Transcript Slide 1

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Corporate
Governance
Guardrisk Life Limited
Registration no. 1999/013922/06
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Annual financial statements
for the year ended 31 March 2005
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
The reports and statements set out herewith comprise the annual
financial statements presented to the members.
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Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Corporate Governance
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Guardrisk Life Limited ("Guardrisk") is committed to the highest standards of corporate
governance as embodied in the 2002 King Report on Corporate Governance.
In keeping with its commitment to Corporate Governance and safeguarding the interests of
stakeholders, the Board is taking steps to maintain mechanisms and policies appropriate to the
company's business to ensure compliance with the Code of Corporate Practices and Conduct as
contained in the 2002 King report.
The Board
The directors bring together a wealth of diverse experience from the insurance and financial
services environment. The chairperson and the chief executive provide leadership and guidance
to the Board to encourage optimum input from the directors and proper deliberation of all matters
requiring Board approval.
Board Composition
The Board currently comprises of seven non-executive directors and three executive directors.
The Board is considered to be effective in size and composition.
Chairperson and Chief executive
The chairperson of the board is a non-executive member and the role of the chairperson is
separated from that of the chief executive.
Audit committee
Made up of three non-executive directors and three executive directors. The chairperson of the
committee is a non-executive director. Both the internal and external auditors have unrestricted
access to the audit committee. The audit committee meets at least twice a year. The meetings are
attended by the external auditors and invitees as considered appropriate by the chairperson.
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Corporate Governance
Home
The committee is responsible for reviewing the financial statements and accounting policies, the
effectiveness of the management information and internal control systems, compliance with
statutory and regulatory requirements, interim and final reports, the effectiveness of the internal
audit function, external audit plan and the findings on the internal and external audits.
Internal audit function
The company has an independent internal audit function with a charter approved by the Audit
Committee and the Board. The Board has assured itself that there is sufficient segregation
between the external and internal audit functions to ensure that the independence of the two
functions is not impaired. Internal audit reports to the Audit Committee and has unrestricted
access to the chairperson of the Audit Committee and the non-executive chairperson of the
company.
The scope of the internal audit function is to review the reliability and integrity of financial and
operating functions, the systems of internal control and risk management, the means of
safeguarding assets, the efficient management of the company’s resources and the effective
conduct of its operations. Corrective actions are taken to address control deficiencies and other
opportunities for improving the system as they are identified.
The Board, operating through its audit committee, provides oversight of the financial reporting
process. The company maintains a system of internal control over financial reporting and over
safeguarding of assets against unauthorised acquisition, use or disposal, which is designed to
provide reasonable assurance regarding the preparation of reliable financial statements, the
safeguarding of the company's assets, compliance with laws and regulations and effective
financial risk management within the company. The system includes a documented organisational
structure and division of responsibility as well as established policies and procedures to foster a
strong ethical climate, which is communicated throughout the company. There are inherent
limitations in the effectiveness of any system of internal control including the possibility of human
error and the circumvention or overriding of controls.
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Corporate Governance
Home
Accordingly, even an effective internal control system can provide only a reasonable assurance
with respect to financial statement preparation and the safeguarding of assets.
During the period under review, no material breakdown has occurred in the company's internal
control system.
The Board:
 is satisfied with the effectiveness of the company's internal controls;
 has no reason to believe that the company will not operate as a going concern for the next
financial year;
 has no reason to believe that there has been any material non-adherence to the company's
ethical standards.
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Investment strategy committee
The chairperson is a non-executive director. The committee carefully reviews all investments on
the basis of total asset security and minimised credit risk to Guardrisk. Interest rate risk is
minimised by holding a large proportion of assets in money market instruments. Industry
specialists as well as our panel of investment managers are invited to the investment committee
by the chairperson.
Remuneration committee
All Guardrisk remuneration decisions are approved by a delegated authority from the Alexander
Forbes remuneration committee. The chairperson is a non-executive director. Remuneration
structures are based on independent market surveys and professional input from trusted market
sources. The purpose of this committee is to ensure that executive directors and senior
management are remunerated appropriately and to review the remuneration scales, including
incentives and share schemes as well as conditions of employment.
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Corporate Governance
Home
In addition, management ensures that the organisation is appropriately staffed in terms of skill
levels and demographic representation and is able to meet the challenges of the future. The
committee identifies and reviews the appointment of new directors and performance of all
directors and considers succession planning in respect of all senior management.
Risk committee
The Risk committee considers both underwriting and counter party exposures in order to minimise
risks of non-performance on portfolios as well as to clarify risk obligations with clients. The
committee deals with specialised risks related to life insurance business being conducted by the
company. Furthermore, the committee reviews the appropriateness and viability of major product
development initiatives to confirm regulatory, legal, tax and accounting standards. Individuals with
specialised industry and product knowledge are members of this committee and are also being
co-opted on an ongoing basis. The committee reports directly to the board. This committee
comprises of two executive and three non-executive directors and independent specialists.
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Our Approach to Risk Management
Home
Our risk management programme focuses primarily on the integrity of our underwriting
programmes and the management of investment risk. Our structure is rigorously examined by
professional advisors to new clients, regular internal audits and independent rating programmes.
During the year, Guardrisk Life subjected itself to an independent rating assessment by
international rating agency, Global Credit Rating. A financial strength rating of A+ was achieved.
Prudent evaluation of risk retention
We carefully evaluate all retentions of risks in terms of statistical and underwriting disciplines, as
well as specific and limited board mandates for each insurance programme. In this way we
maintain the security of our cell insurance structure, which enables us to provide comprehensive
insurance solutions to meet our clients' needs.
Enterprise Wide Risk Management
Taking measured risks in the pursuit of growing our business has always been at the heart of
Guardrisk’s success. In a rapidly changing environment the effective management of risk is
central to our continued growth.
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Our objective within Guardrisk is to entrench risk management into the day to day business
activities whereby each division:
 understands the risk events that may prevent it from achieving its objectives;
 has identified the risk mitigating controls in place and has assessed their efficiency; and
 has formulated a plan wherever additional action is required.
Changes in
Equity and
Policyholder
Interest
We are confident that effective risk management will provide greater certainty for our clients,
shareholders, staff, suppliers and the community in which we operate.
Accounting
Policies
Cashflow
Statement
Notes to
Financial
Statements
Statement of Responsibility
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Statement of Responsibility by the Board of Directors for the year ended 31 March 2005
The directors are responsible for the preparation, integrity and fair presentation of the annual
financial statements of Guardrisk Life Limited. The financial statements presented herewith have
been prepared in accordance with Statements of Generally Accepted Accounting Practice in
South Africa and include amounts based on judgements and estimates made by management.
The directors also prepared the other information included in the annual report and are
responsible for both its accuracy and its consistency with the financial statements.
The directors are also responsible for the company's system of internal financial controls. These
are designed to provide reasonable, but not absolute assurance as to the reliability of the financial
statements, and to adequately safeguard, verify and maintain accountability of assets, and to
prevent and detect misstatement and loss. Nothing has come to the attention of the directors to
indicate that any material breakdown in the functioning of these controls, procedures and systems
has occurred during the year under review.
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
The going concern basis has been adopted in preparing the financial statements. The directors
have no reason to believe that the company will not be a going concern in the foreseeable future
based on forecasts and available cash resources. The viability of the company is supported by the
financial statements.
The financial statements have been audited by the independent accounting firm,
PricewaterhouseCoopers Inc., which was given unrestricted access to all financial records and
related data, including minutes of all meetings of shareholders, the board of directors and
committees of the board. The directors believe that all representations made to the independent
auditors during their audit were valid and appropriate.
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Statement of Responsibility
Home
The audit report of PricewaterhouseCoopers Inc. is presented herewith.
The financial statements were approved by the board of directors on 16 May 2005 and are signed
on its behalf by:
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
PL HEINAMANN
Chairperson
SH SCHOEMAN
Managing Director
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Certificate by Company Secretary
Home
In terms of section 268G(d) of the South African Companies Act of 1973, as amended, I certify
that in respect of the year ended 31 March 2005, the company has lodged with the Registrar of
Companies all returns that are required of a public company in terms of the Act and that all such
returns are true, correct and up to date.
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
JE SALVADO
Company Secretary
16 May 2005
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Auditor’s Report
Home
Report of the Independent Auditors for the year ended 31 March 2005
We have audited the annual financial statements of Guardrisk Life Limited set out herewith for the
year ended 31 March 2005. These financial statements are the responsibility of the directors of
the company. Our responsibility is to express an opinion on these financial statements based on
our audit.
Scope
We conducted our audit in accordance with statements of South African Auditing Standards.
Those standards require that we plan and perform the audit to obtain reasonable assurance that
the financial statements are free of material misstatement.
An audit includes:
 examining, on a test basis, evidence supporting the amounts and disclosures included in the
financial statements;
 assessing the accounting principles used and significant estimates made by management;
and
 evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
Audit opinion
In our opinion, these annual financial statements fairly present, in all material respects, the
financial position of the company at 31 March 2005, and results of its operations and cash flows
for the year then ended in accordance with South African Statements of Generally Accepted
Accounting Practice and in the manner required by the Companies Act of 1973, in South Africa.
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
PricewaterhouseCoopers Inc.
Chartered Accountants (SA)
Registered Accountants and Auditors
JOHANNESBURG
16 May 2005
Notes to
Financial
Statements
Statutory Actuary’s Report
Home
1.
Statement of Assets, Liabilities, Excess Assets and Capital Requirements at 31 March
2005
Our Approach to
Risk Management
Actuarial Balance Sheet as at 31 March 2005
Net assets
Net policy liabilities
Excess of assets over liabilities
Corporate
Governance
2005
R’000
2004
R’000
754,733
697,096
57,637
770,974
709,741
61,233
Both the net assets and policy liabilities above have been reduced by an amount for
reassurance, thus showing figures net of reassurance. The amounts deducted for
reassurance were R82.326 million (2004: R54.639 million).
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Represented by:
Shareholders' Interest
Shareholders' capital
Share premium
Retained Income - ordinary shareholders
‘L’ ordinary shareholders and policyholders
57,637
10,000
5,989
8,127
33,521
61,233
10,001
4,413
15,484
31,335
Capital adequacy requirement
21,219
19,493
Cashflow
Statement
2.7x
3.1x
Accounting
Policies
CAR Cover
Income
Statement
Changes in
Equity and
Policyholder
Interest
Notes to
Financial
Statements
Statutory Actuary’s Report
Home
Corporate
I hereby certify that:
Governance
 the actuarial valuation of Guardrisk Life Limited at 31 March 2005 as summarised above
has been conducted in accordance with the requirements of the Long-term Insurance Our Approach to
Risk Management
Act, 1998 and the Actuarial Society of South Africa's Professional Guidance note 104;
 this Statutory Actuary's report has been produced in accordance with the Actuarial
Statement of
Society of South Africa's professional guidance note 103;
Responsibility
 my Statutory Actuary's report, read together with the Annual Financial Statement, fairly
Certificate by
presents the financial position of the company; and
Company
Secretary
 the company was financially sound as at the valuation date, and in my opinion is likely to
remain financially sound for the foreseeable future.
Auditor’s report
2.
Composition of policy liabilities
The policy liabilities of Guardrisk Life Limited have the following composition:
Proportion of total (%)
Credit Life
Group life, assistance and disability
Annuities in payment
Total
3.
4.
2005
3
47
50
100
2004
2
39
59
100
Valuation basis of assets
The assets are valued at balance sheet values i.e. at carrying values which approximate the
fair values as described in the notes to the Annual Financial Statements.
Valuation basis of policy liabilities
The valuation was performed using the Financial Soundness Valuation method and was
conducted in accordance with the Long-term Insurance Act, 1998 and Professional Guidance
note 104 of the Actuarial Society of South Africa.
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Statutory Actuary’s Report
Home
Assumptions regarding the future were on a best estimate basis plus further allowance for
statutory planned margins. Appropriate allowance has been made for the expected impact of AIDS
by increasing the assumptions for mortality and morbidity in line with current industry models. A
gross discount rate of 8.8% has been used for calculating reserves in respect of post retirement
health liabilities and other annuities in payment, while a gross interest rate of 6.8% was used for
credit life liabilities. The 8.8% is based on long-term gilt rates, and 6.8% being the investment
return assumed for cash. Both of these rates are before the adjustment for 1st tier margins. The
basis of taxation of long-term insurers applicable as at 31 March 2005 has been allowed for. No
investigations have been performed into the experience of the cells in respect of mortality or other
risks underwritten as the experience is very small.
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Renewal expenses incurred in the operation of the cells are often incurred by 3rd parties and not
paid by the cell. Expenses have been allowed for in some cells by calculating the present value of
future expected expenses to be incurred. An inflation rate of 6.3% has been assumed before 1st
tier margins are included. This is derived as 2.5% less than the gilt rate of 8.8%. Bonus has been
allowed for with-profit annuities consistent with the investment return assumption.
For credit life business, policy liabilities were determined as the present value of expected future
outgo.
For monthly premium group life business, the liability was taken as an appropriate IBNR reserve.
For the annuities in payment and post-retirement health business, the liability was taken to be the
present value of the annuity cash flows less the present value of future premium payments. In
addition, a bonus smoothing reserve was also held to ensure that the liability was increased to
match the underlying assets.
One cell has a 2nd tier margin where negative reserves are eliminated. In addition, the Guardrisk
Life fees exceed expenses, but these future excesses have been discounted resulting in a 2nd tier
margin. In total these two 2nd tier margins are R144.7 million.
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Statutory Actuary’s Report
Home
5. Capital adequacy requirement
The capital adequacy requirement is calculated to determine whether the excess of assets
over liabilities is sufficient to provide for the possibility of actual future experience departing
negatively from the assumptions made in calculating the policy liabilities and against
fluctuations in the value of assets. The level of departure or fluctuation allowed for is as
required by the Long-term Insurance Act, 1998. The capital adequacy requirement is
calculated as if each cell was a separate insurer and then accumulated for all cells. The
surplus is 2.7 times the capital adequacy requirement.
For the resilience CAR component, the following fall in assets has been assumed:
Equities
Property
Fixed Interest
30%
15%
15%
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
In calculating the CAR, we have assumed the management action that the bonus smoothing
reserve can be used to offset the fluctuating CAR item. The bonus smoothing reserve
remaining after the removal of the fluctuation CAR item is used to absorb a fall in market
values. In addition, further management action is assumed, as future bonuses will be under
declared over the next three years. These actions reduce the CAR by R17 million.
I certify that the off-setting management actions assumed above have been approved by
specific resolutions by the board of directors. I am also satisfied that these actions will be
taken if the corresponding risks were to materialise.
The CAR has been based on the ordinary capital adequacy requirement as this exceeds the
termination adequacy requirement. The OCAR is backed 89% by cash assets, 8% by
equities and 3% by fixed interest instruments.
Income
Statement
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Notes to
Financial
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Statutory Actuary’s Report
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6.
7.
8.
Individual cell surpluses
The surplus of any cell is not available to meet the solvency requirements (including capital
adequacy requirement) of other cells. An alternative measure of the extent to which the
capital adequacy requirement is covered can be obtained by excluding the excess of assets
over liabilities (including capital adequacy requirements), for all cells where this surplus is
positive, from the total excess of assets over liabilities shown in the actuarial balance sheet.
The total of these surpluses amounted to R25.9 million at the valuation date. Excluding
these surpluses from the excess of assets over liabilities in the actuarial balance sheet
results in the capital adequacy requirement being covered 1.5 times.
Material changes in valuation basis since previous report
For the credit life business, the gross discount rate was reduced to 6.8% from 7.7%,
consistent with yields based on the market value of assets. A tax 2nd tier margin was
introduced this financial year resulting in a transfer from shareholder’s funds to policyholder
liabilities.
Reconciliation with Income Statement
(Decrease) / Increase in excess of assets over liabilities
- Increase in share capital during the year
+ Dividend paid and provided during the year
+ Reclassification of policyholder liability to equity
Earnings for the year on Financial Soundness basis
- Increase in excess retained in policyholders' fund
Earnings per Income Statement
2005
R’000
2004
R’000
(3,596)
(1,575)
10,042
8
4,879
0
4,879
1,550
(2,153)
16,305
0
15,702
0
15,702
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Statutory Actuary’s Report
Home
Corporate
Governance
The earnings for the year on the financial soundness basis comprised of :
Investment income on free assets
Capital Appreciation on free assets
Changes to valuation basis and assumptions
Balance of earnings for the year
Total
9.
2005
R’000
2004
R’000
3,769
1,006
(11,544)
11,648
4,879
6,195
1,015
(81)
8,573
15,702
Alterations, notes and qualifications
The actuarial assumptions will be reviewed from time to time to reflect changes in
experience and/or expectations.
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
MJ Harrison FFA FASSA
Statutory Actuary
Accounting
Policies
16 May 2005
Notes to
Financial
Statements
Directors’ Report
Home
The directors present their report which forms part of the audited financial statements of the
company for the year ended 31 March 2005.
Principal activities and review of the business
Guardrisk Life is South Africa's first cell captive long-term insurer. Guardrisk Life is licensed to
underwrite assistance, disability, fund, health, life policies and sinking fund policies (i.e.
endowments).
The company offers the following structured insurance and risk financing solutions:
Cell captive: Cell captives allow clients to purchase an equity stake (or a "cell") in the promoting
company which undertakes the professional management of the cell including underwriting,
reinsurance, claims management, actuarial and statistical analyses, investment and accounting
services. The terms and conditions of the cell are governed by the "L" shareholders agreement.
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Promoter policies: A structure to provide entry-level insurance cover for smaller schemes.
Both the level of business development and the overall financial position at the end of the year
were satisfactory and the directors expect that the present level of insurance activity will continue
for the foreseeable future.
Changes in
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Cashflow
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Notes to
Financial
Statements
Directors’ Report
Home
Key figures have been highlighted below:
Total assets
Gross premium written - insurance contracts
Gross premium written - investment contracts
Investment income
Income before tax
2005
R’000
2004
R’000
866,569
311,565
8,463
66,827
9,739
856,589
336,178
29,403
59,649
20,007
Corporate
Governance
Our Approach to
Risk Management
Statement of
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Results
Gross premium income reduction of 7% in the income statement was caused by a reduction in
single premium business. Net claims increased by 7% due to increased claims volumes.
Investment income increased by 12% and funds under management decreased by 2% which was
acceptable in a declining interest rate environment. Income before tax has increased due to the
reduction in administration expenses and the increase in investment income.
Dividends
Dividends to ordinary shareholder
Declared to ordinary shareholder on 23 July 2004 and paid on 27 July 2005
Dividends to "L" ordinary shareholders
Declared and paid to 031 “L” ordinary shareholder on 28 May 2004
Declared and paid to 006 “L” ordinary shareholder on 28 February 2005
R
3,689,000
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
1,602,869
4,750,000
6,352,869
Accounting
Policies
Notes to
Financial
Statements
Directors’ Report
Home
Share capital
The authorised share capital remained unchanged during the year. Details of changes in the
issued share capital are provided in Notes 5 and 6 to the financial statements. Changes are
generally due to new cells being opened or redemptions when cells are closed.
Post balance sheet events
There have been no major events subsequent to year end.
Holding company
The company is controlled by Guardrisk Holdings Limited (incorporated in South Africa) which
owns 100% of the company's ordinary shares. The ultimate parent of the company is Alexander
Forbes Limited a company incorporated in South Africa.
Directors and secretary
The following were the directors of the company who remained unchanged during the year:
Corporate
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Statement of
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Secretary
Auditor’s report
Statutory
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Directors’ Report
Balance Sheet
SH Schoeman (managing director) *
L Vorwerg (executive) *
AG Jordaan (executive) *
PL Heinamann (non-executive & chairperson)
TRT Bohlmann (non-executive) *
BL McClatchie (non-executive) *
MKE Nkeli (non-executive)
GM Nzau (non-executive)
T Pauw (non-executive)
JH Vickers (non-executive) *
* Audit committee attendee
JE Salvado (company secretary)
Income
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Notes to
Financial
Statements
Directors’ Report
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Registered office and postal address
Physical office:
Alexander Forbes Place
Fourth Floor, 90 Rivonia Road,
Sandton
2196
Company secretary
Registered office:
Alexander Forbes Limited
Alexander Forbes Place
61 Katherine Street
Sandown
2196
Postal address:
P O Box 786015
Sandton
2146
Corporate
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Our Approach to
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Statement of
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Certificate by
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Secretary
Postal address:
P O Box 787240
Sandown
2146
Public Officer
AG Jordaan
Auditors
PricewaterhouseCoopers Inc. will continue in office in accordance with section 270(2) of the
Companies Act.
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Balance Sheet
Home
Balance Sheet as at 31 March 2005
Corporate
Governance
Notes
2005
R’000
Our Approach to
2004
Risk Management
R’000
Statement of
Responsibility
ASSETS
Non-current assets
Equipment
Purchased and developed computer software
Financial assets
Deferred tax asset
Reinsurers’ share of unmatured liabilities
Current assets
Reinsurers’ share of outstanding claims
Receivables and prepayments
Current tax asset
Accrued premium
Cash and cash equivalents
Due by reinsurers
Total assets
1.1
1.2
2
3
7.1
4
Certificate by
Company
Secretary
813,363
160
17
730,755
105
82,326
771,721
0
121
716,891
70
54,639
53,206
5,176
4,181
6,931
23,650
12,178
1,090
84,868
3,989
15,661
6,282
18,744
40,192
0
Balance Sheet
866,569
856,589
Accounting
Policies
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Notes to
Financial
Statements
Balance Sheet
Home
Notes
2005
R’000
2004
R’000
Corporate
Governance
Our Approach to
Risk Management
EQUITY & LIABILITIES
Statement of
Responsibility
18,127
10,000
8,127
25,484
10,000
15,484
Interest of "L" ordinary shareholders and policyholders
5, 6
"L" Ordinary share capital and premium
"L" Ordinary shareholders and policyholders interest
39,510
5,989
33,521
35,749 Auditor’s report
4,414
Statutory
31,335 Actuary’s Report
Total shareholders and policyholders interest
57,637
61,233
Non-current liabilities
Policyholders liabilities under insurance contracts
Policyholders liabilities under investment contracts
779,422
666,978
112,444
764,380
527,913
236,467
29,510
18,364
10,783
363
30,976
17,619
12,144
1,213
866,569
856,589
Interest of ordinary shareholder
Share capital
Retained earnings
5
Certificate by
Company
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Directors’ Report
Current liabilities
Gross outstanding claims
Trade and other payables
Current tax liabilities
Total equity and liabilities
7.1
7.2
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Income Statement
Home
Income Statement for the year ended 31 March 2005
Notes
2005
R’000
Corporate
Governance
2004
R’000 Our Approach to
Risk Management
Income
Gross premiums written
Outward reinsurance premiums
Net premiums written
311,565
(75,244)
236,321
336,178
(87,276)
248,902
Policyholder benefits
Recoveries from reinsurers
Net policyholder benefits
181,439
(38,188)
143,251
180,072
(46,805)
133,267
Net commission
Administration expenses
8
Investment return
9
10,657
28,773
53,640
66,827
120,467
6,821 Directors’ Report
Balance Sheet
34,737
74,077
Income
Statement
59,649
133,726
Changes in
7.2
(15,171)
(8,719)
Equity and
Policyholder
Interest
7.1
(123,244)
(90,903)
Cashflow
Statement
7.1
27,687
9,739
(4,860)
4,879
(14,097)
20,007
(4,305)
15,702
Accounting
Policies
Fair value adjustment to policyholder liabilities under
investment contracts
Gross transfer to policyholder liabilities under
insurance contracts
Reinsurers’ portion of transfer to policyholder liabilities
under insurance contracts
Profit before taxation
Taxation
Net profit for the year
10
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
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Notes to
Financial
Statements
Changes in Equity & Policyholders’ Interest
Home
Statement of Changes in Shareholders’ Equity and Policyholders’ Interest for the year
ended 31 March 2005
Share
capital
R’000
Share
Premium
R’000
Retained
earnings
R’000
Total
R’000
Issue of shares
Dividends paid
Net profit for the year
Balance at 31 March 2004
Transfer to “L” shareholders interest
10,000
0
0
0
0
0
0
0
0
0
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
STATEMENT OF CHANGES IN ORDINARY SHAREHOLDER’S EQUITY
Balance at 1 April 2003
Corporate
Governance
13,171
2,313
0
(5,475)
7,788
23,171
2,313
0
(5,475)
7,788
Issue of shares
Dividends paid
Net profit for the year
10,000
0
10,000
0
0
0
0
0
0
0
0
0
0
0
15,484
(6,624)
8,860
(733)
0
(3,689)
2,956
25,484
(6,624)
18,860
(733)
0
(3,689)
2,956
Balance at 31 March 2005
10,000
0
8,127
18,127
Auditor’s report
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Balance Sheet
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Equity and
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Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
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Changes in Equity & Policyholders’ Interest
Home
Corporate
Governance
Share
capital
R’000
Share
Premium
R’000
Retained
earnings
R’000
Total
R’000
STATEMENT OF CHANGES IN “L” SHAREHOLDERS’ AND POLICYHOLDERS’ INTEREST
Restated balance at 1 April 2003
Issue of shares
Dividends paid
Net profit for the year
1
0
0
0
0
2,260
2,153
2,153
0
0
34,251
(2,916)
0
(10,830)
7,914
36,512
(763)
2,153
(10,830)
7,914
Our Approach to
Risk Management
Statement of
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Certificate by
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Auditor’s report
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Balance Sheet
Balance at 31 March 2004
Issue of shares
Dividends paid
Net profit for the year
1
0
0
0
1
0
0
0
0
4,413
0
0
0
4,413
1,575
1,575
0
0
31,335
6,616
(8)
6,624
37,951
(4,430)
0
(6,353)
1,923
35,749
6,616
(8)
6,624
42,365
(2,855)
1,575
(6,353)
1,923
Balance at 31 March 2005
1
5,988
33,521
39,510
Transfer of policyholder liabilities to equity
Transfer from ordinary shareholders equity
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Cash Flow Statement
Home
Cash Flow Statement for the year ended 31 March 2005
Notes
2005
R’000
Corporate
Governance
2004
R’000 Our Approach to
Risk Management
Cash flows from operating activities
Cash generated from operations
Cash (outflow) / inflow on investment contracts
Investment income
Dividends paid
Taxation paid
Net cash (outflow) / inflow from operating activities
13
14
15
140,301
Certificate by
620
Company
63,460
Secretary
(16,305) Auditor’s report
(21,108)
Statutory
166,968 Actuary’s Report
Directors’ Report
Cash flows from investing activities
Net purchase of investments
Purchase of equipment
Proceeds on disposal of investments
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issue of shares
Net cash inflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
57,465
(123,381)
55,110
(10,042)
(6,394)
(27,242)
Statement of
Responsibility
4
(11,036)
(200)
8,889
(2,347)
(257,653)
0
366
(257,287)
1,575
1,575
2,153
2,153
(28,014)
40,192
12,178
(88,166)
128,358
40,192
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Accounting Policies
Home
BASIS OF PREPARATION
The financial statements of the company has been prepared in accordance with and comply with
South African Statements of Generally Accepted Accounting Practice and the Companies Act of
1973, as amended in South Africa.
Such preparation of financial statements requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reported period. Although these estimates are based on management’s best
knowledge of current events and actions, actual results ultimately may differ from those estimates.
The financial statements have been prepared under the historical cost basis, as modified by the
revaluation of certain categories of financial instruments and liabilities under insurance contracts.
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CHANGES IN ACCOUNTING POLICIES
The accounting policies used in preparing the financial statements are set out below and are
consistent with those of the previous year except for:
 the early adoption of accounting for share option costs in accordance with the new
accounting standard AC 139 (IFRS 2); and
 the mandatory adoption of the new accounting standards AC 128 (IAS 36) on impairment of
assets and AC 129 (IAS 38) on intangible assets.
Adoption of Accounting for Share Option Costs in accordance with AC 139 (IFRS 2)
Accounting standard AC 139 (IFRS 2) requires the costs of share options granted to employees to
be valued at date of grant and expensed through the income statement by way of a charge spread
over the vesting period of the options. This standard has been adopted in the current year.
Previously, share option costs were not expensed through the income statement.
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CHANGES IN ACCOUNTING POLICIES
Adoption of AC 128 (IAS 36) on Impairment of Assets and AC 129 (IAS 38) on Intangible
Assets
Accounting standards AC 128 (IAS 36) and AC 129 (IAS 38) are required to be adopted with effect
from 31 March 2003. AC 128 prescribes the procedures to apply in assessing the recoverable
amount of all assets and calculating and accounting for any impairment losses. AC 129
prescribes the measurement and recognition of intangible assets, including those arising from
business combinations.
In accordance with the transitional provisions of accounting standards AC 128 and AC 129, the
company has elected to implement these accounting standards with effect from 1 April 2004.
Where applicable, comparative figures have been restated prospectively from this date.
The effect of the adoption of these standards is as follows:
- Computer software has been classified as an intangible asset and amortised accordingly.
INSURANCE CONTRACTS
Certain policyholder contracts are classified in the financial statements at fair value, with changes
in fair value being accounted for in the income statement. These contracts are disclosed on the
balance sheet as "Policyholder liabilities under investment contracts". The premiums and benefit
payments relating to these investment contracts have been excluded from the income statement
and accounted for directly as part of the liability. Fees earned from these contracts are disclosed
separately.
All policyholder contracts that transfer significant insurance risk are classified as insurance
contracts. These contracts are valued in terms of the Financial Soundness Valuation (FSV) basis
contained in PGN 104 issued by the Actuarial Society of South Africa and are reflected as
"Policyholder liabilities under insurance contracts".
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The Companies statutory actuary calculates the Company's liabilities under insurance contracts
and investment contracts annually at the balance sheet date in accordance with prevailing
legislation, Generally Accepted Actuarial Standards in South Africa and South African Statements
of Generally Accepted Accounting Practice as appropriate. The transfers to policyholder liabilities
reflected in the notes on the financial statements represent the increase or decrease in liabilities,
including provisions for policyholders' bonuses, net adjustments to policyholders' bonus
stabilisation reserves, and net adjustments to margins held within the policyholder liabilities.
Basis of accounting for insurance activities
 Premium income is recognised in the month to which the premium relates with reinsurance
premiums being recognised at the same time as the related insurance premiums;
 Net premiums written relate to business written during the year, together with any differences
between booked premiums for prior years and those previously recognised, and include
estimates of premiums due but not yet receivable or notified to the company, less an
allowance for cancellations;
 Acquisition costs, which include commission and other related expenses, are recognised in
the period in which they are incurred;
 Commission payments and receipts are taken to income or expense as incurred;
 Policyholder benefits are recognised when incurred. Reinsurance recoveries are recognised
in the same accounting period in which the related benefit is recognised
 Claims outstanding represent the ultimate cost of settling all claims arising from events which
have occurred up to the balance sheet date, less any amounts paid in respect of those
claims.
EQUIPMENT
Equipment is stated at historic cost less accumulated depreciation and any recognised impairment
loss. Equipment is depreciated on a straight line basis writing down the cost to the residual value
of the asset over their expected useful life.
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The depreciation charge is reflected in administration expenses in the income statement.
The expected useful lives applied are:
Furniture and fittings
Office equipment
5 years
3 years
Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Profits and losses on disposal are determined by reference to their carrying amount at the date of
disposal and are reflected together with other capital gains and losses in a separate line item in
the notes to the income statement. The carrying amounts of equipment are reviewed on an
annual basis. Where the carrying amount of an asset is greater than its estimated recoverable
amount, it is written down immediately to its recoverable amount and a capital loss is reported in
the income statement.
Subsequent costs are included in the asset’s carrying amount only when it is probable that future
economic benefits associated with the items will flow to the company and the cost of the item can
be measured reliably. All other repairs and maintenance costs are charged to the income
statement when incurred.
INTANGIBLE ASSETS
Intangible assets are stated at historic cost less accumulated amortisation and any recognised
impairment loss. Intangible assets are recognised if it is probable that future economic benefits
will flow to the company from the assets and the costs of the assets can be reliably measured.
Intangible assets are amortised on a straight line basis writing down the cost over their expected
useful life. The amortisation charge is included in administration expenses in the income
statement.
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The carrying amounts of intangible assets are reviewed on an annual basis or sooner if there is an
indication of impairment. Where the carrying amount of an intangible asset is greater than its
estimated recoverable amount, it is written down immediately to its recoverable amount, with the
impairment being recognised as a capital loss in the income statement when incurred.
Purchased and developed computer software
Purchased computer software and the direct costs associated with the customisation and
installation thereof are capitalised and amortised over its expected useful life of up to three years.
Purchased computer software licenses are capitalised on the basis of the costs incurred to
acquire and bring to use the specific software. These costs are amortised over their estimated
useful life of up to two years.
Costs associated with developing computer software programmes are recognised as an operating
expense when incurred. However, costs that are directly associated with an identifiable and
unique product, which will be controlled by the company and have a probable benefit exceeding
the costs beyond one year, are recognised as intangible assets.
Expenditure which enhances and extends the benefits of computer software programmes beyond
their original specifications and lives is recognised as a capital improvement and added to the
original cost of the software. Computer software development costs recognised as intangible
assets are amortised over their expected useful lives of three years.
Other intangible assets
The company does not attribute value to internally developed trademarks, patents and similar
rights and assets. Costs incurred on trademarks, patents and similar rights and assets are
recognised as an administration expense when incurred. Expenditure on the development and
marketing of the Guardrisk brand is similarly expensed as incurred.
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IMPAIRMENT OF ASSETS
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for
impairment. Assets that are subject to amortisation are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be recoverable. Such
indicators include changes in technology, market, economic, legal and operating environments.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds
it’s recoverable amount. The recoverable amount is measured using the higher of the fair value
less costs to sell and the value-in-use. Value-in-use is the present value of projected cash flows
covering the remaining useful life of the asset. An impairment charge is recognised as a capital
loss in the income statement immediately unless the relevant asset is carried at a revalued
amount, in which case the impairment charge is treated as a revaluation decrease.
A previously recognised impairment loss is reversed through the income statement if the
recoverable amount increases as a result of a change in estimates used to determine the
recoverable amount, but not to an amount higher than the carrying amount that would have been
determined (net of depreciation or amortisation) had no impairment loss been recognised in prior
years. If the relevant asset is carried at a revalued amount, the reversal of the impairment loss is
treated as a revaluation increase.
OPERATING LEASES
Leases of assets under which all the risks and benefits of ownership are effectively retained by
the lessor are classified as operating leases. Payments made under operating leases (net of any
incentives or benefits received from the lessor) are charged to the income statement on a straight
line basis over the period of the lease.
When an operating lease is terminated before the lease period has expired, any payment required
to be made to the lessor by way of penalty is recognised as an expense in the period in which
termination takes place.
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RECEIVABLES
Trade receivables are carried at original invoice amount less an estimate made for impairment
based on a review of all outstanding amounts at year end, which is the undiscounted fair value of
the consideration receivable. A provision for impairment of trade receivables is established when
there is objective evidence that the company will not be able to collect all amounts due according
to the original terms of the receivables. The amount of the provision is the difference between the
carrying amount and the recoverable amount, being the present value of expected cash flows
discounted at the market rate of interest for similar borrowers. The amount of the provision is
recognised as a charge in the income statement.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, balances with banks. Cash and cash
equivalents are carried at cost which is deemed to be fair value and are shown in current assets
on the balance sheet.
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FINANCIAL INSTRUMENTS
Financial instruments as reflected in the balance sheet include all financial assets and financial
liabilities, including derivative instruments, but exclude equipment, purchased and developed
computer software, deferred taxation, taxation payable and assets and liabilities under insurance
contracts.
Financial Assets
Initial recognition
Financial assets are initially recognised at cost, including transaction costs, when the related
contractual rights or obligations exist. Financial assets are recognised using trade date
accounting, that is the assets are recorded at the price on the date on which the trade is
concluded.
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At inception, management determines the appropriate classification of financial assets as follows:
 ‘Loans and receivables’ are financial assets with fixed or determinable payments that are not
quoted in an active market. They arise when the company provides money or services
directly to a debtor with no intention of trading the receivable.
 ‘Held-to-maturity’ financial assets are all financial assets with fixed or determinable payments
and fixed maturity where there is both the intent and ability to hold to maturity.
 ‘Fair value through profit or loss’ financial assets are those financial assets that are either
classified as ‘held for trade’ (ie. held for short term profit taking) or designated as such upon
initial recognition.
 All other financial assets are designated as ‘available-for-sale’ financial assets.
Subsequent recognition and measurement
Subsequent to initial recognition, financial assets classified as ‘held-for-trade’, ‘fair-value through
profit or loss’ or ‘available-for-sale’ are remeasured at fair value, while financial assets classified
as ‘loans and receivables’ or ‘held-to-maturity’ are remeasured at amortised cost, less any
provision for impairment.
Gains and losses arising on the change in fair value of financial assets classified as ‘available-forsale’ are recognised in non-distributable reserves in the statement of changes in equity, unless the
asset is disposed of or impaired, at which time the cumulative gain or loss is recognised in the
income statement.
All gains and losses arising on the change in fair value, disposal or impairment of all other
categories of financial assets are recognised in the income statement on valuation or disposal
date.
Financial assets are derecognised when the control over the contractual rights that comprise the
asset are lost and the substantial risks and benefits associated with the asset are transferred. This
occurs when the rights are realised, expire or are surrendered.
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Fair value
Fair values are based on regulated exchange quoted ruling bid prices at the close of business on
the last day of trading on or before the balance sheet date. If a quoted bid price is not available for
dated instruments, the fair value is determined using pricing models or discounted cash flow
techniques. Fair values for unquoted equity instruments are estimated using applicable fair value
models. Where discounted cash flow techniques are used estimated future cash flows are based
on management’s best estimates and the discount rate is a market related rate at the balance
sheet date for an instrument with similar terms and conditions. Where pricing models are used,
inputs are based on market related measures at the balance sheet date. Any instrument that
does not have a quoted market price in an active market and whose fair value cannot be reliably
measured is stated at its cost, including transaction costs, less any provisions for impairment.
Short-term receivables are carried at original invoice amount less any estimate for impairment.
Financial Liabilities
Initial recognition
All financial liabilities under investment contracts that are matched to policyholder assets are
initially recognised and subsequently remeasured to the same values as the corresponding linked
assets, which is at fair value.
Insurance contracts of life insurance operations are initially valued and subsequently remeasured
in terms of the Financial Soundness Valuation basis contained in PGN 104 issued by the Actuarial
Society of South Africa. Financial liabilities under investment contracts are initially recognised and
subsequently remeasured at fair value (through profit or loss).
All other financial liabilities are initially recognised at the original invoice amount less any
transaction costs and subsequently remeasured at fair value (through profit or loss).
Financial liabilities are derecognised when they are legally extinguished.
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PROVISIONS
Provisions are recognised when the company has a present obligation (legal or constructive) as a
result of past events, for which it is probable that an outflow of economic benefits will be required
to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
Provisions are reviewed at the end of each financial year and are adjusted to reflect the current
best estimate.
Provision for leave pay
Employee entitlements to annual leave are recognised when they accrue to employees. A
provision is made for the estimated liability for annual leave as a result of services rendered by
employees up to the balance sheet date. Provision for leave pay is included in payables due to the
immaterial nature of the balance.
TAXATION
The income tax charge in the income statement takes into account current and deferred corporate
income taxes, as well as secondary tax on companies. Due to the nature of indirect taxes,
including non-recoverable value added tax, stamp duty, skills development levies and regional
service council levies, they are included in administration expenses in the income statement.
Current tax
The current income tax and capital gains tax charges are the expected tax payable on the taxable
income for the year using applicable tax rates and any adjustment to tax payable in respect of
prior years.
Deferred tax
Deferred income tax is provided in full, using the balance sheet liability method.
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This method recognises the tax effect of temporary differences between accounting and tax
values of assets and liabilities, and provides for all such differences at tax rates that have been
enacted or have been substantially enacted and are expected to be applied when the asset is
realised or liability settled. Deferred tax is charged or credited in the income statement, except
when it relates to items charged or credited directly to equity, in which case the deferred tax is
also dealt with in equity.
Deferred tax assets relating to the carry forward of unused tax losses are recognised to the extent
that it is probable that future taxable profit will be available against which the temporary
differences can be utilised.
Deferred tax related to fair value remeasurements of available-for-sale assets which are taken
directly to equity is also taken directly to equity and is subsequently recognised in the income
statement together with the deferred gain or loss.
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Secondary tax on companies (STC)
STC is provided for at a rate of 12.5% on the amount by which dividends declared exceed
dividend received. STC is recognised as part of the current tax charge in the income statement
when the related dividend is declared. Unused STC credits are recognised as an asset in the
financial statements to the extent that STC payable on future dividend payments is likely to be
available for set-off.
SHARE CAPITAL
Issued share capital is stated in the statement of changes in equity at the amount of proceeds
received less directly attributable issue costs.
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Accounting Policies
Home
DIVIDEND DISTRIBUTIONS
Dividend distributions to all issued shares are recognised as a deduction from reserves in the
statement of changes in equity in the period in which they are declared.
RETIREMENT BENEFIT OBLIGATIONS
Pension obligations
The employees of the company participate in the Alexander Forbes Group defined contribution
plan.
For defined contribution retirement plans, the company pays contributions to a retirement plan and
has no further payment obligation once the contributions have been made. The company’s
contributions to defined contribution retirement plans are recognised as an employee benefit
expense and charged to the income statement in the year to which the service relates.
EMPLOYEE SHARE OPTIONS
The Alexander Forbes group issues share options to eligible employees, all of which are classified
as equity-settled share-based payments. Equity-settled share-based payments are measured at
fair value at the grant date. Subsidiary companies are charged for the cost of the share option
granted to their employees and this charge is expensed through the income statement according
to the vesting period of the options grated.
Fair value is measured using an actuarial binomial model. Fair value excludes the impact of any
non-market vesting conditions which are included in assumptions about the number of options that
are expected to become exercisable or the number of shares that employees are expected to
ultimately receive.
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Accounting Policies
Home
CONTINGENCIES AND COMMITMENTS
Transactions are classified as contingencies where the company’s obligations depend on
uncertain future events. Items are classified as commitments where the company commits itself
to future transactions with external parties.
OFFSETTING
Financial assets and liabilities are offset and the net amount reported on the balance sheet when
there is a legally enforceable right to set-off the recognised amount and there is an intention to
settle on a net basis or to realise the asset and settle the liability simultaneously.
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
RELATED PARTY TRANSACTIONS
Guardrisk Life Limited has one single controlling shareholder.
Statutory
Actuary’s Report
Directors’ Report
REVENUE RECOGNITION
Dividends are recognised as revenue at the last day of registration in respect of listed shares and
when received in respect of all other investments.
Interest received and preference dividend income are recognised as revenue on a time
proportionate basis using the effective interest rate method.
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Notes to the Financial Statements
Home
Notes to the Financial Statements for the year ended 31 March 2005
2005
R’000
Corporate
Governance
2004
R’000
1.1 Equipment
Cost
Accumulated depreciation and impairment
Net carrying value
Opening net carrying value
Movement during year
Depreciation charge
Additions to enhance existing operations
Closing net carrying value
200
(40)
160
0
0
0
0
0
(40)
200
160
0
0
0
Cost
Cost at 1 April
Movement during year
Additions to enhance existing operations
Cost at 31 March
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
1.2 Purchased and developed computer software
Cost
Accumulated amortisation and impairment
Net carrying value
Our Approach to
Risk Management
345
328
17
345
224
121
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
345
224
0
345
121
345
Accounting
Policies
Notes to
Financial
Statements
Notes to the Financial Statements
Home
2005
R’000
Accumulated amortisation and impairment
Amortisation at 1 April
Movement during year
Charge for the year
Amortisation at 31 March
2.
2004
R’000
Our Approach to
Risk Management
224
134
Statement of
Responsibility
104
328
90
224
Certificate by
Company
Secretary
Auditor’s report
Financial assets
‘Fair value through profit or loss’
Corporate
Governance
730,755
716,891
Statutory
Actuary’s Report
Directors’ Report
Consisting of:
Short term deposits
Equities
Preference shares
Unit trusts
Linked insurance policies
3.
Balance Sheet
515,702
0
29,159
17,445
168,449
730,755
431,326
18,215
20,070
29,140
218,140
716,891
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Deferred tax asset
Balance at beginning of year
Movement during year
Charged to income statement
Balance at end of year
Income
Statement
70
0
Accounting
Policies
35
105
70
70
Notes to
Financial
Statements
Notes to the Financial Statements
Home
2005
R’000
2004
R’000
Our Approach to
Risk Management
Deferred tax is attributable to the following item:
Leave pay provision
105
70
Calculated losses in the individual policyholder fund amount to R65,257,894 (2004:
R35,124,467) and R3,595,182 (2004: R6,051,760) in the company policyholders fund. No
deferred tax asset has been raised in respect of these losses as it is uncertain whether
there will be any future income to utilise these tax losses.
4.
Corporate
Governance
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Cash and cash equivalents
Balance Sheet
Cash and cash equivalents comprise bank
and cash balances
5.
Share capital
Authorised
10 000 000 Ordinary shares of R1 each
20 000 “L” ordinary shares of R1 each
Issued
10 000 000 Ordinary shares of R1 each
805 (2004: 680) “L” ordinary shares of R1 each
12,178
10,000
20
10,020
10,000
1
10,001
40,192
10,000
20
10,020
10,000
1
10,001
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Notes to the Financial Statements
Home
“L” ordinary shares are issued to cell owners, and after approval by the board and
statutory actuary, this entitles them to the profits and losses from the insurance business
conducted by Guardrisk Life Limited in their cell.
The unissued “L” ordinary shares are under the control of the company until the
forthcoming annual general meeting.
2005
R’000
6.
Share premium on “L” ordinary shares
Balance at the beginning of the year
Movement during year
Premium on “L” ordinary shares issued during the year
Balance at the end of the year
7.
2004
R’000
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
4,413
2,260
1,575
5,988
2,153
4,413
Non-current liabilities
7.1 Policyholder liabilities under insurance contracts
The movements in insurance contract liabilities for the year were as follows:
Balance at beginning of the year
473,274
595,376
Movement during year
Reclassification from/(to) policyholder liabilities under
investment contracts
15,821
(227,102)
Gross transfer from income statement
123,244
90,903
Reinsurers share of transfer from income statement
(27,687)
14,097
Balance at the end of the year
584,652
473,274
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Notes to the Financial Statements
Home
2005
R’000
Split as follows:
Policyholder liabilities
Reinsurers share
Corporate
Governance
2004
R’000
Our Approach to
Risk Management
666,978
(82,326)
584,652
527,913
(54,639)
473,274
The reinsurers’ share has been disclosed separately and the comparatives have been
adjusted accordingly.
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
7.2 Policyholder liabilities under investment contracts
Directors’ Report
The movements in investment contract liabilities for
the year were as follows:
Balance at beginning of the year
Movement during year
Reclassification (to) / from policyholder liabilities
under insurance contracts
Transfer to opening retained earnings
Transfer from “L” shareholders and policyholders
interest
Contribution received
Withdrawals
Fair value adjustment
Balance at end of the year
Balance Sheet
236,467
0
(15,821)
8
227,102
0
0
8,463
(131,844)
15,171
112,444
25
29,403
(28,782)
8,719
236,467
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Notes to the Financial Statements
Home
2005
R’000
8.
Corporate
Governance
2004
R’000
Our Approach to
Risk Management
Administration expenses
Administration expenses include the following:
Auditors remuneration
- Audit fees
- Other services
Staff costs
Salary, wages and other benefits
Provident fund contribution
Medical aid costs
Number of employees at year end
Depreciation on equipment (note 1.1)
Amortisation on computer software (note 1.2)
Statement of
Responsibility
426
426
0
741
671
70
4,281
3,824
368
89
4,148
3,675
356
117
7
7
40
0
104
90
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Notes to the Financial Statements
Home
2005
R’000
9.
2004
R’000
Our Approach to
Risk Management
Investment return
Interest income
Dividend income
Increase/(decrease) in market value of investments
Net profit on sale of investments
Corporate
Governance
53,480
1,630
8,211
3,506
66,827
61,678
1,782
(3,826)
15
59,649
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
10. Taxation
Directors’ Report
South African normal tax
- Current tax
- Secondary tax on companies
- Deferred tax
- Capital gains tax
Reconciliation of effective tax rate
Normal tax rate
increase (decrease) in rate of tax due to
Adjustment to policyholder funds
STC
Effective tax rate
3,838
1,028
(35)
29
4,860
3,162
1,213
(70)
0
4,305
30.00%
30.00%
16.73%
3.17%
49.90%
(8.90%)
6.20%
27.30%
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Notes to the Financial Statements
Home
2005
R’000
2004
R’000
11. Related party transactions and balances
Related party transactions
The company is controlled by Guardrisk Holdings Limited (incorporated in South
Africa) which owns 100% of the company's ordinary shares. The ultimate parent of the
company is Alexander Forbes Limited. There are certain related party transactions
between Guardrisk Life Limited, Guardrisk Insurance Company Limited and Alexander
Forbes Limited. Certain expenses are paid by Guardrisk Insurance Company Limited
and reimbursed by Guardrisk Life Limited.
A fellow subsidiary, Alexander Forbes Group (Pty) Ltd has an interest in a cell in the
company. The balance at the end of the year was:
55 321
29,566
Directors remuneration
A listing of the members of the board of directors is provided in the Directors Report
herewith. Details of directors remuneration are as follows:
554
0
Salaries
487
0
Other
67
0
- (including pension contributions, performance
bonuses and fringe benefits and gains on share options
exercised)
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Notes to the Financial Statements
Home
Share Option Information
Fair value
The company early adopted accounting for share option costs in accordance with the
new accounting standard AC 139 (IFRS 2) which requires the fair value cost of share
options granted to employees to be valued at date of grant and expensed through the
income statement by way of a charge spread over the vesting period of the options.
This standard has been adopted in the current year. Previously share option costs
were not expensed through the income statement.
The fair value of each option grant has been estimated on the date of grant using an
actuarial binomial option-pricing model. The assumptions used in determining the fair
value of the options granted in the financial year are as follows:
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Grant
date
In the
financial
year ending
31 March
2005
Share
Price
Exercise/
strike price
at grant date
Expected
volatility
Expected
dividend
Yield
Risk free
interest free
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
R
11.90
R
12.11 – 13.73
%
35.1 – 37.2
%
4.0
%
8.5 – 8.7
Cashflow
Statement
Accounting
Policies
The expected volatility is determined based on the rolling historical volatility over the
expected life of the option (i.e. the remaining term to expiry) that prevailed at the grant
date.
Notes to
Financial
Statements
Notes to the Financial Statements
Home
When volatility data on the Alexander Forbes share price was not available, the
average volatility of comparable financial institutions was used.
The risk-free rate is the yield on zero-coupon SA government bonds of a term
consistent with the assumed option life.
Income statement effect
The fair value share option charge in the income statement amounts to R 166 000 in
the current year.
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
12. Financial risks
Credit risk
Financial assets which potentially subject the company to concentrations of credit risk
consist principally of cash and cash equivalents, investments and accounts receivable.
Cash equivalents and investments are placed with high credit rated financial
institutions. Accounts receivable are presented net of the allowance for doubtful
receivables. Credit risk with respect to accounts receivable is limited as reinsurers and
intermediaries used are established companies.
The financial condition of the reinsurers in relation to their credit standing is evaluated
on an ongoing basis.
The carrying amounts of financial assets included in the balance sheet represents the
company's exposure to credit risk in relation to these assets. At 31 March 2005 the
company did not consider there to be a significant concentration of credit risk which
had not been adequately provided for.
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Notes to the Financial Statements
Home
Underwriting risk
Procedures to control and manage the underwriting risks are in operation and include
catastrophe reinsurance which is in place to cover single event disasters. The risk
committee meets on a regular basis.
2005
R’000
2004
R’000
13. Reconciliation of cash generated from operating activities
Profit after investment return
Adjustments for:
Cash items
- Investment income (note 9)
Non-cash items
- Depreciation (note 8)
- Fair value adjustments to investments (note 9)
- Profit on disposal of shares (note 9)
- Movement in outstanding claims
- Amortisation
120,467
133,726
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
(55,110)
(63,460)
Directors’ Report
Balance Sheet
40
(8,211)
(3,506)
(442)
104
0
3,826
(15)
898
90
Changes in working capital:
- Decrease in receivables & accrued premium
- (Increase) / Decrease in accounts payable
5,484
(1,361)
64,141
1,095
Cash generated from operations
57,465
140,301
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements
Notes to the Financial Statements
Home
2005
R’000
14. Dividends paid
10,042
2004
R’000
16,305
15. Reconciliation of taxation paid
Opening balance
Current taxation
Closing balance
Taxation paid
(5,069)
4,895
6,568
11,664
4,375
5,069
6,394
21,108
Corporate
Governance
Our Approach to
Risk Management
Statement of
Responsibility
Certificate by
Company
Secretary
Auditor’s report
Statutory
Actuary’s Report
Directors’ Report
Balance Sheet
16. Capital commitments
There are no capital commitments in the current year.
Exit
Income
Statement
Changes in
Equity and
Policyholder
Interest
Cashflow
Statement
Accounting
Policies
Notes to
Financial
Statements