Insurance contracts

Insurance contracts are predominantly credit life policies sold by motor dealerships and life insurance policies, distributed by independent financial advisors, that provide for death, disability and critical illness benefits.

The insurance contract reserves are established by discounting future expected net claims, net expense and commission outgo less the future net office premiums (if any) on a policy-by-policy basis using the following main assumptions (before the compulsory margins required by SAP104):

• FSB SAM Nominal yield curve is used to determine investment returns;
• Inflation curve as derived from the FSB SAM yield curves;
• Mortality and disability assumptions are set with reference to standard tables or reinsurance rates where appropriate (mortality and morbidity investigations are conducted annually to confirm assumptions);
• Per policy expense assumptions are based on the medium term projected level of expenses and volume of business; and
• Lapse rates are based on the most recent lapse experience investigation.

IBNR (incurred but not recorded) provisions have been created for both Individual and Group business. IBNR’s are calculated based on the run-off period on claims reported in the last 12 months. A combination of the basic chain ladder method and simplistic deterministic methods are used depending on the product and the statistical significance of data available.

Policyholder reasonable benefit expectations have been allowed for, all contractual obligations have been considered and all business is written on a non-profit-sharing basis.

Investment contracts

Investment contracts are linked living annuities sold by independent financial advisors. A decision was made during the current year to exit this business, which was executed in a managed and profitable manner. At 30 June 2018, the two remaining investment contracts will be exited within the next 12-month period.