology meets the requirements of the liability adequacy test in terms of IFRS 4 – Insurance contracts. However, at eachreportingdatetheadequacyoftheinsuranceliabilitiesisassessedtoconfirmthat,inaggregateforeachinsuranceportfolio,thecarryingamountoftheinsuranceliabilities,measuredinaccordancewiththeFSVbasis,lessanyrelatedintangibleassetandpresentVOBA,isadequateinrelationtothebest-estimatefuturecashflowliabilities.Best-estimateliabilitiesarebasedonbest-estimateassumptionsinaccordancewiththeFSVbasis,butexcludingcompulsory margins as described in SAP 104 as well as all discretionary margins.Iftheliabilitiesprovetobeinadequate,anyVOBAorotherrelatedintangibleassetiswrittenoffandanyfurtherdeficiencyisrecognisedintheincomestatement.

Reinsurance contracts heldContracts entered into by the group with reinsurers under which the group is compensated for losses on one or more contracts issuedbythegroupandthatmeettheclassificationrequirementsforinsurancecontractsareclassifiedasreinsurancecontractsheld.Contractsthatdonotmeettheseclassificationrequirementsareclassifiedasfinancialassets.Thebenefitstowhichthegroupisentitledunderreinsurancecontractsheldarerecognisedasreinsuranceassets.Theseassetsconsistofshort-termbalancesduefromreinsurers(classifiedasreceivables),aswellaslonger-termreceivables(classifiedasreinsuranceassets)thataredependentontheexpectedclaimsandbenefitsarisingundertherelatedreinsuredinsurancecontracts.Amountsrecoverablefromorduetoreinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each contract.

Reinsuranceliabilitiesareamountspayableintermsofreinsuranceagreements.

Therearethreetypesofreinsuranceliabilities:

• Thefirstconsistsofreinsuranceliabilitieswhicharepayabletoregisteredreinsurers,intermsofareinsuranceagreementand include premiums payable for reinsurance contracts which are recognised as an expense when due. These premiums are included in other payables.

• The second type consists of reinsurance contracts which the group has with third-party cell owners. The agreements in place with these cell owners are such that the cell owner acts as reinsurer to the group for the business which the cell brings to the group.Therisksandrewardsofinsurancepoliciesrelatingtothesecellsarepassedontothecellowner,andthegroupretainsnoinsuranceriskrelatingtothesepoliciesonanetbasis.Thegroupthereforehasanobligationtopaythenetresultsrelatingtotheinsurancebusinessinthecelltothecellownerasaresultoftheseagreements.Thisobligationisdeemedtobeareinsurancearrangementandisdisclosedaspartofinsurancecontractliabilities.

• Thethirdtypeconsistsofafinancialreinsuranceagreementwitharegisteredreinsurer,wherebythereinsurerprovidesupfrontfunding to a cell within the group, with the cell then repaying this funding over an agreed term. The liability associated with thisrepaymentisdisclosedaspartofreinsurancecontractliabilitiesandisvaluedconsistentlywiththeDCFapproachusedforinsurancecontractliabilities.

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Long-term insurance contracts and investment contracts with DPF continuedReinsurance contracts held continuedImpairment of reinsurance assetsIf there is objective evidence that a reinsurance asset is impaired, the group reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises that impairment loss in the income statement. The impairment loss is calculated using the same method as that adopted for loans and receivables.

Long-term insurance premiumsInsurancepremiumsandannuityconsiderationsreceivablefromlong-terminsurancecontractsandinvestmentcontractswithDPFare recognised as revenue in the income statement, gross of commission and reinsurance premiums and excluding taxes and levies. Where annual premiums are paid in instalments, the outstanding balance of these premiums is recognised when due. Receivables arising from insurance and investment contracts with DPF are recognised under insurance and other receivables.

Reinsurance premiumsReinsurance premiums are recognised when due for payment.

Long-terminsurancebenefitsandclaimsInsurancebenefitsandclaimsrelatingtolong-terminsurancecontractsandinvestmentcontractswithDPFincludedeath,disability,maturity,annuityandsurrenderpaymentsandarerecognisedintheincomestatementbasedontheestimatedliabilityforcompensationowedtothecontractholder.Death,disabilityandsurrenderclaimsarerecognisedwhenincurred.Theseclaimsalsoincludeclaimeventsthatoccurredbeforethereportingdatebuthavenotbeenfullyprocessed.Claimsintheprocessofsettlementarerecognisedinotherpayablesinthestatementoffinancialposition.Maturityandannuityclaimsarerecognisedwhentheyaredueforpayment.Outstandingclaimsarerecognisedinotherpayables.Contingencypolicybonusesareincludedinclaimsintheincome statement.

Reinsurance recoveriesReinsurance recoveries are accounted for in the same period as the related claim.

AcquisitioncostsAcquisitioncosts,disclosedassalesremuneration,consistofcommissionpayableonlong-terminsurancecontractsandinvestmentcontractswithDPFandexpensesdirectlyrelatedthereto(includingbonusespayabletosalesstaffandthegroup’scontributiontotheirretirementandmedicalaidfunds).Thesecostsareexpensedwhenincurred.TheFSVbasismakesimplicitallowancefortherecoupmentofacquisitioncosts;thereforenoexplicitdeferredacquisitioncostassetisrecognisedinthestatementoffinancialpositionforcontractsvaluedonthisbasis.

Investment contractsThegroupdesignatesinvestmentcontractliabilitiesatfairvaluethroughincomeuponinitialrecognitionastheirfairvalueisdependentonthefairvalueofunderlyingfinancialassets,derivativesand/orinvestmentpropertiesthataredesignatedatinceptionasfairvaluethroughincome.Thegroupfollowsthisapproachbecauseiteliminatesorsignificantlyreducesameasurementorrecognitioninconsistency,referredtoasanaccountingmismatch,thatwouldotherwisearisefrommeasuringassetsorliabilitiesorrecognisingthegainsandlossesonthemondifferentbases.

MeasurementThegroupissuesinvestmentcontractswithoutfixedtermsandcontractswithfixedtermsandguaranteedterms.

Investmentcontractswithoutfixedtermsarefinancialliabilitieswhosefairvalueisdependentonthefairvalueofunderlyingfinancialassetportfoliosthatcanincludederivativesandaredesignatedatinceptionasatfairvaluethroughincome.

Forinvestmentcontractswithoutfixedterms,fairvalueisdeterminedusingthecurrentunitvaluesthatreflectthefairvalueofthefinancialassetscontainedwithinthegroup’sunitisedinvestmentfundslinkedtotherelatedfinancialliability,multipliedbythenumberofunitsattributedtothecontractholdersatthevaluationdate.

Afinancialliabilityisrecognisedinthestatementoffinancialpositionwhen,andonlywhen,thegroupbecomespartytothecontractualprovisionsoftheinstrument.Financialliabilitiesareinitiallyrecognisedatfairvalue.

Thefairvalueoffinancialliabilitiesisneverlessthantheamountpayableonsurrender,discountedfortherequirednoticeperiod,where applicable.


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Investment contracts continuedMeasurement continuedForinvestmentcontractswithfixedandguaranteedterms(guaranteedendowmentsandtermcertainannuities),valuationtechniquesareusedtoestablishthefairvalueatinceptionandateachreportingdate.Thevaluationmodelvaluestheliabilitiesasthepresentvalueofthematurityvalues,usingappropriatemarket-relatedyieldstomaturity.Ifliabilitiescalculatedinthismannerfallshortofthesinglepremiumpaidatinceptionofthepolicy,theliabilityisincreasedtothelevelofthesinglepremium,toensurethatnoprofitisrecognisedatinception.Thisdeferredprofitliabilityisrecognisedinprofitorlossoverthelifeofthecontractbasedonfactorsrelevanttoamarketparticipant,includingthepassingoftime.

For investment contracts where investment management services are rendered and the contracts provide for minimum investment returnguarantees,provisionismadeforthefairvalueoftheembeddedoptionwithintheinvestmentcontractliability.Thevaluationmethodologyisthesameasthemethodologyappliedtoinvestmentguaranteesoninsurancecontracts.

Deferred revenue liability (DRL)ADRLisrecognisedinrespectoffeespaidatinceptionofthecontractbythepolicyholderthataredirectlyattributabletoacontract.TheDRListhenreleasedtorevenueastheinvestmentmanagementservicesareprovidedovertheexpecteddurationofthecontract,asaconstantpercentageofexpectedgrossprofitmargins(includinginvestmentincome)arisingfromthecontract.Thepatternofexpectedprofitmarginsisbasedonhistoricalandexpectedfutureexperienceandisupdatedattheendofeachaccountingperiod.TheresultingchangetothecarryingvalueoftheDRLisrecognisedinrevenue.

DeferredacquisitioncostsRefertotheintangibleassetssectionoftheaccountingpolicies.

Amounts received and claims incurredPremiumsreceivedunderinvestmentcontractsarerecordedasdepositstoinvestmentcontractliabilitiesandclaimsincurredarerecordedasdeductionsfrominvestmentcontractliabilities.

Short-term insurance contractsPremiumsShort-terminsurancepremiumsareaccountedforwhenreceivable,netofaprovisionforunearnedpremiumsrelatingtoriskperiods that extend to the following year.

ClaimsClaimsincurredconsistofclaimsandclaimshandlingexpensespaidduringthefinancialyeartogetherwiththemovementintheprovisionforoutstandingclaims.Outstandingclaimscompriseprovisionsforthegroup’sestimateoftheultimatecostofsettlingallclaimsincurredbutunpaidatthereportingdate,whetherreportedornot.Estimatesarecalculatedbasedonthemostrecentcost experience of similar claims and include an appropriate risk margin for unexpected variances between the actual cost and the estimate.Whereapplicable,deductionsaremadeforsalvageandotherrecoveries.

Unearned premium provision Theprovisionforunearnedpremiumsrepresentstheproportionofthecurrentyear'spremiumswrittenthatrelatetoriskperiodsextending into the following year, computed separately for each insurance contract using the 365th method.

Liability adequacy testA liability adequacy test is performed annually for the gross liability recognised for insurance contracts and an unexpired risk provisionisrecognisedforanydeficienciesarisingwhenunearnedpremiumsareinsufficienttomeetexpectedfutureclaimsandexpensesaftertakingintoaccountfutureinvestmentreturnsontheinvestmentssupportingtheunearnedpremiumprovision. Theexpectedclaimsarecalculatedhavingregardtoeventsthathaveoccurredpriortothereportingdate.

DeferredacquisitioncostsAcquisitioncostscompriseallcostsarisingfromtheconclusionofinsurancecontractsandtheseareexpensedasandwhenincurred.Deferredacquisitioncostsrepresenttheportionofdirectacquisitioncosts(iecommission)whichisdeferredandamortisedoverthetermofthecontractsastherelatedservicesarerenderedandrevenuerecognised.

Outstanding insurance contract claimsProvisionismadeusingprescribedmethodssetoutinDirective169of2011:

• forclaimsnotifiedbutnotsettledatyear-end,usingcaseestimatesdeterminedonaclaim-by-claimbasis;and• forIBNRclaimsatyear-end,usingtheprescribedpercentagesspecifiedbyclassofbusinessanddevelopmentperiodassetout

inDirective169.

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11. FINANCIAL LIABILITIES

Recognition and measurementThegroupclassifiesitsfinancialliabilitiesintothefollowingcategories:

• Financialliabilitiesatfairvaluethroughincome• Financialliabilitiesatamortisedcost

Theclassificationdependsonthepurposeforwhichthefinancialliabilitieswereacquired.Managementdeterminestheclassificationofitsfinancialliabilitiesatinitialrecognition.

• Financial liabilities at fair value through incomeThiscategoryhastwosub-categories:financialliabilitiesheldfortradingandthosedesignatedatfairvaluethroughincome atinception.

Afinancialliabilityisclassifiedasheldfortradingatinceptionifitisacquiredprincipallyforthepurposeofsellingintheshortterm.Derivativesareclassifiedasheldfortrading,unlesstheyaredesignatedashedges.

Financialliabilitiesaredesignatedatfairvaluethroughincomeatinceptioniftheyare: − eliminatingorsignificantlyreducinganaccountingmismatchthatwouldotherwisearisefrommeasuringassetsandliabilitiesorrecognisingthegainsandlossesonthemondifferentbases;

− managed,withtheirperformancebeingevaluatedonafairvaluebasis;or − afinancialinstrumentthatincludesasignificantembeddedderivativesthatclearlyrequirebifurcation.

Afinancialliabilityisrecognisedinthestatementoffinancialpositionwhen,andonlywhen,thegroupbecomesapartytothecontractual provisions of the instrument.

Issuesandsettlementsoffinancialliabilitiesarerecognisedontradedate,beingthedateonwhichthegroupcommitstoissuingorsettlingthefinancialliabilities.

Thefairvalueoffinancialliabilitiesquotedinactivemarketsisbasedoncurrentmarketprices.Alternatively,whereanactivemarketdoesnotexist,fairvalueisderivedfromcashflowmodelsorotherappropriatevaluationmodelsallowingforthegroup’sowncreditrisk.Theseincludetheuseofarm’s-lengthtransactions,DCFanalysis,optionpricingmodelsandothervaluationtechniquescommonlyusedbymarketparticipants,makingmaximumuseofmarketinputandrelyingaslittleaspossibleonentity-specificinput.

Financialliabilitiesarederecognisedwhentheyareextinguished,iewhentheobligationspecifiedinthecontractisdischarged,cancelled or expires.

FinancialliabilitiesdesignatedatfairvaluethroughincomeFinancialliabilitiesdesignatedatfairvaluethroughincome,suchascallablenoteswhicharelistedontheJSEinterestratemarket, carry positions(referbelow),preferencesharesandcollectiveinvestmentschemesliabilities(representingtheunitsincollectiveinvestmentschemeswherethegroupconsolidatesthecollectiveinvestmentschemesandisrequiredtodisclosethevalueoftheunitsnotheldbythegroupasliabilities)arerecognisedinitiallyatfairvalue,withtransactioncostsbeingexpensedin the income statement, and are subsequently carried at fair value. Realised and unrealised gains and losses arising from changesinthevalueoffinancialliabilitiesatfairvaluethroughincomeareincludedintheincomestatementintheperiodinwhichtheyarise.Interestonthecallablenotes,carrypositionsandpreferencesharesaredisclosedseparatelyasfinancecostsusing the effective interest rate method.

CarrypositionsCarry positions consist of sale and repurchase of assets agreements. These agreements contain the following instruments:

− Repurchaseagreements:financialliabilitiesconsistingoffinancialinstrumentssoldwithanagreementtorepurchasetheseinstrumentsatafixedpriceatalaterdate.Thesefinancialliabilitiesareclassifiedasfinancialliabilitiesdesignatedatfairvaluethrough income.

− Reverserepurchaseagreements:financialassetsconsistingoffinancialinstrumentspurchasedwithanagreementtoselltheseinstrumentsatafixedpriceatalaterdate.Thesefinancialassetsareclassifiedasfinancialinstrumentsdesignatedatfair value through income.

Wherefinancialinstrumentsaresoldsubjecttoacommitmenttorepurchasethem,thefinancialinstrumentisnotderecognisedandremainsinthestatementoffinancialpositionandisvaluedaccordingtothegroup’saccountingpolicyrelevanttothatcategoryoffinancialinstrument.Theproceedsreceivedarerecordedasaliability(carry positions) carried at fair value where they are managed on a fair value basis.


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11. FINANCIAL LIABILITIES continued

Recognition and measurement continued• Financial liabilities at fair value through income continued

CarrypositionscontinuedConversely,wherethegrouppurchasesfinancialinstrumentssubjecttoacommitmenttoreselltheseatafuturedateandtheriskofownershipdoesnotpasstothegroup,theconsiderationpaidisincludedunderfinancialassetscarriedatfairvaluewherethey are managed on a fair value basis.

Thedifferencebetweenthesaleandrepurchasepriceistreatedasfinancecostsandisaccruedoverthelifeoftheagreementusing the effective interest rate method.

• Financial liabilities at amortised costFinancialliabilitiesthatareneitherheldfortradingnordesignatedatfairvaluearemeasuredatamortisedcost.Financialliabilitiesatamortisedcostarerecognisedinitiallyatfairvalue,netoftransactioncostsincurred.Thesefinancialliabilitiesarethensubsequentlycarriedatamortisedcost;anydifferencebetweentheproceeds(netoftransactioncosts)andtheredemptionvalue is recognised in the income statement over the period of the liability using the effective interest rate method.

ConvertibleredeemablepreferencesharesandconvertiblebondsCompoundfinancialinstrumentsissuedbythegroupcompriseconvertiblepreferencesharesthatcanbeconvertedtoordinarysharecapitalattheoptionoftheholder,andthenumberofsharestobeissueddoesnotvarywithchangesintheirfairvalue.Atinitialrecognition,thefairvalueoftheliabilitycomponentoftheconvertibleredeemablepreferencesharesisdeterminedbydiscountingthenetpresentvalueoffuturecashflows,netoftransactioncosts,atmarketrateatinceptionforasimilarinstrumentwithouttheconversionoption.Thisamountisrecordedasaliabilityontheamortisedcostbasis,usingtheeffective interest rate method,untilextinguishedonconversionofthepreferenceshares.Theremainderoftheproceedsisallocatedtotheconversionoption,whichisrecognisedandincludedinshareholderequity.Thevalueoftheequitycomponentisnotchangedinsubsequentperiods.Anydirectlyattributabletransactioncostsareallocatedtotheliabilityandequitycomponentsinproportiontotheirinitialcarryingamounts.Thedividendsonthesepreferencesharesarerecognisedintheincomestatementinfinancecosts.

Other payablesOtherpayablesareinitiallycarriedatfairvalueandsubsequentlyatamortisedcostusingtheeffective interest rate method.

DerecognitionoffinancialliabilitiesAfinancialliabilityisderecognisedwhentheobligationundertheliabilityisdischargedorcancelledorexpires.Whenanexistingfinancialliabilityisreplacedbyanotherfromthesamelenderonsubstantiallydifferentterms,orthetermsofanexistingfinancialliabilityaresubstantiallymodified,suchanexchangeormodificationistreatedasthederecognitionoftheoriginalliabilityandtherecognitionofanewliability.Thedifferenceintherespectivecarryingamountsisrecognisedintheincomestatement.

12. DEFERRED INCOME TAX

MeasurementDeferredincometaxisprovidedforinfull,atcurrenttaxratesandintermsoflawssubstantivelyenactedatthereportingdateinrespectoftemporarydifferencesbetweenthetaxbasesofassetsandliabilitiesandtheircarryingvaluesforfinancialreportingpurposes,usingtheliabilitymethod.However,ifthedeferredincometaxarisesfrominitialrecognitionofanassetorliabilityinatransactionotherthanabusinesscombinationthatatthetimeofthetransactionaffectsneitheraccountingnortaxableprofitorloss, it is not accounted for. Deferred tax assets, including tax on capital gains, are recognised for tax losses and unused tax credits andarecarriedforwardonlytotheextentthatrealisationoftherelatedfuturetaxbenefitisprobable.

Deferredincometaxisprovidedforinrespectoftemporarydifferencesarisingoninvestmentsinsubsidiariesandassociates,exceptwherethetimingofthereversalofthetemporarydifferenceiscontrolledbythegroupanditisprobablethatthetemporarydifferencewillnotreverseintheforeseeablefuture.

Deferredtaxrelatedtofairvalueremeasurementofavailable-for-salefinancialassetsandpost-employmentbenefitobligations,which are included in other comprehensive income, is also included in other comprehensive income and is subsequently recognised in the income statement when there is a realised gain or loss.

Inrespectoftemporarydifferencesarisingfromthefairvalueadjustmentsoninvestmentproperties,deferredtaxationisprovidedatthecapitalgainseffectiverate,asitisassumedthatthecarryingvaluewillberecoveredthroughsale.

OffsettingDeferredtaxassetsandliabilitiesaresetoffwhentheincometaxrelatestothesamefiscalauthorityandwherethereisalegalrightofoffsetatsettlementinthesametaxableentity.

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13. CURRENT TAXATION

MeasurementCurrent tax is provided for at the amount expected to be paid, using the tax rates and in respect of laws that have been substantivelyenactedatthereportingdate.Managementperiodicallyevaluatespositionstakenintaxreturnswithrespecttosituationsinwhichapplicabletaxregulationsaresubjecttointerpretation,andestablishesprovisionswhereappropriateonthebasisofamountsexpectedtobepaidtothetaxauthorities.Individualpolicyholdertaxandcorporatepolicyholdertaxisincludedintax on contract holder funds in the income statement.

OffsettingCurrenttaxassetsandliabilitiesaresetoffwhenalegallyenforceablerightexistsanditistheintentiontosettleonanetbasisortorealisetheassetandsettletheliabilitysimultaneously.

Dividend withholding tax (DWT)DWTisleviedontheshareholders(orbeneficialowners)receivingthedividend,unlesstheyareexemptintermsoftheamendedtax law. DWT is levied at 20% of the dividend received. The DWT is categorised as a withholding tax, as the tax is withheld and paidtotaxauthoritiesbythecompanypayingthedividendorbyaregulatedintermediaryandnotbythebeneficialownerofthedividend.Whereanon-exemptgroupcompanyisabeneficialownerofthedividend,theDWTisrecordedasanexpenseintheincome statement when the dividend income is earned.

14. INDIRECT TAXATION

Indirect taxes include various other taxes paid to central and local governments, including value added tax (amount that cannot be claimed)andregionalservicelevies.Indirecttaxesaredisclosedaspartofoperatingexpensesintheincomestatement.

15. LEASES: ACCOUNTING BY LESSEE

Finance leasesLeasesofpropertyandequipmentwheresubstantiallyalltherisksandrewardsincidentaltoownershiphavebeentransferredtothegroupareclassifiedasfinanceleases.

Measurement• Asset

Finance leases (including direct costs) are capitalised at the lower of the fair value of the leased asset or the present value of the minimumleasepaymentsatinceptionofthelease.Theassetacquiredisdepreciatedovertheshorteroftheuseful life of the asset or the lease term.

• LiabilityTherentalobligation,netoffinancecharges,isincludedasaliability.Eachleasepaymentisapportionedbetweenfinancechargesandthereductionoftheoutstandingliability.Thefinancechargesorinterestarechargedtotheincomestatementoverthe lease term so as to produce a constant periodic rate of interest on the liability remaining for each period.

Operating leasesLeaseswheresubstantiallyalltherisksandrewardsincidentaltoownershiphavenotbeentransferredtothegroupareclassifiedasoperatingleases.Paymentsmadearechargedtotheincomestatementonastraight-linebasisovertheperiodofthelease.Thegrouprecognisesanypenaltypaymenttothelessorforearlyterminationofanoperatingleaseasanexpenseintheperiodinwhichtheterminationtakesplace.

16. LEASES: ACCOUNTING BY LESSOR

Operating leasesWhenassetsareleasedoutunderanoperatinglease,theassetisincludedinthestatementoffinancialpositionbasedonthenatureoftheasset.Leaseincomeonoperatingleasesisrecognisedoverthetermoftheleaseonastraight-linebasis.

17. PROVISIONS

Provisionsarerecognisedwhen,asaresultofpastevents,thegrouphasapresentlegalorconstructiveobligationofuncertaintimingoramount,anditisprobablethatanoutflowofresourcesembodyingeconomicbenefitswillberequiredtosettletheobligation,andareliableestimateoftheamountoftheobligationcanbemade.

Provisionsaremeasuredasthepresentvalueofmanagement’sbestestimateoftheexpenditurerequiredtosettletheobligationatthereportingdate.Thepre-taxdiscountrateusedtodeterminethepresentvaluereflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheobligation.Theincreaseintheprovisionduetothepassageoftimeisrecognisedasfinancecosts.


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17. PROVISIONS continued

Onerous contractsThegrouprecognisesaprovisionforanonerouscontract,exceptoninsurancecontracts,whentheexpectedbenefitstobederivedfromacontractarelowerthantheunavoidablecostsofmeetingtheobligationsunderthecontract.

18. CONTINGENT LIABILITIES

Contingentliabilitiesarereflectedwhenthegrouphasapossibleobligationarisingfrompastevents,theexistenceofwhichwillbeconfirmedonlybytheoccurrenceornon-occurrenceofoneormoreuncertainfutureeventsnotwhollywithinthecontrolofthegroup,oritispossiblebutnotprobablethatanoutflowofresourceswillberequiredtosettleapresentobligation,ortheamountoftheobligationcannotbemeasuredwithsufficientreliability.

19. EMPLOYEE BENEFITS

Pension and provident fund obligationsThegroupprovidesdefinedbenefitpensionschemesaswellasdefinedcontributionpensionandprovidentschemes.Theschemesarefundedthroughpaymentstotrustee-administeredfunds,determinedbyperiodicactuarialcalculations.

• Defined contribution fundsAdefinedcontributionschemeisafundunderwhichthegrouppaysfixedcontributionsintoaseparateentity.Eachmember’sfundvalueisdirectlylinkedtothecontributionsandtherelatedinvestmentreturns.Thegrouphasnolegalorconstructiveobligationtopayfurthercontributionsifthefunddoesnotholdsufficientassetstopayallemployeesthebenefitsrelatingtoemployeeserviceinthecurrentandpriorperiods.Thegroup’scontributionsarechargedtotheincomestatementwhenincurred,exceptthosecontributionssubsidisedbyasurplusamount.

• Defined benefit fundsAdefinedbenefitschemeisafundthatdefinestheamountofthepensionbenefitthatanemployeewillreceiveonretirement,usuallydependentononeormorefactorssuchasage,yearsofserviceandcompensation.

Theassetorliabilityrecognisedinthestatementoffinancialpositioninrespectofdefinedbenefitpensionplansisthepresentvalueofthedefinedbenefitobligationatthereportingdatelessthefairvalueofplanassets.Planassetsexcludeanyinsurancecontractsissuedbythegroup.Thedefinedbenefitobligationiscalculatedannually,usingtheprojectedunitcreditmethod.

MeasurementThepresentvalueoftheobligationisdeterminedbydiscountingtheestimatedfuturecashoutflows,usinginterestratesofgovernmentbondsthataredenominatedinthecurrencyinwhichthebenefitswillbepaidandthathavetermstomaturitythatapproximate the terms of the related pension liability.

Actuarialgainsandlossesarisingfromexperienceadjustmentsandchangesinactuarialassumptionsarerecognisedinequityinother comprehensive income as and when they arise. Actuarial gains and losses can occur as a result of changes in the value of liabilities(causedbychangesinthediscountrateused,expectedsalariesornumberofemployees,lifeexpectancyofemployeesandexpectedinflationrates)andchangesinthefairvalueofplanassets(causedasaresultofthedifferencebetweentheactualand expected return on plan assets).

Past-service costs are recognised immediately in the income statement.

Interestisrecognisedbyapplyingthediscountratetothenetdefinedbenefitassetorliabilityandisrecognisedintheincomestatement.Otherexpensesrelatedtothedefinedbenefitplansarealsorecognisedintheincomestatement.

Anaccountingsurplusmayarisewhenthepresentvalueofthedefinedbenefitobligationlessthefairvalueofplanassetsyieldsadebitbalance.Insuchcircumstances,thedebitbalancerecognisedasanassetinthegroup’sstatementoffinancialpositioncannotexceedthepresentvalueofanyeconomicbenefitsavailabletothegroupintheformofrefundsorreductionsinfuturecontributions.Indeterminingtheextenttowhicheconomicbenefitsareavailabletothegrouptherulesofthefundareconsidered.

Post-retirement medical aid obligationsThegroupprovidesasubsidyinrespectofmedicalaidcontributionsonbehalfofqualifyingemployeesandretiredpersonnel.Anemployeebenefitobligationisrecognisedfortheseexpectedfuturemedicalaidcontributions.Thisobligationiscalculatedusingtheprojectedunitcreditmethod,actuarialmethodologiesforthediscountedvalueofcontributionsandabestestimateoftheexpectedlong-termrateofinvestmentreturn,aswellastakingintoaccountestimatedcontributionincreases.Theentitlementtothesebenefitsisbasedontheemployeesremaininginserviceuptoretirementage.Theexpectedcostsofthesebenefitsareaccruedovertheperiodofemployment,usingamethodologysimilartothatfordefinedbenefitpensionschemes.Theactuarialgainsandlossesarerecognisedastheyarise.Theincreaseordecreaseintheemployeebenefitobligationforthesecostsischargedto other comprehensive income.

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19. EMPLOYEE BENEFITS continued

Termination benefitsThegrouprecognisesterminationbenefitsasaliabilityinthestatementoffinancialpositionandasanexpenseintheincomestatementwhenithasapresentobligationrelatingtotermination.Terminationbenefitsarepayablewhenemploymentisterminatedbythegroupbeforethenormalretirementdate,orwheneveranemployeeacceptsvoluntaryredundancyinexchangeforthesebenefits.Thegrouprecognisesterminationbenefitsattheearlierofthefollowingdates:(a)whenthegroupcannolongerwithdrawtheofferofthosebenefits;and(b)whentheentityrecognisescostsforarestructuringthatiswithinthescopeofIAS37andinvolvesthepaymentofterminationbenefits.Inthecaseofanoffermadetoencouragevoluntaryredundancy,theterminationbenefitsaremeasuredbasedonthenumberofemployeesexpectedtoaccepttheoffer.Benefitsfallingduemorethan12monthsaftertheendofthereportingperiodarediscountedtotheirpresentvalue.

Short-term benefitsShort-termbenefitsconsistofsalaries,accumulatedleavepayments,bonusesandotherbenefitssuchasmedicalaidcontributions.Theseobligationsaremeasuredonanundiscountedbasisandareexpensedastheserviceisprovided.Aliabilityisrecognisedfortheamounttobepaidunderbonusplansoraccumulatedleaveifthegrouphasapresentorconstructiveobligationtopaythisamountasaresultofpastserviceprovidedbytheemployeeandtheobligationcanbeestimatedreliably.

Share-based compensationThegroupoperatescash-settledshare-basedcompensationplans.Forshare-basedpaymenttransactionsthataresettledincashwhere the amount is based on the equity of the parent or another group company, the group measures the goods or services receivedascash-settledshare-basedpaymenttransactionsbyassessingthenatureoftheawardsanditsownrightsandobligations.

The group recognises the value of the services received (expense), and the liability to pay for those services, as the employees renderservice.Theliabilityismeasured,initially,andateachreportingdateuntilsettled,atthefairvalueappropriatetothescheme,takingintoaccountthetermsandconditionsonwhichtherightsweregranted,andtheextenttowhichtheemployeeshaverenderedservicetodate,excludingtheimpactofanynon-market-relatedvestingconditions.Non-market-relatedvestingconditionsareincludedintheassumptionsregardingthenumberofunitsexpectedtovest.Theseassumptionsarerevisedateveryreportingdate.Theimpactoftherevisionoforiginalestimates,ifany,isrecognisedintheincomestatement,andacorrespondingadjustment is made to the liability.

Compensation plans valued on the projected unit credit methodThe group has certain schemes in place whereby employees are rewarded based on something other than the shares and related share price of the holding company. In some instances the group recognises a liability that has been measured with reference to a selling price formula in a contract, the share price of an external company or the applicable EV of a subsidiary company, and that willbeusedtosettletheliabilitywiththeemployeesortorepurchasesharesinasubsidiaryfromtheemployees.Theliabilityinthese cases is measured using the projected unit credit method. Any change in the liability is charged to the income statement over thevestingperiodoftheshares.

20. NON-CURRENT ASSETS HELD FOR SALE

Non-currentassetsareclassifiedasheldforsaleiftheircarryingamountwillberecoveredprincipallythroughasaletransactionratherthancontinuinguse.Thisclassificationisonlymetifthesaleishighlyprobableandtheassetsordisposalgroupsareavailablefor immediate sale.

Inlightofthegroup’sprimarybusinessbeingtheprovisionofinsuranceandinvestmentproducts,non-currentassetsheldasinvestmentsforthebenefitofpolicyholdersarenotclassifiedasheldforsaleastheongoinginvestmentmanagementimpliesregular purchases and sales in the ordinary course of business.

Immediatelybeforeclassificationasheldforsale,themeasurement(carryingamount)ofassetsandliabilitiesinrelationtoadisposalgroupisrecognisedbasedupontheappropriateIFRSstandards.Oninitialrecognitionasheldforsale,thenon-currentassetsandliabilitiesarerecognisedatthelowerofthecarryingamountandfairvaluelesscoststosell.

Anyimpairmentlossesoninitialclassificationtoheldforsalearerecognisedintheincomestatement.

Thenon-currentassetsanddisposalgroupsheldforsalewillbereclassifiedimmediatelywhenthereisachangeinintentiontosell.Subsequent measurement of the asset or disposal group at that date will be the lower of:

• itscarryingamountbeforetheassetordisposalgroupwasclassifiedasheldforsale,adjustedforanydepreciation,amortisationorrevaluationsthatwouldhavebeenrecognisedhadtheassetordisposalgroupnotbeenclassifiedasheldforsale;and

• its recoverable amount at the date of the subsequent decision not to sell.


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21. SHARE CAPITAL

Sharecapitalisclassifiedasequitywherethegrouphasnoobligationtodelivercashorotherassetstoshareholders.Ordinaryshareswithdiscretionarydividendsareclassifiedasequity.Preferencesharesissuedbythegroupareclassifiedasequitywhenthereisnoobligationtotransfercashorotherassetstothepreferenceshareholders.Thedividendsonthesepreferencesharesarerecognisedinthestatementofchangesinequity.Forcompoundinstruments,egconvertibleredeemablepreferenceshares,thecomponentrepresentingthevalueoftheconversionoptionatthetimeofissueisincludedinequity.

Issue costsIncrementalexternalcostsdirectlyattributabletotheissueofnewsharesarerecognisedinequityasadeduction,netoftax,fromthe proceeds. All other share issue costs are expensed.

Treasury sharesTreasurysharesareequitysharecapitaloftheholdingcompanyheldbysubsidiaries,consolidatedcollectiveinvestmentschemesandsharetrusts,irrespectiveofwhethertheyareheldinshareholderorcontractholderportfolios.Theconsiderationpaid,includinganydirectlyattributablecosts,iseliminatedfromshareholderequityonconsolidationuntilthesharesarecancelledorreissued.Ifreissued,thedifferencebetweenthecarryingamountandtheconsiderationreceivedfortheshares,netofattributableincrementaltransactioncostsandtherelatedincometaxeffects,isincludedinsharepremium.

22. DIVIDENDS PAID

Dividendspaidtoshareholdersofthecompanyarerecognisedondeclarationdate.

23. PUTTABLE NON-CONTROLLING INTERESTS

Puttablenon-controllinginterestsrepresentputoptionsgrantedtonon-controllinginterestsofsubsidiaries,entitlingthenon-controlling interests to dispose of their interest in the subsidiaries to the group at contracted dates.

Recognition and measurementAfinancialliabilityatfairvaluethroughincomeisrecognised,beingthepresentvalueoftheestimatedpurchasepricevaluediscountedfromtheexpectedoptionexercisedatetothereportingdate.Inraisingthisliability,thenon-controllinginterestisderecognised and the excess of the liability is debited to retained earnings.

Theestimatedpurchasepriceisreconsideredateachreportingdateandanychangeinthevalueoftheliabilityisrecordedinnetrealised and fair value gains in the income statement. Interest in respect of this liability is calculated using the effective interest rate methodandrecordedwithinfinancecosts.

24. INCOME RECOGNITION

Incomecomprisesthefairvalueofservices,netofvalueaddedtax,aftereliminatingincomefromwithinthegroup.Incomeisrecognised as follows:

24.1 Fee income ContractadministrationFeeschargedforinvestmentmanagementservicesprovidedinconjunctionwithaninvestmentcontractarerecognisedasincomeastheservicesareprovidedovertheexpecteddurationofthecontract,asaconstantpercentageofexpectedgrossprofitmargins.Initialfeesthatexceedthelevelofrecurringfeesandrelatetothefutureprovisionofservicesaredeferredandreleasedonastraight-line basis over the lives of the contracts.

Front-end fees are deferred and released to income when the services are rendered over the expected term of the contract on a straight-line basis.

TrustandfiduciaryfeesreceivedFeesreceivedfromassetmanagement,retirementfundadministrationandotherrelatedadministrationservicesofferedbythegrouparerecognisedintheaccountingperiodinwhichtheservicesarerendered.Whereinitialfeesarereceived,thesearedeferred and recognised over the average period of the contract. This period is reassessed annually.

HealthadministrationfeeincomeFeesreceivedfromtheadministrationofhealthschemesarerecognisedintheaccountingperiodinwhichtheservicesarerendered.

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24. INCOME RECOGNITION continued

24.1 Fee income continuedOther fee incomeAdministrationfeesreceivedandmultiplyfeeincomearerecognisedastheserviceisrendered.

Cell captivefeeincomeincludesmanagementfees.Managementfeesarenegotiatedwitheachcellshareholderandaregenerallycalculatedasapercentageofpremiumsreceivedand/orasapercentageofassets.Incomeisbroughttoaccountontheeffectivecommencementorrenewaldatesofthepolicies.Aportionoftheincomeisdeferredtocovertheexpectedservicingcosts,togetherwithareasonableprofitthereonandisrecognisedasaliability.Thedeferredincomeisbroughttoaccountovertheservicingperiodonaconsistentbasisreflectingthepatternofservicingactivities.

Otherfeesreceivedincludescriplendingfees(whicharebasedonratesdeterminedpercontract)andpolicyadministrationfeesthat are also recognised as the service is rendered.

24.2 Investment incomeInterest incomeInterest income is recognised in the income statement, using the effective interest rate method and taking into account the expectedtimingandamountofcashflows.Interestincomeincludestheamortisationofanydiscountsorpremiumsorotherdifferencebetweentheinitialcarryingamountofaninterest-bearinginstrumentanditsamountatmaturity,calculatedontheeffective interest rate method.

Dividend incomeDividends received are recognised when the right to receive payment is established. Where it is declared out of retained earnings, dividendincomeincludesscripdividendsreceived,irrespectiveofwhethersharesorcashiselected.Dividendincomeisnotrecognised when shares of the investee are received and the shareholders receive a pro rata number of shares, there is no change ineconomicinterestofanyinvestorandasnoeconomicbenefitisassociatedwiththetransaction.

Rental incomeRental income is recognised on the straight-line method over the term of the rental agreement.

25. EXPENSE RECOGNITION

25.1 ExpensesOtherexpensesincludeauditors’remuneration,consultingfees,directpropertyexpenses,informationtechnologyexpenses,marketingcosts,indirecttaxesandotherexpensesnotseparatelydisclosed,andareexpensedasincurred.

25.2 Finance costsFinance costs are recognised in the income statement, using the effective interest rate method, and taking into account the expectedtimingandamountofcashflows.Financecostsincludetheamortisationofanydiscountsorpremiumsorotherdifferencesbetweentheinitialcarryingamountofaninterest-bearinginstrumentanditsamountatmaturity,calculatedontheeffective interest rate method.

26. SEGMENTAL REPORTING

Operatingsegmentsarereportedinamannerconsistentwiththeinternalreportingprovidedtothechiefoperatingdecision-maker.Thechiefoperatingdecision-makerhasbeenidentifiedastheMMIexecutivecommitteethatmakesstrategicdecisions.Refertosegmental report for more details.

Documents

Annexure D - MMI Holdings Integrated Report 2017mmiholdingsintegratedreport2017.com/pdf/Annexure_D.pdf · through income and are not equity accounted where they back contract holder