ANNUAL REPORT
2019
DO GREAT THINGS EVERY DAY
Contents
ABOUT OUR
ANNUAL REPORT 2019
01
WHO
WE ARE
Our foundations
Approach to value-creation
Tracing our roots
Our brand
Company values
Old Mutual Insure today
People and culture
Old Mutual Insure
Group structure
6
6
6
7
8
9
10
11
05
OUR VALUE
OUTCOMES
Financial Director’s report 34
Commercial, Personal and
Distribution
Specialty
iWYZE
Credit Guarantee Insurance
Corporation (CGIC)
People and Brand
37
38
39
40
41
03
OUR VALUE
CUSTODIANS
Executive leadership
Board of Directors
22
24
02
WE CULTIVATE
VALUE
Chairman’s report
14
Managing Director's report 16
Business model
18
04
HOW WE
PROTECT VALUE
06
ANNUAL FINANCIAL
STATEMENTS
About our annual report
Introduction
This annual report to our stakeholders covers the core activities of the business
for the period 1 January 2019 to 31 December 2019. It focuses on our strategy
and how our material operating segments and key enabling functions create
value over the short, medium and long-term.
Forward-looking statements
This report may contain forward-looking statements with
respect to some of Old Mutual Insure’s plans or current
goals and expectations relating to its future financial
condition, performance and results, and in particular,
estimates of future cash flows and costs. By their nature,
all forward-looking statements involve risk and uncertainty
because they relate to future events and circumstances
which are beyond Old Mutual Insure’s control. These
include economic and business conditions, market-related
risks such as fluctuations in interest rates and exchange
rates, the risk of higher than expected claims, the impact
of adverse weather conditions, the policies and actions
of regulatory authorities, the impact of competition,
inflation, and deflation, the timing and impact of other
uncertainties of future acquisitions or combinations
within relevant industries, as well as the impact of tax
and other legislation and regulations in the jurisdictions
in which Old Mutual Insure and its subsidiaries operate.
As a result, Old Mutual Insure’s actual future financial
condition, performance and results may differ materially
from the plans, goals and expectations set forth in the
forward-looking statements. Old Mutual Insure undertakes
no obligation to update the forward-looking statements
contained in this report or any other forward-looking
statements it may make.
DEFINING CONCEPTS
Materiality
The principle of materiality was applied in
assessing what information to include in the
report, which focuses particularly on those
issues, opportunities and challenges that impact
materially on Old Mutual Insure and its ability to
be a business that consistently delivers value to its
stakeholders in a sustainable manner.
Value
Value-creation is the consequence of how Old
Mutual Insure applies and leverages its resources
and strategy in delivering financial performance
and value for all stakeholders. Its focus is on
improving both the quantum of value delivered
for each of its stakeholders and the quality of their
experience.
Design rationale
At Old Mutual Insure we believe that our
commitment to the "six that matter" will culminate
in a satisfied and happy client. These six include
diversity, communication, working together, trust,
protection and value; and are represented by
various recognisable African symbols.
Our front cover reflects the symbiotic relationship of
these six elements in our daily lives and those of our
customers to achieve the correct balance in a world
where all stakeholders thrive.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
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Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements The six that matter
WHO WE ARE
WE CULTIVATE VALUE
OUR VALUE
CUSTODIANS
1. BEAD WORK
2. MBIRA
3. LINKS
DIVERSITY
COMMUNICATION
WORKING TOGETHER
The bead work symbolises diversity
and reflects how we collaborate and
engage to craft quality solutions that
add value to our customers.
This musical instrument represents
a form of communication and links
with our commitment to create
impact, prickle interest and encourage
conversation.
The links symbolise partnership and
how working together towards a
common goal makes us stronger.
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Annual Report 2019
HOW WE PROTECT
VALUE
OUR VALUE
OUTCOMES
ANNUAL FINANCIAL
STATEMENTS
5. SHIELD
4. BAOBAB
6. TRADITIONAL POT
PROTECTION
TRUST
VALUE
The shield is representative of our
commitment to protect what's
important to our customers. They are
at the heart of everything we do.
The baobab tree is also known as the
tree of life; an icon in the history of
Africa where important meetings were
held and significant decisions made.
It symbolises our vision to be our
customers' first choice to sustain and
grow their prosperity.
The pot, a symbol of holding, gathering
and collecting to keep investments and
finances secure. It reflects our role to
sustain and grow the prosperity of the
customers, families and communities
we serve.
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Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 01
WHO WE ARE
Diversity
We are inclusive of different types of people and
cultures in our organisation.
We encourage diversity in thought, mind and body
throughout our business. Our employees represent
different cultures and bring to the organisation varied
skills and experience which offer our clients a broader
depth of knowledge and understanding and allows for
continuous innovation and improvement in the products
and services we take to market for our continued
sustainability.
The beadwork represents our collaboration and working
together to craft a quality product and service for all our
stakeholders.
WHO WE ARE
OLD MUTUAL INSURE LIMITED
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Annual Report 2019
5
5
Our foundations
Approach to value-creation
As an independently listed entity, Old Mutual Limited is now a stronger
business, with a clearer strategic focus and greater opportunities for sustainable
growth. The philosophy in creating beneficial outcomes for Old Mutual Insure
and for customers and stakeholders is firmly grounded in a customer-led
approach to short-term insurance. This also forms the basis of the strategy and
business model.
As the Property & Casualty business of Old Mutual Limited
in South Africa, Old Mutual Insure is steadily unlocking the
value that lies within the Old Mutual customer base, while
remaining true to its core capability of providing short-
term insurance expertise. This enables Old Mutual Insure
to continue to focus on making a significant difference to
customers, communities and society as a whole.
The commitment to being a leader in responsible business
is demonstrated by embedding responsible business
principles in all areas of the business, from core operations
to day-to-day decisions.
Tracing our roots
• The Old Mutual Insure story originates in 1831.
•
In 1965, three major UK insurance companies merged
into the Royal Group. The Royal Group then merged
with the SA Mutual Fire & General Insurance company
in 1970 to form Mutual & Federal.
• Old Mutual acquired a major shareholding in the newly
formed Mutual & Federal, and later, in 2009, acquired
the remaining shares.
•
In February 2010, Mutual & Federal became a wholly-
owned subsidiary of the Old Mutual Group and in June
2017 rebranded to Old Mutual Insure.
• Managed separation: In March 2016, Old Mutual plc
announced that the long-term interests of Old Mutual
plc shareholders and other stakeholders would be
best served by separating the four businesses, then
owned by the Old Mutual plc Group, to operate as fully
independent stand-alone companies. These were Old
Mutual Emerging Markets (including Old Mutual Insure),
Brightsphere Investment Group, Nedbank and Quilter
plc.
• Old Mutual Limited listed on the JSE Limited (JSE) on
26 June 2018, along with listings on the London Stock
Exchange (LSE) and secondary listings on the stock
exchanges of Malawi, Namibia and Zimbabwe.
• On 1 August 2018, Old Mutual Insure launched Elite.
• On 4 October 2018, Old Mutual Insure announced the
acquisition of the Underwriting Management Agency,
Sintelum.
•
In 2019, Old Mutual Insure moved to its new corporate
head office at Wanooka Place, St Andrews Road,
Parktown, Johannesburg. These new premises are far
more conducive to staff contentment and productivity.
The Old Mutual Insure story forms part of the
fabric of the South African economy. It reflects the
determination and passion of various executives,
who skilfully negotiated many mergers and
acquisitions. The golden thread, still visible today,
is their thoughtful management of resources that
played a vital role in the development of our local
economy.
More than 18 companies have contributed to Old
Mutual Insure’s DNA. Each evolution brought
with it a new set of skills that helped the business
grow in an increasingly competitive environment.
Adaptability will remain part of who we are, as we
are entering a new era where diversity, openness
and agility are the must-have tools for success.
Old Mutual Insure pioneered general
insurance in South Africa over 188
years ago.
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Our brand
OUR PROMISE
OUR PURPOSE
BRAND CHARACTER
We champion individuals
and businesses to be their
exceptional best.
Championing mutually positive
futures every day.
The imagineer, resourceful,
in-touch, vibrant and sincere
Group.
WHAT WE DO
HOW WE DO IT
WHY WE DO IT
We champion individuals
and businesses to be their
exceptional best by doing great
things, every day.
Through genuine
understanding and support
we coach, motivate and
enable people to become their
exceptional best and provide
customers with the advantage
of world-class products.
So that our customers have the
determination, conviction and
financial means to become their
exceptional best.
COACH | MOTIVATE | ENABLE
CONSUMER TRUTH
OUR POINT OF VIEW
The pursuit of dreams is hard
and most have no idea where
to start.
We believe that whatever point
you are at, being exceptional
starts right NOW.
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Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements The values that ground us
OUR VALUES
RADICAL
• Respect for each other and the communities we serve
• Trust and Accountability
• The power of Diversity and inclusion
• Agile Innovation that makes a difference
• Championing the customer
• Always Act with integrity
• Leadership (change needs to be led)
OUR VISION
To be our customers’ most-trusted insurance partner,
passionate about helping them achieve their lifetime
financial goals. We will be our customers first choice to
sustain and grow their prosperity
THE PULSE OF
OLD MUTUAL
Championing mutually
positive futures everyday
R
A
Trust and
Accountability
Respect for each
other and the
communities
we work
D
I
The power of
Diversity and
inclusion
Agile Innovation
that makes a
difference
C
L
A
Championing
the customer
Leadership
Always ACT
with integrity
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LEADINGTHE CHANGE Old Mutual Insure today
As one of the leading role players in South Africa’s short-
term insurance landscape, Old Mutual Insure is proud of
having a tradition of service and quality, as well as a range
of products, which remain among the best in South Africa.
As part of Old Mutual Limited, the Old Mutual Insure
purpose is to champion mutually positive futures,
every day.
Quick facts:
• Financial Sector Charter Level 4 Broad–Based
Black Economic Empowerment (B-BBEE)
contributor.
• Employer of more than 2 500 employees – over
74% black and over 57% women.
Comprehensive short-term insurance offerings
Our comprehensive short-term insurance offerings
Old Mutual Insure partners with brokers and advisers to
offer an extensive range of short-term insurance products
and solutions designed to meet personal, commercial and
corporate insurance needs. These include the agricultural,
engineering and marine sectors.
Since 2010, our direct channel, iWYZE, has opened
and tapped into new markets with great success. This
alternative distribution channel does not detract from
the intermediary channel, but rather complements it
by offering customers more options to access insurance
products and services.
COMMERCIAL
PERSONAL
AGRICULTURE
SPECIALTY
CREDIT
GUARANTEE
RISK
FINANCING
• Insurance
for small-
businesses
• Solutions
include cover
for:
– assets such
as buildings,
stock,
plant and
machinery
against perils
such as fire,
storm and
burglary
– vehicles,
including
sedans, light
delivery
vehicles
and heavy
commercial
vehicles
– legal liability
for business
activities
• Comprehensive
cover for
valuables,
homes,
contents and
vehicles
• Travel insurance
• Insurance
catering
for farmers’
agricultural
risks
• Solutions
include cover
for:
– assets, such
as buildings,
stock, plant
and machinery
against perils
such as fire,
storm and
burglary
– vehicles,
including
sedans, light
delivery
vehicles and
tractors
– legal liability
for farming
activities
– crop
• Domestic and
international
trade credit
insurance
• Bonds
• Guarantees
• Our partner-
ships with
specialist
underwriters
provide a
variety of
insurance
solutions for
specialist
areas, such as
engineering,
marine,
corporate
travel, financial
lines and
corporate
property
• Mutual &
Federal Risk
Financing
(MFRF)
provides large
commercial
and industrial
organisations
with a world-
class risk
financing
facility
• MFRF follows
a multi-
disciplined
approach
to risk
management,
giving
customers
access to a
full range of
bespoke MFRF-
underwritten
risk financing
products
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Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements Old Mutual Insure today (continues)
People and culture
Old Mutual Insure currently employs more than
2 500 employees in South Africa. We have a talented
and diverse workforce spanning across a mix of actuarial,
finance, operational, legal, risk management and
technology skills. We embrace all generations and the
Old Mutual Insure employee profile features a good
combination of experience and youth.
Our people are at the heart of fulfilling our promise to
customers. We will continue to build a workforce for the
future that is transformed, energised and able to deliver
the exciting upcoming growth phase.
Our human capital mission is threefold:
• To source the right people, with the right skills, for the
right roles to support and grow our organisation into
Africa’s short-term insurer of choice.
• To provide the right support and training to ensure the
continuous development of our employees.
• To promote and maintain a culture of high
performance, accountability, respect, integrity and
pushing beyond boundaries.
A corporate culture that supports our values
At Old Mutual Insure, we understand that an increasingly
volatile, uncertain, complex and ambiguous world creates
opportunities. The more risk we have in the environment,
the more opportunity there is for us to help people
manage those risks.
Insurance enables people to keep going – their lifestyles
are maintained; despite the losses they endure. It is a
way of protecting capital, investments and businesses.
Therefore, we aim to enable positive futures by partnering
with brokers and advisers to do great things for customers
every day.
In 2018, Old Mutual Insure embarked on ‘Pulse’, a
cultural transformation journey for building teams that
are delivery orientated, customer centric, and externally
competitive. We engaged our leaders and our people
both face-to-face and via digital channels to gather
feedback on our culture. The results were used to define
our culture shifts and identify key behaviours that need
to underpin our RADICAL values. It also gave us a better
understanding of what issues need to be addressed to
transform Old Mutual Insure.
We are driving business performance by transforming our
culture.
Making a difference
As a responsible business, we are proud of our initiatives to
support and uplift the communities in which we operate.
Old Mutual Insure actively participates in industry and
other related initiatives to reduce youth unemployment,
poverty and social ills. We also encourage and support our
employees to take part in these initiatives.
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The Group structure
Simplified Old Mutual Group structure
OLD MUTUAL LIMITED
100%
Old Mutual Group Holdings (SA) (Pty) Ltd
100%
Old Mutual Emerging Markets (Pty) Ltd
100%
Mutual & Federal Investments (Pty) Ltd
100%
OLD MUTUAL INSURE LIMITED
75%
100%
Credit Guarantee Insurance
Corporation of Africa Limited
Mutual & Federal
Risk Financing Limited
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Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements WE CULTIVATE VALUE02
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Annual Report 2019
Communication
We encourage the sharing of ideas, facts and values
from one person to another or one organisation to
another.
We focus on stakeholder communication, both externally
and internally, while developing strategic partnerships
to meet our continuous objective of delivering excellent
customer service. We believe in transparent engagement
and recognise the value our various teams bring to the
organisation and the importance of understanding the
market to meet the challenging economic environment.
The musical instrument is one form of communication
that stirs up interest and provides the opportunity to open
conversations.
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Chairman’s report
The Board is confident
that Old Mutual Insure's
current strategy will deliver
immediate gains and
sustainable value-creation
in the medium and long-
term.
Steffen Gilbert Chairman
Introduction
I was honoured to be invited to the Board in September
2019 and, following regulatory approval from the
prudential authorities in December 2019, stepping into
the role of Chairman. On behalf of the Group, I extend a
word of thanks to our outgoing Chairman, Mike Ilsley, for
his leadership and for handing over such a well-managed
team.
My first months on the Board and as Chairman were
taken up with Old Mutual Insure implementing significant
strategic changes against a challenging trading backdrop.
The most obvious and significant obstacle South Africa
faces at present is an increasingly constrained economic
operating environment. A poor economy usually mutes the
insurance business, as consumers are more likely to cancel
or reduce their insurance when budgets come under
pressure. This adversely affects customer acquisition and
persistency across all sectors of the economy.
As a consequence, insurance providers tend to compete
more aggressively with one another, which can reduce
profit margins. In this environment, property owners and
businesses often reduce budgets for maintaining their
buildings and equipment, which increases claims and
reduces profitability further.
Performance
Old Mutual Insure’s top-line performance was acceptable
in the light of these challenging operating conditions.
Strategic partnerships in our Specialty division contributed
well to growth in gross written premiums and we continue
identifying opportunities to diversify our offerings.
The Group’s bottom line was on track to improve on
2018’s results, but major weather-related claims from
the Northern Cape in the final quarter dampened the
final underwriting results. Our first half of 2019 was
characterised by catastrophe events, compared to the
relatively benign first half of the previous year. This led to
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OLD MUTUAL INSURE LIMITED
Annual Report 2019
losses below the reinsurance threshold that significantly
reduced our net underwriting margins.
In essence, Old Mutual Insure’ s underlying performance
improved, although the final net underwriting outcome
was disappointing.
Strategy
During my short tenure on the Old Mutual Insure Board
to date, I’ve seen how much time and energy has been
invested in the new strategy and reinsurance overhaul.
These matters clearly dominated the board’s attention
throughout the year. The Group’s revised strategy is setting
the business up to be agile, adaptable and resilient, which
is vital for an insurance business that undergoes volatile
economic cycles.
Old Mutual Insure’s new strategic direction was developed
by the newly formed executive team in a deeply immersive
strategy building session, including the Board, executives,
key persons and shareholders. Everybody of material
influence was invited to give input, so that all have bought
into it.
Old Mutual has multigenerational traction across South
Africa, which must be leveraged into financial results. As
the Group’s relatively new MD, Garth Napier’s initial priority
was to implement the strategy and teams to take Old
Mutual Insure on the next leg of its journey.
This strategy required the executive to reorganise Old
Mutual Insure into two operating divisions, being Retail
and Corporate and Niche as explained in more detail in
the MD’s report. The resulting two prong approach enables
Old Mutual Insure to more effectively pursue future
growth opportunities that include more intensive use of
technology and data, accelerated cross-selling across the
broader Old Mutual Group and diversified income streams
through partnerships with UMAs.
Getting this strategy into gear required putting the right
people in place – which has now also been completed.
Prospects
In 2020, the Board is concentrating on the legislative and
ethical aspects of governance, as well as embedding Old
Mutual Insure’s refreshed strategy and reinsurance strategy.
As our new strategy is embedded, the Board will support
the executive team to the hilt as it changes the trajectory
of the company.
Our number one challenge remains South Africa’s stuck
economy, although the major, underlying issue is climate
change, which the insurance industry must assess
realistically. We need to ensure that our products and
pricing take accurate account of this phenomenon.
Thanks
To my fellow directors who serve Old Mutual Insure with
the highest levels of diligence and enthusiasm, I extend
my sincere appreciation. I especially thank our recently
departed Board members, who have been integral to Old
Mutual Insure’s ongoing viability.
During 2019, the Board and Executive worked through
the arduous exercise of reconceptualising and reframing
Old Mutual Insure for the future. I commend all for their
inspired approaches to this exercise, which I’m sure will
unlock results and sustainable value in the long run for all
our stakeholders.
On behalf of the Board, I thank our Executive committee
and employees for their relentless contribution to making
our company the success it has become, in tandem with
our loyal business partners and clients.
At the end of the day we rely on the interest and goodwill
of our investors, who continue seeking value in ever more
challenging markets. I am confident that Old Mutual
Insure shows all the signs of being well on track for
sustainable growth of shareholder value over the medium
to longer term.
Any strategy is unlikely to succeed in the current
environment if the business is not capital efficient. The
new reinsurance structure we’re introducing as part of
strategy actualisation enables the company to write
large risks whilst reducing the volatility of results and
building longer term reinsurance partners. The incoming
reinsurance philosophy rewards each business entirely on
the merits of its own performance, with cross subsidisation
falling away.
The Board is confident that Old Mutual Insure’s current
strategy will deliver immediate gains and sustainable
value-creation in the medium and long-term.
Ethics, leadership and corporate governance
The Board underwent a considerable refresh during
the reporting period. Paul Truyens, Pieter Rörich and
Peter Moyo departed, while Mark Scharneck and I joined
the Board during the year.
I am pleased to be chairing an attuned Board with the
skills, integrity and diversity to guide Old Mutual Insure
in this new chapter by overseeing strategy and providing
insights and counsel to the executive team. The Old
Mutual Group drives good governance through King IV™
practices that are continuously enhanced.
Various regulatory changes over the past year have
impacted the insurance industry and Old Mutual Insure.
The most recent requirement involves resubmitting
and re-applying for our licences, as part of the process
for phasing in the ‘Twin Peaks’ licensing framework. All
existing insurance licence holders have been required to
reapply for their licences in terms of the new framework,
which is expected for completion by 31 July 2020. In recent
years, the only constant in South Africa’s insurance industry
was change – we are sure there is more to come.
Stakeholder relationships
The Board remains well informed of stakeholder
commentary and sentiment, with an efficient feedback
loop in place. The Board considers these views as a
fundamental to accurate decision-making.
Our employees are key stakeholders in our collective
success and the leadership is determined to enhance the
wellness and productivity of our current workforce and to
attract high quality talent. Apart from offering attractive
remuneration, Old Mutual Insure attracts the level of skills
it requires to compete by being a great place to work. Old
Mutual Insure is more than a business that supplies a pay
cheque at the end of the month – it is a place where our
employees feel valued and part of a vibrant team. The MD
has pushed this approach hard during the past year and
has been able to attract top talent to add to the already
impressive line-up of skill throughout the organisation.
OLD MUTUAL INSURE LIMITED
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Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements Managing director’s report
Old Mutual Insure has delivered strong
growth in gross written premiums
of 10.9% and seen improvement in
our customer satisfaction metrics in
challenging market conditions. We
have made significant progress in
implementing our strategic objectives,
however, our net underwriting results has
been significantly impacted by multiple
catastrophe events in 2019.
Garth Napier Managing Director
Overview
Looking back at 2019, it will be remembered as a tough
year with low economic growth, increased natural
catastrophes and poor consumer sentiment.
Our focus over the last few years has been on delivering
profitable growth by improving our customer and
intermediary experience and enhancing our underwriting
across our business. I’m happy to report that this focus has
delivered positive results, as shown by:
• Gross Written Premium (GWP) growth of 10.9%.
•
Improved customer and partner satisfaction scores.
• Growth in Gross Underwriting Margin to 6.0%
(1.8% in 2018).
Unfortunately, these positive results were offset by an
increase in natural catastrophes, poor performance in
our Agri-Crop portfolio and higher attritional claims
in our CGIC trade credit business. As a result, our
Net Underwriting Margin declined to 0.4% in 2019
(5.3% in 2018), which is below our targeted 4% to 6%
Net Underwriting Margin.
Gross Written Premium Growth
We delivered solid GWP growth of 10.9%, driven by
strategic partnerships concluded in 2018. iWYZE, our
direct insurance division, achieved 15.7% GWP growth and
continues to gain market share. Our Specialty division,
which includes our corporate property, marine and
engineering portfolios, delivered strong growth of 17.4%.
Improving our customer and intermediary service
Our focus on improving customer and intermediary service
was shown in the improved net promoter score (NPS) of
50.2% (33.9% in 2018) recorded in the most recent South
African Customer Satisfaction Index (SA-CSI). We were
also awarded the Sunday Times Top Brand award for the
Consumer Short Term Insurance category. These awards
and an improvement in our internal customer metrics are
testament to the hard work that has gone into putting
customers first in everything we do.
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Annual Report 2019
Improvement in Gross Underwriting Result
The Gross Underwriting Result is a useful metric to
determine the quality of underwriting before taking
into account the risk mitigation impact of reinsurance.
Old Mutual Insure improved its Gross Underwriting
Result to 6.0% of GWP (1.8% in 2018). Over the last three
years we focused on remediating our book by reducing
our exposure to possible large losses. We also recorded
a significant drop in large claims in both our Corporate
Property and Commercial portfolio to 2.1% of GWP in
2019 (10.5% in 2018) as a result of the hard work done
in these areas. We will continue focusing on disciplined
underwriting as our foundation for sustainable success.
Net underwriting
Our net underwriting results were significantly lower with
the Net Underwriting Margin slipping to 0.4% (5.3% 2018).
This was due to natural catastrophes, poor crop
performance and the impact of a tough economy on CGIC.
Natural catastrophes
The higher number of natural catastrophe events
registered during the year included fires at Betty’s
Bay, hailstorms at Newcastle and Ladysmith, as well
as April flooding in KwaZulu-Natal. November and
December featured heavy flooding in KwaZulu-Natal and
Centurion. The impact of these natural disasters on our
financial results again highlights the industry’s exposure
to weather patterns and natural disasters. Collectively,
the impact of these events reduced our Net Underwriting
Profit by R140 million in 2019.
Agriculture
Our Agri-Crop business struggled in 2019 due to severe
frost and hail damage to crops. The combined net value
of these claims amounted to R90 million after taking into
account the quota share and stop loss recovery.
CGIC
Retail
As a result of load shedding and GDP contraction, trade
credit was severely impacted in Q1 and Q2 of 2019 and
CGIC reported a loss of R54 million at half year. We were
pleased that in the second half of 2019, the CGIC team
generated sufficient profit to deliver an overall profit for the
year of R51 million (R102 million in 2018) for the business.
This effort was highly commendable given the overall
market conditions, which resulted in some competitors
choosing to exit the trade credit business in 2019.
Underwriting costs
Our overall cost ratio increased to 15.4% (15.1% in 2018).
These were driven mainly by:
•
•
•
the costs of moving to a new head office;
removal of administration fees previously charged
to policy holders;
fees incurred by moving to a collect direct strategy
for premiums; and
• provision for losses from Insure Group Managers.
Underwriting highlights
Some businesses were able to record strong performances
despite the overall downturn. These included two notable
achievements:
•
iWYZE sales grew by a strong 15.7%, with its new
products well received by the market. iWYZE also
achieved an Underwriting Profit Margin of 8.8%.
• Specialty division’s net underwriting result improved
significantly. From a loss in 2018, the division achieved a
Net Underwriting Margin of 6.3% in 2019.
Communities
We prioritise making positive impacts in the communities
we operate in, with a particular focus on financial
inclusion, education and responsible investment.
During the year, Old Mutual Insure invested R700 000
in Consumer Education Initiatives based on Old Mutual’s
On The Money ‘OTM’ Programme, which teaches South
Africans how to manage their finances. In partnership with
The Mutual Foundation, Old Mutual Insure’s Corporate
Social Investment (CSI) department invested R437 000 in
providing healthy and safe Concretex Eaziflush toilets for
rural Eastern Cape primary school goers. Old Mutual Insure
also joined forces with the Nelson Mandela Education
Programme and Soul City Institute to donate two Mobile
Libraries, valued at R500 000.
Our Nakelela Week, meaning ‘to care or to nurture
something or someone’ in isiXhosa, is a week where
employees partner with local charities to do good.
Employee teams engage with their local charitable
organisations to determine their needs, then present plans
and budgets to the CSI team for assessment. In 2019, our
CSI department supported 17 approved projects spread
across the country.
The way forward
We recently completed a strategic review of our business,
which we split into two components, being Retail and
Corporate and Niche.
Our Retail business will comprise our intermediated
personal lines and SME commercial portfolio, as well
as iWYZE, our direct business. For Retail to compete
effectively, we must lower our costs and improve service
levels by focusing on operational excellence.
Retail is focussing on diversifying its distribution channels
and products, while leveraging data and technology to
drive efficiency, pricing and risk selection. We will also be
focusing on enhancing off-platform business by partnering
with our key stakeholders.
Corporate and Niche
Our Corporate and Niche business includes Specialty,
MFRF (Mutual and Federal Risk Financing) and CGIC
(Trade Credit), which are focusing on delivering customer
intimate solutions.
The Specialty division has taken on our complex
commercial portfolio in addition to corporate property,
marine, engineering and travel insurance. This division
will prioritise developing a market leading underwriting
practice, supported by optimised reinsurance structures.
Performance will be driven by fit-for-purpose IT solutions
that allow us to enhance risk management and improve
customer and partner experiences. We are diversifying
and scaling our specialist lines of business by growing our
engineering, marine, travel and liability lines.
Our risk financing business (MFRF) is creating an
environment that allows entrepreneurs to thrive. MFRF is
achieving this by reducing the compliance and regulatory
burden on the cell and introducing the high level skills
to mould solutions that suit the needs of the cell owner.
We are leveraging specialist skills from across the Group
to offer underwriting, product, systems and claims support
to the cells.
The strategic review has identified further areas of
improvement that we are committed to delivering in the
ongoing turnaround and growth of Old Mutual Insure.
In closing
2019 was my first full year as MD of Old Mutual Insure. It
was a year in which we have made significant progress
in strengthening the core of our business within a
difficult economic environment. I would like to take this
opportunity to thank the Board for their support and
guidance over the last 12 months. I also thank our former
Chairman, Mike Ilsley, for his contribution to Old Mutual
Insure and for his support and counsel. Mike will stay
on our Board until later this year to ensure a smooth
transition over the year-end financial and regulatory
reporting cycle for Steffen Gilbert.
To all the staff of Old Mutual Insure – thank you for
contributing to our 2019. It was a year in which we all
worked extremely hard and have much to be proud of.
Our journey to complete the turnaround of Old Mutual
Insure continues and I know you will all continue to
work even harder in 2020 to ensure we can “Do Great
things everyday” for our customers, partners, employees
and communities.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
17
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements Business model
HOW WE DO BUSINESS
Our business model is informed by our vision, purpose, values and
governance, and supports the delivery of our strategic objectives.
PROFITABLE GROWTH
• Revitalised distribution approach
• Product upgrade in Personal Lines and Commercial Lines
• Deliver on our direct strategy
• Restore the quality of our core commercial book
• Continuously improve/enhance claims processes
• Optimise procurement and cost-efficiency leadership
• Pursue inorganic growth opportunities and build on initiatives
implemented in 2018.
INCREASE AND DIVERSIFY OUR LINES OF BUSINESS
• Increase and diversify Specialty and CGIC’s lines of business
• Optimise reinsurance structures to build long-term partnerships
with reinsurers
• Disciplined underwriting combined with systematic improvement in
the quality of the risk pool.
IMPROVE CUSTOMER AND INTERMEDIARY EXPERIENCE
• Customer-led – embed a customer service culture
• Refresh our technology offering
• Responsible business.
INVEST IN PEOPLE AND TALENT TO SUPPORT OUR BUSINESS INITIATIVES
• Win the war on talent
• Leadership and culture.
18
OLD MUTUAL INSURE LIMITED
Annual Report 2019
OUTPUTS
OUTCOMES
With an embedded culture of service excellence, we will deliver on our strategy
and long-term key performance indicators, while generating value for all our
stakeholders. When making decisions on allocating capital, we consider the
trade-offs, and seek to maximise positive outcomes and curb negative impacts.
DEFINING CONCEPTS
• Market-leading service proposition
• Easy to do business with us
• Deliver differentiated and distinctive
customer experiences
• Efficient use of capital
• Upper end of 4% – 6% underwriting
margin
• Sustainable growth within our risk
appetite
• Increased market and portfolio
understanding
• Data-driven decision-making culture
• Improved decision-making speed and
accuracy
• Higher agility, faster turn-around times
and high-volume change
• Change delivered where it will have the
highest impact
• Efficiency and cost reduction
• People are transformed, energised and
able to deliver the exciting upcoming
growth phase
• Empowerment of young leadership
talent.
10.9% GWP growth rate (2018: 6%)
50% Improved NPS (2018: 33%)
36.3% Improved NES (2018: 24.75%)
18.5%
OSTI Complaints (excluding
iWyze) overturn cases
(2018: 20%)
Winner of the 2019 Sunday Times
Top Brand Award – Consumer
category
Second place in the annual 2019
SAMBRA Awards for contribution to
sustainability in motor body repairs
Third place in the 2019 Orange Index
Customer Satisfaction Awards
Number one in Treating Customers
Fairly in the customer intermediated
segment as measured by SAcsi
OLD MUTUAL INSURE LIMITED
Annual Report 2019
19
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 03
OUR VALUE CUSTODIANS
Working together
Co-operation, support and unity are the driving force
behind a team that works together.
Alliances, partnerships and teams are key to the link that
needs to be in place for us to keep rising to the challenges
in the industry. From our Board through to our Executive
committee and the employees at Old Mutual Insure, our
message must be understood and presented to form
a united position that talks to the heart of what we do
each day.
The links symbolise connecting and can form a
never-ending chain of collaboration.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
21
OUR VALUE CUSTODIANS
Executive leadership
Garth Napier (40)
Managing Director
Qualification: MBA, B.Comm Acc (Hons)
Appointed: 1 November 2018
Skills, expertise and experience: Extensive
retail, consumer behaviour and stakeholder
management experience.
Nokuthula (Thuli) Manyoha(36)
Financial Director
Qualification: CA(SA), B.Comm (Fin Acc),
B.Comm Fin Acc (Hons)
Appointed: 1 January 2018
Skills, expertise and experience: Accounting
and financial management.
Soul Abraham(34)
Chief Executive: Retail
Qualification(s): BSc Honours (Actuarial
Science), Post Graduate Diploma in
Leadership
Appointed: 1 January 2020
Skills, expertise and experience: Short-term
insurance and actuarial.
Charles Nortje(59)
Chief Executive: Credit Guarantee
Insurance Corporation (CGIC)
Qualification(s): Bachelor of Commerce,
Bachelor of Accountancy, CA(SA)
Appointed: 1 August 2013
Skills, expertise and experience: Corporate
risk services, as well as credit and political
risks expertise.
Hennie Nortje(56)
Chief Executive: Claims
Qualification(s): MCompt, CA(SA)
Appointed: 1 February 2017
Skills, expertise and experience: Extensive
experience in life insurance and short-term
insurance operations.
Ludwyn Lortan(42)
Chief Information Officer
Qualification(s): BCom (Information
Systems & Insurance and Risk
Management)
Appointed: 21 November 2019
Skills, expertise and experience: Banking,
insurance and technology.
John Nienaber(47)
Chief Executive: Specialty
Qualification(s): BA LLB
Appointed: 1 July 2016
Skills, expertise and experience: Extensive
experience in insurance.
Lisa Pines(51)
Chief Actuary
Qualification(s): BSc (Actuarial Science),
Fellow of the Actuarial Society of South
Africa (FASSA), ASSA Practising Certificate
Short-term Insurance
Appointed: 1 September 2017
Skills, expertise and experience: Actuarial,
capital, risk and insurance.
Liziwe Masoga(47)
Executive: People & Brand
Qualification(s): Doctorate Consulting
Psychology
Appointed: 1 January 2015
Skills, expertise and experience: Human
resources, business transformation and
consulting.
22
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Gender
(%)
Race
(%)
Age
(%)
Male 55%
Female 45%
White 45%
Black 27%
Indian 10%
Coloured 18%
31 – 40 27%
41 – 50 45%
51 – 60 28%
Thabile Nyaba(45)
Chief Risk Officer
Qualification(s): Certified Risk Management
Professional (CRM Prof), Certified Internal
Auditor (CIA) and BTech Cost Management
Accounting
Appointed: 1 January 2018
Skills, expertise and experience:
Governance, Risk and Compliance (GRC),
auditing and combined assurance.
Susan Dalby(49)
Chief Operations Officer: iWYZE
Qualification(s): Business Management
Degree, Master of Business Administration
(MBA)
Appointed: 1 March 2016
Skills, expertise and experience: Business
continuity and customer management.
Experience
Finance
Customer
Risk
Actuarial
2
2
2
2
Short-term insurance
6
Technology
1
Human resources
1
OLD MUTUAL INSURE LIMITED
Annual Report 2019
23
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements Board of directors
The Old Mutual Insure Board structure was optimised during 2018 in line
with the Board succession plan, as well as regulatory and governance
requirements in respect of Board size, composition, knowledge and skills.
Old Mutual Insure has completed the Board restructure, including the
appointment of a lead independent director as recommended by the
King IV™ Code, Prudential Governance and Operational Standards for
Insurers, Old Mutual Insure Board Charter and Old Mutual Limited Group
Governance Framework.
Board composition, mix and experience
The experience of the Board of Old Mutual Insure is as follows:
Gender
(%)
Race
(%)
Male 71%
Female 29%
Age
(%)
White 42%
Black 29%
Indian 0%
Coloured 29%
Steffen Gilbert (57)
Chairman – Independent
non-executive Director
Qualification: FIA
Appointed: 1 September 2019
Skills, expertise and experience: Actuarial,
Strategy and Customer Related.
31 – 40 43%
41 – 50 0%
51 – and above 57%
24
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Nokuthula (Thuli) Manyoha
(36)
Financial Director
Qualification: CA(SA), B.Comm (Fin Acc),
B.Comm Fin Acc (Hons)
Appointed: 1 January 2018
Skills, expertise and experience:
Financial and Strategy.
Gary Steven Palser (63)
Lead Independent non-executive
Director
Qualification: B.BusSc (Hons), FASSA
Appointed: 1 March 2014
Skills, expertise and experience:
Financial, Risk and Actuarial.
Garth Napier (40)
Managing Director
Qualification: MBA, B.Comm Acc (Hons)
Appointed: 1 November 2018
Skills, expertise and experience:
Strategy and Customer Related.
Thandeka Pamela Zondi (38)
Independent non-executive
Director
Qualification: CA(SA), B.Comm Acc (Hons)
Appointed: 1 June 2018
Skills, expertise and experience:
Financial and Strategy.
Mark Scharneck (58)
Independent non-executive
Director
Qualification: CA(SA), B.Acc
Appointed: 1 June 2019
Skills, expertise and experience: Financial,
Operations and Customer Related.
Michael Gerald Ilsley (57)
Non-executive Director
Qualification: CA(SA), B.Comm, B.Acc
Appointed: 1 April 2018
Skills, expertise and experience:
Financial and Strategy.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
25
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 04HOW WE PROTECT VALUE
Protection
We are responsible for the shelter and defense of
our clients.
Our customers’ needs are evolving at a rapid pace and
they expect it to be fulfilled effortlessly via a channel of
their choice. To remain competitive, we must be agile to
continually match the pace of rapidly changing customer
expectations
The shield is representative of our commitment to insuring
our clients’ lives – be it their businesses, families or prized
possessions.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
27
HOW WE PROTECT VALUE
How we protect value
Corporate governance and King IVTM
statement of commitment
The Old Mutual Insure Board of Directors is ultimately
responsible for the effective governance and overall
success of the Old Mutual Insure Group of companies.
Its role is to provide entrepreneurial leadership for the
Group within a framework of prudent and effective
controls which enable risks to be assessed and managed.
The Board has to oversee insurance operations of the
Group and needs to ensure compliance with all statutory
and regulatory requirements. The Board confirms its
commitment to achieving high standards of corporate
governance within the Group.
Old Mutual Insure is a licensed short-term insurer and
wholly-owned subsidiary of Old Mutual Limited, which
is a JSE listed entity. Old Mutual Limited established a
Group Governance Framework (GGF) which complies
with King IV. This framework outlines the governance
requirements for the newly listed Group and its
subsidiary entities. The Group is in compliance with
King IV and requires that its subsidiaries comply with
King IVTMgovernance outcomes through the application of
the principles as set out in the Code.
The Old Mutual Insure Board is satisfied that during
2019, it complied with the GGF, and has applied the
King IVTMprinciples on the same basis as the Group.
Refer to the full governance report 2019 on our corporate
website for the full detail of the application and
explanation of King IV requirements.
Leading ethically and effectively
The governing members of Old Mutual Insure bring
a diverse range of skills and experience to the Board
and have the integrity, skills and experience to provide
insight and strategic direction to the company. Only
individuals with sound ethical reputations and business
or professional acumen and who have sufficient time
to effectively fulfil their role as a Board member, are
considered for appointment to the Board.
The purpose of committee work is derived from the
Board’s responsibility to all stakeholders to ensure that
they comprise of individuals who are best able to exercise
their responsibilities, having due regard to the law and the
highest standards of governance. The Board consists of
individuals with the necessary skills and experience to lead
Old Mutual Insure.
The Board acts in good faith at all times and leads the
company with integrity, fairness and transparency. The
Chairman, who is an independent non-executive director,
is principally responsible for the effective operation of the
Board. To this end, Old Mutual Insure has appointed a lead
independent director to meet its regulatory requirements
as well as internal governance rules.
Specific functions have been delegated to committees
to assist in meeting the Board’s oversight responsibilities.
28
OLD MUTUAL INSURE LIMITED
Annual Report 2019
The roles and responsibilities of each committee are set
out in the relevant terms of reference. Each committee will
review and assess the adequacy of the terms of reference
annually and recommend changes to the Board when
necessary. All committees are chaired by independent
non-executive directors.
Members of the Board regularly attend industry updates,
training and seminars. Board training is provided to
members to keep them abreast of industry developments
relevant to Old Mutual Insure.
Board charter
The Board operates in terms of a Board charter, which
defines its functions and responsibilities.
The Board’s responsibility to ensure best practice in
ethical governance is entrenched in the Board charter.
The charter delineates the powers of the Board, which
ensures an appropriate balance of power and authority.
A fundamental theme of the charter is that the Board
must provide effective leadership on an ethical foundation
and ensure that the company is, and is seen to be, a
responsible corporate citizen by having regard to not only
the financial aspects of the business of the company, but
also the impact that business operations have on the
environment and the society within which it operates.
Board and Board committee meetings
Director meeting attendance is as follows for Board and
Board committee meetings.
Risk
and
com-
pliance
com-
mittee
People,
customer
and
trans-
formation
com-
mittee
Audit
com-
mittee
4/4
2/2
2/2
4/4
2/2
4/4
2/2
2/2
4/4
4/4
2/2
1/1
1/1
1/1
Director
Board
Mr MG Ilsley
Mr MP Moyo[1]
Ms NB Manyoha
Mr GS Palser
Mr PGM Truyens[2]
Mr PC Rörich[3]
Mr GL Napier
Ms TP Zondi
Mr MA Scharneck[4]
Mr SC Gilbert[5]
4/4
1/2
4/4
4/4
2/2
2/2
4/4
4/4
2/2
1/1
[1] Mr Moyo resigned 27 June 2019
[2] Mr Truyens resigned 31 May 2019
[3] Mr Rörich resigned 31 May 2019
[4] Mr Scharneck was appointed 1 June 2019
[5]
Mr Gilbert was appointed 9 December 2019 and attended one Board
meeting as an observer
Corporate governance
Old Mutual Insure has adopted the Old Mutual
Limited Group Governance Framework (GGF) and its
principles, incorporating the three lines of assurance
governance model.
The GGF contains a suite of various enterprise wide risk
policies that have been developed in line with the risk
categorisation model. Each of these policies have been
developed internally by Old Mutual Limited and approved
by the Board. Compliance with each of the risk policies is
monitored on an on-going basis and is reported via the
bi-annual letter of representation process and also in
reports to the Risk Committee.
Governance is actively promoted at Board level and drives
sustainable performance and value within Old Mutual
Insure. The Board of Old Mutual Insure is responsible
for providing leadership for corporate governance and
is the ultimate custodian of corporate governance within
the company.
The Board is the focal point of corporate governance of an
ethical culture, good organisational performance, effective
control, and organisational legitimacy.
The Old Mutual Insure Board has adopted the Old Mutual
Limited Board Appointment and Diversity policy to ensure
that there is adequate representation on the Board.
Balance of knowledge, skills, experience,
diversity and independence
The efficacy of the Board depends on its composition and
an appropriate balance of skills, power and authority on
the Board. The Board, through the Old Mutual Limited
Corporate Governance and Nominations Committee,
has assumed responsibility to independently review and
monitor the integrity of the Group’s non-executive director
nomination and appointment processes. The Board
determines its composition by setting the direction and
approving the processes for it to attain the appropriate
balance of knowledge, skills, experience, diversity and
independence to objectively and effectively execute its
governance role and responsibilities.
The Old Mutual Limited Corporate Governance and
Nomination Committee considers the appropriate balance
of knowledge, skills and experience, mix of executive,
non-executive and independent non-executive directors,
as well as the need for a sufficient number of members
Old Mutual Insure Board committees are set out below:
who qualify to serve on the committees of the Board. As at
31 December 2019, the Board comprised seven directors,
five non-executive directors and two executive directors.
Of the five non-executive directors, four are independent.
Appointments to the Board are formal and transparent
and are a matter for the Board of Directors as a whole.
The Board should be appointed (and where necessary,
removed) in accordance with the requirements of the GGF,
which sets out the size and composition requirements
and that meets applicable legal and Memorandum of
Incorporation requirements. The Board considers, within
the GGF requirements, the following:
• plans for succession for the Managing Director and the
direct reports of the Managing Director;
• the appointment of any non-executive director; and
• membership of the committees of the Board, taking
into consideration the relevant legal requirements and
skills necessary to perform the delegated functions.
Board delegation
The Board delegates the day-to-day management of the
company to the Managing Director. A formal scheme of
delegated authority has been approved by the Board,
which clearly sets out the parameters of the delegated
authority to take, authorise or approve decisions in
respect of specified Business Actions. However, ultimate
responsibility rests with the Board.
Board committees
In terms of King IV, the Board of the holding company
should assume responsibility for governance across the
Group, by setting the direction for how the relationships
and exercise of power within the Group should be
approached and conducted. Executive members and
senior management are invited to attend committee
meetings either by standing invitation or on an ad-hoc
basis to provide feedback on their areas of responsibility.
The Board delegates functions to committees to assist the
Board in meeting its mandated responsibilities. Formal
terms of reference exist for each committee.
The committee chairpersons report back at quarterly
Board meetings as to how the committees have
carried out their responsibilities. An assessment of the
performance of the committees and their members is
conducted on an annual basis.
BOARD
AUDIT COMMITTEE
RISK & COMPLIANCE
COMMITTEE
PEOPLE,
CUSTOMER AND
TRANSFORMATION
COMMITTEE
OLD MUTUAL INSURE LIMITED
Annual Report 2019
29
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements How we protect value (continued)
Audit committee
The Audit Committee is chaired by Thandeka Zondi, an
independent non-executive director. The committee
mandate primarily concerns the effectiveness of the
company’s internal system of control to ensure the
integrity of internal and external financial reporting.
It reviews the accounting policies and judgements used
to prepare financial statements for compliance with
the International Financial Reporting Standards (IFRS),
legal requirements (Companies Act) and, when relevant,
group accounting standards. The committee oversees
and directs the work of internal audit and considers
findings by the function and holds management
accountable to address these. The appointment and
remuneration of external audit is mandated to the
committee, and part of its responsibility is to assess the
independence of the function.
Risk and compliance committee
The Risk and Compliance Committee is chaired by
Gary Palser, an independent non-executive director.
This committee was established to independently
review, on behalf of the Board, management’s
recommendations on risk management, particularly
in relation to the structure and implementation of the
risk strategy, system of governance, risk management
framework and reporting processes, risk appetite limits
and exposures, and the overall risk profile of the business.
The solvency assessment and management (SAM)
regulatory framework is consolidating many aspects of
the committee’s mandate in the own risk and solvency
assessment report. This report deals with all aspects
relevant to the committee’s mandate, including risk
appetite, risk monitoring and capital management.
People, customer and transformation committee
During 2019, the Board constituted the People,
Customer and Transformation Committee. The purpose
of this committee is to ensure that there is a proper
focus by Old Mutual Insure itself on the following key
business issues:
(a) Ethical health and culture
(b) Stakeholder relationships:
(i)
(ii)
Employee engagement and transformation
Fair treatment of customers
(iii) Regulatory compliance and responsiveness
The committee is chaired by Thandeka Zondi, an
independent non-executive director with the Managing
Director and Board Chairperson being members.
The following committees are centralised at Group and
perform specific functions on behalf of the company.
All committees are chaired by independent non-executive
directors. The terms of reference of these committees
can be found at https://www.oldmutual.com/about/
governance/board-committees.
Remuneration committee
The Old Mutual Limited Remuneration Committee has
oversight and ensures that all Old Mutual Limited Group
companies comply with all remuneration and risk-related
principles including relevant policies as set out in the
adopted GGF.
Corporate governance and nominations
committee
The Old Mutual Limited Corporate Governance
and Nominations Committee was established to
independently review and monitor the integrity of
the overall Old Mutual Group’s non-executive director
nomination and appointment process. The Committee
reviews and monitors the adequacy, efficiency and
appropriateness of the corporate governance structure
and practices of the Old Mutual Group of companies,
ensuring that the entities within Old Mutual Limited over
which it has oversight, comply with the Group Governance
Framework.
Responsible business (incorporating social
and ethics) committee
The Old Mutual Limited Responsible Business
(incorporating Social and Ethics) Committee is constituted
to, among other things, assist the Board in ensuring that
Old Mutual and other entities in the Old Mutual Group of
companies (the Group) are and remain committed, socially
responsible corporate citizens by creating a sustainable
business and having regard to the Company’s economic,
social and environmental impact on the communities in
which it operates.
Company secretary
The Company Secretary appointed to the Board is
Old Mutual Life Assurance Company (South Africa)
Limited (OMLACSA), a fellow subsidiary within the
Group. The OMLACSA representative currently providing
secretarial support to the Old Mutual Insure Board is
Nontando Khoza. All Directors had unlimited access to
Nontando during the year.
30
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Board evaluation
The Board assumes responsibility for the evaluation of
its own performance and that of its committees and
members. In line with the board charter as well as the
Prudential Standards, the Board has absolute responsibility
for the performance of the company and is accountable
for such performance and, therefore, continually strives to
improve its performance and effectiveness for the benefit
of the Old Mutual Insure.
Leadership roles
The responsibilities of the Chairman and Managing
Director are clearly defined and separated, as set out in our
Board Charter. While the Board may delegate authority to
the Managing Director, the separation of responsibilities
is designed to ensure that no single person or group can
have unrestricted powers and that appropriate balances of
power and authority exist on the Board.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
31
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 05
32
32
OLD MUTUAL INSURE LIMITED
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Annual Report 2019
Trust
As a leading insurance company, we have confidence,
faith and hope in a better future for all.
Every successful journey begins with trust and the
foundation of trust is honesty and truth. Old Mutual is
committed to being open and transparent so that the
messages delivered are both clear and understood.
Integrity is key to our value chain.
The baobab tree is also known as the tree of life. An icon in
the history of Africa where important meetings were held
and significant decisions made.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
33
Financial director’s report
Albeit a disappointing
result, 2019 has been
testament to the resilience,
stability and expertise
of Old Mutual Insure’s
management and
employees.
Nokuthula (Thuli) Manyoha Financial director
Old Mutual Insure has delivered a marginal result following
an unrelenting series of weather-related disasters and
severe crop losses in the 2019 season, the core of the
business is improving as evidenced through the attritional
loss experience.
Albeit a disappointing result, 2019 has been testament to
the resilience, stability and expertise of Old Mutual Insure’s
management and employees.
Financial results (Rm)
Old Mutual
Insure Group
GWP
Net claims ratio
Underwriting margin[1]
Net earned premium
Underwriting results[2]
2019
14,656
64.5%
0.4%
9,922
35
2018
13,218
60.7%
5.3%
9,048
480
• Crop losses due to large hail and frost claims
The 2019 investment income of R387 million
(2018: R459 million) decreased due to reduced cash
holdings after the dividend distribution and a reduction
in the interest rate.
Premium growth
While organic growth in our intermediated businesses
remained challenging, good topline results from
strategic partnerships, treaty reinsurance agreements
and MFRF exceeded targets. iWYZE recorded strong
growth in highly competitive market conditions for non-
intermediated general insurance players. Our trade credit
business (CGIC) continued dominating its market position
with close to 80% market share. Several competitors have
exited this line of business. CGIC reported satisfactory
topline growth despite the low real annual gross domestic
product (GDP) growth, which is directly linked to CGIC’s
gross written premium (GWP).
Administration expenses
(2,261)
(2,003)
Underwriting profit
Profit after tax
Cost: Income ratio (GWP)
323
15.4%
705
15.1%
[1]
Underwriting margin: Net underwriting result as a percentage of net
earned premium.
[2] The 2018 underwriting result and cost base exclude the R70 million
negative effect of the accelerated vesting of Quilter and Nedbank
shares due to the Old Mutual plc managed separation.
Profit after tax
The decrease in profit after tax was driven by the following:
• Significant catastrophe losses below the reinsurance
recovery threshold
• CGIC reduction in profits, largely driven by the poor
economic environment
Old Mutual Insure continued its performance turnaround
journey of the past 24 months, with profitable growth
being built on several key strategic pillars.
• Over the past two years the Commercial business
unit invested largely in acquiring market-leading
underwriting skills. Group underwriting policies are
linked to restricted underwriting capacity to promote
portfolio improvements in profitability.
• Our Personal lines business unit competes in the most
competitive sector of the short-term insurance industry.
Price is often the main driver for new business, which,
coupled with a challenging economic environment,
translates into tough trading conditions. The personal
business unit has consolidated its market position and
has stabilised its profitability over the past three years.
This has been achieved primarily by improved claims
procurement and process enhancements that have
34
OLD MUTUAL INSURE LIMITED
Annual Report 2019
managed to keep average claims costs at 2016 levels.
In addition, we have focused on building a straight
through processing capability to improve our customer
experience.
• Our Specialty business unit results were highly pleasing,
showing solid traction on its ‘Return to Technical’
journey. Strict adherence to our revised underwriting
philosophy introduced two years ago across all
Specialty divisions (Property, Engineering and Marine)
has yielded positive results in the gross account.
• The Credit and Bond insurance market experienced
a challenging trading environment throughout 2019,
brought on by the correlation between business
performance and the state of the economy. This informs
the gross written premium growth for the 2019 year of
4.7%.
Old Mutual Insure’s key challenges are:
• higher frequency of catastrophe events, driven by the
accelerated pace of climate change;
increasing reinsurance costs; and
•
• new market entrants, particularly ‘insuretech’ players,
placing pressure on traditional players through
innovative and low-cost operating models.
Investment returns
Old Mutual Insure’s investments consist primarily of
interest-bearing money market instruments and a
protected equity portfolio. The average investment return
on money market instruments during the year was 8.5%
compared to 8.7% in 2018. Dividend income was in line
with expectations. Investment returns decreased from the
prior year mainly due to the implementation of IFRS 16.
Investable funds are invested in assets that maximise the
returns earned relating to funds in excess of the minimum
capital requirement, while remaining within the stated risk
appetite and adhering to set constraints.
Acquisitions and disposals
Following the pending disposal of our Helen Joseph
building in the Johannesburg CBD, the Old Mutual Insure
head office was relocated to premises at Wanooka Place in
Parktown from June 2019.
Capital expenditure projects in 2019
A material contributor to additional capital expenditure
during 2019 was the relocation costs of the move to
Parktown. The total capital expenditure of the move was
approximately R125 million and included office furniture
and fittings, office equipment and IT related costs. These
costs enabled employee occupation of the new building
and included the transfer of connectivity, telephony
systems and other IT related systems.
Net finance cost and debt repayment
obligations
In 2017, the JSE Securities Exchange granted approval for
the listing of the Old Mutual Insure unsecured subordinated
callable notes programme. This allowed for the listing of R1
billion in notes, of which R500 million was issued. The notes
are 10 years notes, not callable for the first five years and
priced at JIBAR plus 209bps. The interest payment has not
significantly changed from 2018.
All interest payments due to debt holders to date have
been paid. This programme has been consolidated into a
larger Group (Old Mutual Limited) programme.
Expenses
Administration expense growth was well contained
despite incurring additional costs related to the
relocation of our head office building. Higher direct
channel administration costs were caused by pursuing
opportunities and the cost of writing new business.
This increase compares favourably with a higher level of
new business premium being written.
Increasing regulatory compliance costs continue adding
significantly to our expense base. Transformational
changes required by the introduction of IFRS17 will add
new challenges in terms of data, business processes,
systems and resources. Old Mutual Insure continues
to seek more innovative and cost-effective ways to
comply, while still meeting short-term shareholder
profit expectations.
An upgrade of our policy administration system was
successfully implemented in December 2019. We have
adopted a staggered approach due to the high costs and
time required for full implementation.
Margins in the industry remained under pressure, while
we sought to balance profitability against investing into
business initiatives that will deliver real returns.
Commission and service fee payment levels are subject
to regulated caps and other regulatory requirements.
The cost of these fees is included in the premium or other
product charges and is subject to explicit disclosure to
the customer regarding quantum and purpose of the fee.
We continued working to reduce internal costs associated
with third-party service providers.
We also drove cost reductions for service models
through process enhancements and channelling broker
administration through apps and MyOMInsure. Old Mutual
Insure invests significantly into making the lives of our
customers easier by delivering customer experiences that
meet and exceed their expectations.
Managing our risks
Inherent risk always exists, evidenced by the higher-than-
average frequency and severity of natural catastrophes
experienced in this period. Applying a responsible and
disciplined underwriting approach, combined with class-
leading claims management and service, creates a strong
performance foundation to buffer the results from short-
term large claim fluctuations.
Alongside our reinsurance brokers and reinsurers, we
review the frequency of losses caused by natural perils
and the volatility this represents. We consider revisions to
structures purchased based on managing the volatility
of a larger frequency of smaller events. The cost of claims
arising from natural perils is, however, not an isolated
reinsurance consideration. We simultaneously consider the
level of pricing that should support trends in the frequency
of natural catastrophes.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
35
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements Financial director’s report (continued)
Old Mutual Insure’s Reinsurance philosophy is
based on four main pillars:
• Alignment of results with reinsurers and managing
volatility
• Long-term strategic partnership
• Continued portfolio refinement
• Sharing of Intellectual Property.
Alignment of results with reinsurers and managing
volatility
Our reinsurance purchase was based on a more equitable
balance between the ultimate performance of Old Mutual
Insure and that of our reinsurers. In addition, this purchase
will continue to manage the volatility of large losses and
catastrophe losses.
Long-term strategic partnerships
We value long-term strategic partnerships and are
committed to working with reinsurers who have walked
the journey with us through the years. We are aiming at a
reinsurer panel that represents reinsurers who support our
reinsurance philosophy and provide additional capacity.
Financial position
Old Mutual Insure’s directors assessed the cash flow
position of the business on a forward-looking basis for
the period until 2020 to establish ourselves as a going-
concern. Our cash flows are projected and managed based
on the prior year business plan and we remain a going-
concern with sound cash flow tracking.
Our Group capital target is 1.2 times using the Solvency
Assessment and Management (SAM) Deduction and
Aggregation capital requirement. Our company target is
1.3 times the solvency capital requirement. This implies
that the Group holds an additional buffer over and above
a 99.5% confidence level. Old Mutual Insure’s capital is
allocated to subsidiaries and lines of business based on
a combination of the risks associated with each line of
business and the SAM capital requirements for each line
of business or subsidiary. Return on equity targets are
set at 17% to 20%. Investment allocation and reinsurance
programmes are largely based on the company’s risk
appetite and decisions are made considering the impact
on the SAM capital requirements.
Old Mutual Insure, as well as all individual entities, were
solvent as at 31 December 2019. Our buffer and capital
requirements are lower than those of our stand-alone
peers on the basis that we form part of Old Mutual
Limited. As such, we remain capital light and leverage off
a strong parent company balance sheet. Excess capital will
be held in Old Mutual Insure if any of our subsidiaries fall
below target.
Our approach to dividends
The company’s dividend policy is to consider an
interim and a final dividend for each financial year.
At its discretion, the Board of Directors may consider a
special dividend. For the 2019 financial year, the Board
of directors did not recommend the approval of any
dividend (2018: R381 million).
Old Mutual Insure specifies a target solvency cover range
(specified annually in the risk appetite statement) and will
generally pay dividends to maintain the target required
solvency cover ratio. Maintaining a target solvency cover
range will also take account of the following factors:
• capital required over the planning horizon to
implement the business strategy; and
•
liquidity available currently and over the planning
horizon in excess of the minimum required liquidity.
36
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Divisional performance
Commercial, personal and distribution
Garth Napier
Overview
Our largest business unit distributes a wide spectrum
of products through the independent intermediary
network to retail, small and medium enterprises, as well
as our corporate customers. Insurance cover is provided
for loss or damage to movable and immovable property,
as well as risks associated with ownership of the insured
assets. We also extend cover to operational risks such as
business interruption.
Commercial, Personal and Distribution (CPD) also
offers insurance products and services to agricultural
customers for farming equipment, infrastructure and
protection of crops.
CPD’s distribution channel combines the intermediary
channel, direct channel and Old Mutual channel to
enable customers to access and purchase products in
the most efficient way for the business. These operations
are primarily broker-led, with 96% of policies and 97% of
premiums actioned through the intermediary channel.
The Old Mutual Group channel provides access to the
broader Old Mutual customer base.
The CPD business has set up regional underwriting
“centres of excellence” throughout a network of
32 branches, with central oversight over delegated
underwriting authorities. Underwriting and sales functions
are maintained separately.
2019 Performance
More than 400 system enhancements to the MyOMInsure
platform over the reporting year were driven by feedback
from the intermediary market. These developments
grew system capability, significantly improved the
user experience and underpinned CPD’s improving
performance. Despite several catastrophe events with a
net value of R130 million, our profit variance improved
due to an improved loss process following extensive
improvements in the risk pool, supported by other
remedial actions.
Commercial lines and Agricultural assets
The commercial lines segment reported an underwriting
margin of -3.9% for the year relative to the prior year
margin of 2.7%. Organic gross written premium growth in
the intermediated segment remains muted, while initial
growth targets were exceeded due to strategic initiatives
concluded in 2018.
Personal lines
Gross written premium growth of 9.6% (Elite contributed
3.5%) is satisfactory, while the reduced net underwriting
ratio of 0.6% (2018: 11.6%) was mostly driven by the
catastrophe losses.
Although the net contribution from catastrophe claims to
the loss ratio was 2.5% higher in 2019 than the prior year,
the catastrophe experience is considered to be in line
with the 10-year average experience. The 10-year average
was however significantly increased by the catastrophe
experience in 2017. The attritional loss experience when
compared to the prior year is 4.3% higher, but shows a
significant improvement when compared to the 10-year
average. The favourable attritional loss experience in 2018
(approximately 4% better than average) was not expected
to continue into 2019.
Opportunities and challenges
Climate change and widespread poor maintenance of
infrastructure has increased our risk exposure.
The underwriting result for both personal and commercial
lines were impacted by catastrophe events, which
included severe storms and floods across the country.
Bucking the trend was underwriting performance of the
commercial property class, which recorded a reduced
incidence of large property fire claims when compared to
the previous year and the 10-year average.
Higher catastrophe and other claims strained Old Mutual
Insure capacity, which reduced underwriting margins.
Strategy
Old Mutual Insure is distinguished by the ease of doing
business with us. To safeguard our distinct market
presence, CPD articulates specific areas for differentiating
ourselves to our brokers and clients. We are further
differentiating our approach through specific Client
Value Propositions aimed at each segment’s needs,
opportunities, and risks.
We prioritised the restated segmentation approach for
optimal resource utilisation, supported by new rules on
quantifiable returns and cost and waste reduction.
Distribution will be transformed from a largely
intermediated model to omnichannel capabilities through
a revised structure planned for 2020.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
37
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements Divisional performance (continued)
Specialty
John Nienaber
Overview
This business unit offers specialist insurance cover to
corporate customers and includes individual risk selection
and risk pricing. Cover is provided on a non-standard basis
and requires specialist intermediaries to advise customers.
Solutions exist for corporate property, engineering
and marine risks. Old Mutual Insure’s underwriting
management agencies also form part of this business unit
and services, among others, the heavy commercial vehicle
industry. Other than our Travelsure personal product, all
our business products are intermediated.
Mutual & Federal Risk Financing (MFRF) is the Group’s
registered cell captive insurer, offering first and third-
party insurance facilities to corporate customers, affinity
groups, corporate retail customers and niche insurance
administrators. MFRF retains limited underwriting risk
and primarily earns fee-based income. It is wholly-owned
by Old Mutual Insure and outsources its operations and
all the control functions to Old Mutual Insure. It does
however, have a separate insurance license, within which
external companies (cells) operate ring-fenced funds to
finance their insurance requirements (first-party cells) or
those of their business clients (third-party cells).
2019 Performance
Specialty reported a net underwriting profit of
R51,4 million, which is above the budgeted R49,5 million
and a significant improvement from the prior year loss
of R46,4 million. The engineering segment contributed
meaningfully to this result by achieving a net underwriting
profit margin of 27% (Actual: R31,6 million) versus
a planned profit margin of 18.5% (BP: R18,9 million;
PY: R36,3 million). Remediation of the corporate property
portfolio is continuing in line with a stricter underwriting
process and risk appetite. The result for the year is a profit
of R4,8 million, which is a vast improvement on the prior
year results (2018: -R58,3 million). Total gross written
premium growth for Specialty was 17,4% and is 15% above
the planned growth target.
Operating highlights for FY2019 include:
• We expanded our capacity in risk management and
surveying to improve risk selection and client risk
tracking.
• Underwriting actions. These included implementing
premium rate increases and reducing exposure to
certain types of risks.
• Our strategic partnerships with Transition Risk Solutions
and Sintelum are progressing well and we exceeded
growth targets for these initiatives.
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OLD MUTUAL INSURE LIMITED
Annual Report 2019
The MFRF business reported a solid performance
throughout the year, resulting in a significant increase
in our net profit before tax (R25 million) compared to
R12 million reported in 2018.
Contributing factors:
• Gross written premium increased by 13,1%.
•
Investment income decreased by 16,6% mainly due
to the disinvestment made from money market
investments to pay dividends.
• The fee income reported increased by 14% as a result
of revised fees charged, new business and the cells
introducing new products.
Opportunities and challenges
Growth in 2019 was hampered in Specialty due to the
contracted state of the construction industry and the
impacts of the economic downturn. In corporate property
the availability and cost of facultative reinsurance proved
challenging but despite this, results have been stabilised.
The lack of scale in marine, engineering, travel and casualty
creates opportunities for partnerships and product
development in the year ahead.
Strategy
Specialty
• Profitable growth and diversifying the Specialty
business with a continued focus on non-organic
opportunities.
• Continued underwriting actions, appropriate risk
selection and stringent risk management to ensure a
sustainable return to profitability.
• Negotiate appropriate treaty reinsurance contracts
to ensure maximum protection of volatility as well as
maximum commission returns. We will also secure
facultative reinsurance markets through engagements
and evidence of corrective actions taken.
MFRF
• Pursue a strategy of customer intimacy to continually
shape products and services to fit an increasingly fine
definition of the customer.
• Build capabilities that can be offered to the end client
to increase income and product offerings.
• Upskill existing employees.
• Continue to build strategic partnerships that can
contribute to MFRF and Old Mutual Insure.
• Partner/collaborate with tech companies to provide
ready-made solutions to potential clients.
iWYZE
Opportunities and challenges
The 2019 iWYZE performance was delivered against a
challenging economic environment and costly weather-
related losses. Continued low economic growth, high
levels of unemployment and crime will continue to
pressure growth and our profitability. These challenges
also hold opportunity, motivating the iWYZE team to
continue seeking ways to offer insurance solutions at
highly attractive premiums. Key drivers are to reduce costs,
spread and diversify exposure to risk, judicious use of
reinsurance and heightened productivity.
Expanding digital capabilities
Strategy
The iWYZE strategic goals are aligned to support top- and
bottom-line growth as well as improve customer centricity.
Our goals include:
• Further modernising the customer experience
•
• Developing and delivering new products
• Maintaining focus on improved operational excellence
During 2019 iWYZE made significant progress on
all fronts, as evidenced by our strong financial and
operational performances. The business has set
challenging targets for 2020.
Susan Dalby
Overview
Since 2010, iWYZE has enabled Old Mutual Insure
to engage directly with customers. The iWYZE direct
distribution channel allows Old Mutual Insure to
dynamically respond to the changing needs of customers
and outcompete other direct insurers.
iWYZE has a comprehensive product range based on
personal insurance. Products include car, home, all risk,
medical gap, personal liability and hospital cash plans. Our
product range is continuously being developed and will
soon include business insurance and legal cover. Insurance
products are supported by a range of value-added services
that include 24/7 home and roadside assistance.
The 148 000 iWYZE clients are supported by 414 employee
members that are based in the Old Mutual Insure
Wanooka office in Parktown, Johannesburg.
2019 Performance
Total Gross Written Premium for 2019 was R1 billion, a
15.7% increase over the previous year. A comprehensive
focus on claims cost and management expenses enabled
an improvement in the underwriting profit of R81 million.
Operational highlights included:
• Ongoing investment in customer service levels that
manifested in excellent Ombudsman performance,
with only 23 referred claims overturned. This confirms
fair and proper policyholder outcomes for the 37 500
claims received.
• Leveraging improved processes continued to deliver
productivity improvements. This is evidenced by the 4.5%
growth in employee numbers over the last four years
that has delivered 28% growth in administered policies.
•
•
IWYZE became the first South African insurer to use
drone technology for assessing accident damage.
Improvements in employee safety and the work
environment. The move to the Wanooka office complex
benefits current iWYZE employees and positions
the business to attract key talent that was previously
reluctant to travel to downtown Johannesburg.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
39
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements Divisional performance (continued)
CGIC
Charles Nortje
Overview
CGIC is the leading trade credit insurance company on
the African continent. We insure our clients (policyholders)
against payment default by their customers (buyers) when
goods and services are sold by our clients on credit terms.
Buyers include South African domestic companies and
buyers located overseas in export markets, resulting in
CGIC underwriting risk across 146 countries. CGIC operates
in the B2B space and does not offer payment default
protection for private individuals.
Trade credit insurance is an important component of
supporting trade in the South African economy. Most
businesses are unable to operate on purely cash terms,
needing time to sell their own products and services
before they can pay suppliers. Credit extension has
become a necessary part of modern business. CGIC
enables trade by providing our clients with complete
peace of mind with regard to potential bad debts.
CGIC also offers a range of bond and guarantee products,
mainly those needed in the construction sector by
principals requiring protection against non-performance
by a contractor. Fuel guarantees and customs bonds are
ancillary products.
We estimate that CGIC covers close to 20% of the insurable
component of the South African GDP. CGIC is thus a major
component of the Old Mutual Insure range of products for
sustaining and growing the prosperity of our customers.
Our underwriting process is focussed on the credit
quality of the buyers on which we offer cover. We
perform comprehensive assessments of buyer financial
statements, market standing, past payment behaviours
and management quality, among other factors.
Our more than 4 000 clients transact with a combined
150,000 buyers with total risk exposure on our books
of R340 billion. We employ 280 professional employees
headquartered in Johannesburg, supported by a regional
presence in Durban and Cape Town. At the core of our
distribution network are 50 intermediaries with specialist
trade credit and risk management skills.
2019 Performance
Over the past year we achieved GWP of R1,219 billion, with
growth on the prior year at 4.7%. Net earned premium was
R896 million posting growth of 8%. Underwriting profit
was R51 million being a 50% reduction on the prior year,
reflecting weak economic conditions.
Opportunities and challenges
CGIC’s market share in South Africa is above 75% and we
were impacted by the subdued financial performance
of the broader credit environment in South Africa.
The country recorded GDP growth for 2019 of less than
1%, with four out of the last seven quarters reporting
negative GDP growth. Low business confidence and the
40
OLD MUTUAL INSURE LIMITED
Annual Report 2019
high rate of distressed companies and business failures
resulted in numerous claims. The construction sector
was at the epicentre, with several high profile companies
going in to business rescue. Several major businesses
in the steel sector also went into failure. During the
year, our largest competitor in trade credit closed its
doors citing unmanageable economic headwinds and
underwriting losses.
Our Domestic Credit and Bond portfolio weathered the
brunt of these challenges, while our Export Credit portfolio
performed strongly. Storm clouds are however, gathering
on the international horizon, which is dark with trade wars,
uncertainties around Brexit, regional conflicts and slowing
growth in the world’s major economies, along with
generally rising debt levels.
CGIC continues to weather the storm through cautious
underwriting and a strengthened risk-sharing philosophy
with our policyholders. Business successes include our
support throughout the restructuring of a large national
retail chain that preserved over 100,000 jobs. We also
participated in several other important business rescues.
Our greatest success however, lies in enabling trade and
managing risk every day for our clients, as they seek to
grow and prosper in a challenging environment.
Strategy
CGIC aspires to remain the foremost trade credit insurer
in Africa and the clear first choice of our customers.
We intend retaining and building on our lead in the
market with the support and footprint of our majority
shareholder, Old Mutual, and strategic equity partner
Atradius, which is a dominant global player present in
more than 50 countries.
We are deeply conscious of our social responsibility for
promoting growth and preserving jobs in our home
market, South Africa. At the time of writing, we are seized
with our role in the much needed restructuring of State
Owned Enterprises such as SAA and Eskom, with spillover
risks to the rest of the economy.
In so doing we sustainably provide for the needs of all our
stakeholders and generate acceptable returns on capital.
We intend entering into adjacent spaces through business
turnaround consulting skills and working capital finance
packages. These will take us closer to our vision of “Beyond
Credit Insurance”.
In closing
In these uncertain times we have seen competitors enter
our market and expand rapidly, only to contract just as
rapidly and withdraw from the market a short time later.
CGIC has a stable track record of more than 60 years
in sustainable credit insurance and risk management
solutions, and an enviable reputation to uphold. We will
continue building on our solid foundations.
People and brand
Liziwe Masoga
Overview
Our corporate culture
Old Mutual Insure believes organisational culture drives
business outcomes and accelerates performance.
In 2019, our Managing Director continued prioritising
engagement with leadership and employees, supported
by new employee onboarding and organisational reward
systems.
2019 Performance highlights
• Plans for
implementing
the Workday
Human Capital
Management
solution are on track,
causing excitement
by this technology’s
potential to
transform how we
engage with leaders
and employees.
Our 2019 HR
focus areas:
• Culture and
engagement
• Talent
• Transformation
•
Implementing
Phase 1 of the Zoom
project led to four
Old Mutual Insure head office employees gaining
opportunities to work at Group level.
• Our ongoing transformation led to the Group being
rated a level 4 contributor. This is the first time Old
Mutual Insure has achieved this level of transformation
across all elements, although the category ‘access to
financial services’ remains a challenge.
• Some 59 graduates received invaluable work experience
through positions at Old Mutual Insure.
• The Junior Board was created to introduce talented
black employees to the business value chain.
Employee engagement
In 2019, we utilised a tool specifically designed for Old
Mutual. This tool considers all feedback received through
our Pulse employee engagement survey and focused
interviews held across the business.
A new employee engagement model was developed
to drive internal cultural change by tracking 13 selected
cultural dimensions.
We prioritised engagement between leadership and
employees to create a culture of transparency. In this
process employees engaged directly with senior leadership
on Group strategy.
Attracting, retaining and motivating people
Old Mutual Insure aims to attract, develop, motivate
and retain select employees capable of delivering
meaningful customer experiences at every moment of
the customer journey. Only fully engaged employees will
truly understand their roles and uphold consistently high
customer service levels.
Succession planning
Our ‘Ready Now’ initiative helps build a pipeline of
leadership and management skills to lead the business
into the future.
Health and wellness
The Group’s ‘We Care’ wellness programme has grown
from strength to strength over the last few years. ‘We
Care’ empowers employees to cope with life’s multiple
demands, make healthy lifestyle decisions, and address
well-being challenges.
Transformation and B-BBEE
We have prioritised creating an environment that
embraces diversity, equity and inclusion. The focus
includes working towards having a representative
workforce across all levels and creating a culture in which
all employees feel a sense of belonging, regardless of
their differences. Operating in a South African context
means that issues affecting the country will also affect our
employees and the company.
Our unprecedented level 4 B-BBEE score reflects our
commitment to help transform the entire industry. All
pillars on the scorecard displayed exceptional scoring
improvement.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
41
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 06
ANNUAL FINANCIAL
STATEMENTS
Value
Our value-creation story is focused on the
stakeholder and the return on investments.
We have a fiduciary duty to fulfil our stakeholder
expectations of a return on investments and a sustainable
future.
The pot, a symbol of holding, gathering and collecting to
keep investments and finances secure.
ANNUAL FINANCIAL
STATEMENTS
General information
Country of incorporation and domicile
South Africa
Nature of business and principal activities
Short-term insurance
Directors
Registered office
Postal address
Mr SC Gilbert
Mr G Napier
Ms NB Manyoha
Mr M Ilsley
Mr G Palser
Mr MA Scharneck
Ms TP Zondi
Wanooka Place
St Andrews Road
Parktown
PO Box 1120
Johannesburg
2000
Holding company
Mutual and Federal Investments Proprietary Limited incorporated
in South Africa
Ultimate holding company
Auditors
Old Mutual Limited
incorporated in South Africa
KPMG Inc.
Chartered Accountants (SA)
Registered Auditors
Secretary
Old Mutual Life Assurance Company (South Africa) Limited
Company registration number
1970/006619/06
Level of assurance
These financial statements have been audited in compliance with
the applicable requirements of the Companies Act.
Preparer
The financial statements were internally compiled by:
NB Manyoha Chartered Accountant (SA)
Old Mutual Insure Limited Financial Director
44
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Contents
Audit committee report
Directors’ responsibilities and approval
Group Secretary’s certification
Directors’ report
Independent auditor’s report
Statement of financial position
Statement of profit or loss and other comprehensive income
Statement of changes in equity
Statement of cash flows
Accounting policies
Notes to the group and company financial statements
Page
46 – 47
48
49
50 – 51
52 – 55
56 – 57
58 – 59
60 – 63
64
65 – 83
84 – 152
OLD MUTUAL INSURE LIMITED
Annual Report 2019
45
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesFinancial statements
Audit committee report
3. Effectiveness of internal financial
controls
We have established a combined assurance
capability to ensure the collaboration of assurance
between the various assurance providers.
The assurance has provided reasonable coverage
over the internal controls of the organisation.
The audit committee has confirmed that satisfactory
systems of internal control and risk management
have been maintained.
There were no breakdowns in the functioning of
the internal financial control systems during the
year which had a material impact on the annual
financial statements. However, we still have some
areas of concern and these remain an area of focus
for management. The areas are reinsurance, data and
technology and third party management.
Internal and external audit
The committee ensures the appointment of a
registered auditor as external auditor for the
company who in the opinion of the audit committee,
is independent of the company. The committee
approves the terms of engagement and
remuneration for the external audit engagement.
The audit committee is satisfied that KPMG and the
audit partner are independent. The external auditor
provided assurance that its internal governance
processes ensure, support and demonstrate its
independence. KPMG has been the auditors of the
Group for forty-nine years and Mr M Danckwerts
the audit partner for three years. There were no
significant changes in the audit management team
from the prior year. The committee is satisfied with
the quality of the external audit engagement as
evidenced in the audit quality report back to the
audit committee. The report included the audit
quality governance structure and the results of the
monitoring of audit quality.
There were no significant non-audit services
performed by the external auditors in the
current year.
The head of internal audit functionally reports
to the chairman of the audit committee and the
audit committee is responsible for reviewing
and approving the internal audit charter, the
internal audit coverage as well as the resource and
financial plans of the internal audit department.
The committee evaluates and promotes the
independence of internal audit. The audit committee
is satisfied with the effectiveness of the internal audit
arrangements and function.
The Old Mutual Insure Limited audit committee is a Group
audit committee. The audit committee acts as such for
the following companies of the Group where an audit
committee is required in terms of the Companies Act:
Old Mutual Insure Limited, Credit Guarantee Insurance
Corporation of Africa Limited (CGIC) and Mutual and
Federal Risk Financing Limited (MFRF).
1. Composition and charter
The committee comprises three independent
non-executive directors of the company. During
the year, Mr PC Rörich resigned as chairperson and
Ms TP Zondi was appointed as the chairperson.
Mr PGM Truyens resigned and Mr GS Palser and Mr
MA Scharneck were appointed as members of the
committee. The current members are Ms TP Zondi
(Chairperson), Mr GS Palser and Mr MA Scharneck.
The qualifications of the members of the committee
are listed on page 25 of the governance report.
The members possess the necessary expertise to
direct the committee in the execution of its duties.
The committee has a charter, approved by the Board,
dealing, inter alia, with its membership, frequency
of meetings and responsibilities. The committee
reviews reports from the external and internal
auditors and the chairman of the committee reports
on the findings at Board meetings.
4.
2. Role of the audit committee
The committee fulfilled its responsibilities as required
by the Companies Act and its terms of reference.
The committee performed among others, the
following functions:
• Reviewed the operational effectiveness of the
Group policies, systems and procedures.
• Reviewed the results of the work performed
by the internal audit function on financial
reporting, corporate governance, internal
control and any significant investigations and
management’s responses.
• Reviewed any other relevant matters referred to it
by the Board of Directors.
• Reviewed the quality of financial information
included in the annual financial statements.
• Reviewed the financial statements taken as a
whole to ensure they present a balanced and
understandable assessment of the position,
performance and future viability of the Group.
• Reviewed the external auditor’s report.
• Discussed any issues and reservations arising
from the external audit, and any matters the
external auditor wished to discuss (in the absence,
where requested by the committee, of executive
directors and any other person who is not a
member of the committee).
46
OLD MUTUAL INSURE LIMITED
Annual Report 2019
5. Meetings
The committee held four scheduled meetings during the year under review. The required quorum was present at all
meetings held.
During the year, Mr PC Rörich resigned as chairperson and Ms TP Zondi was appointed as the chairperson.
Meetings for the year and attendance thereat are set out below:
Name
19 February 2019
17 May 2019
7 August 2019
31 October 2019
PC Rörich (resigned 31 May
2019
PGM Truyens (resigned
31 May 2019)
GS Palser (appointed
26 November 2018)
MA Scharneck (appointed
1 June 2019)
TP Zondi
x
x
x
x
x
x
x
x
x
x
x
x
x
x
comprising operational risk and compliance
staff and reviews assurance activity planning
and execution as well as tracking of progress on
remedial actions. The second governance structure
that has been established is the Combined
Assurance Management Forum comprising heads
of departments which is a decision-making body
primarily to approve assurance plans. Other key
achievements include the establishment of a
database of issues from all assurance providers,
along with monthly tracking of remedial actions.
Reporting is based on assurance coverage per Level
one risk, as defined by the Old Mutual Insure Limited
Enterprise Risk Management methodology, and
conclusions drawn by the assurance providers per
assurance activity.
The committee is satisfied that the arrangements
in place for combined assurance were satisfactory
throughout the year.
The committee is satisfied that it has fulfilled its
responsibilities regarding its terms of reference
during the year under review and believes
that it complied with its legal, regulatory and
other responsibilities.
On behalf of the audit committee
Thandeka Zondi
Chairperson Audit Committee
6. Expertise and experience of the financial
director and the finance team
The committee is satisfied that the expertise of
the financial director is appropriate to meet the
responsibilities of the position. The committee
considered the expertise, resources and experience of
the finance function and concluded that these are
appropriate to meet the requirements of the Group.
7. Approval of the report
The audit committee reviewed the 2019 report
and considered factors and risks that may impact on
the integrity of the report and is satisfied that
it is prepared in accordance with International
Financial Reporting Standards and supported by
reasonable and prudent judgements consistently
applied. The reports of the capital management and
reserving committees to the audit committee were
considered in assessing the appropriateness of the
judgements made relating to the valuation of
insurance reserves and subsidiaries and material asset
impairments, if any. The audit committee has also
considered the conclusions of independent assurance
providers in reviewing the relevant sections of the
annual financial statements.
The Group established a combined assurance
function in 2018 which was set up to ensure the
optimisation of assurance services and functions
to ensure the effectiveness of the overall control
environment, and provide assurance of the integrity of
information used for internal decision making and
external reporting. The primary output of this function
is ensuring increased collaboration, the sharing of
information as well as reducing duplication of
assurance activities which has ultimately resulted in
improved efficiencies and more effective reporting
within the individual assurance functions.
The combined assurance process has been supported
by the establishment of appropriate governance
structures namely the Combined Assurance Task
Team which meets quarterly
OLD MUTUAL INSURE LIMITED
Annual Report 2019
47
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesFinancial statements Directors’ responsibilities
and approval
The directors have reviewed the Group’s cash flow
forecast for the year to 31 December 2020 and, in light
of this review and the current financial position, they are
satisfied that the Group has or had access to adequate
resources to continue in operational existence for the
foreseeable future.
The external auditors are responsible for independently
auditing and reporting on the Group's financial
statements. The financial statements have been
examined by the Group's external auditors and their
report is presented on pages 52 to 55.
The financial statements set out on pages 56 to 152, which
have been prepared on the going-concern basis, were
approved by the Board of Directors on 12 March 2020 and
were signed on their behalf by:
Approval of financial statements
Authorised Director
Authorised Director
The company is required in terms of the Companies Act
to keep accurate and complete accounting records and
the directors are responsible for the content and integrity
of the annual financial statements and related financial
information included in this report. It is their responsibility
to ensure that the financial statements fairly present the
state of affairs of the Group as at the end of the financial
year and the results of its operations and cash flows for
the period then ended, in conformity with International
Financial Reporting Standards. The external auditors
are engaged to express an independent opinion on the
financial statements.
The Group and company financial statements are
prepared in accordance with International Financial
Reporting Standards and are based upon appropriate
accounting policies consistently applied and supported by
reasonable and prudent judgements and estimates.
The directors acknowledge that they are ultimately
responsible for the system of internal financial control
established by the Group and place considerable
importance on maintaining a strong control environment.
To enable the directors to meet these responsibilities,
the Board of Directors sets standards for internal control
aimed at reducing the risk of error or loss in a cost
effective manner. The standards include the proper
delegation of responsibilities within a clearly defined
framework, effective accounting procedures and
adequate segregation of duties to ensure an acceptable
level of risk. These controls are monitored throughout
the Group and all employees are required to maintain
the highest ethical standards in ensuring the Group’s
business is conducted in a manner that in all reasonable
circumstances is above reproach. The focus of risk
management in the Group is on identifying, assessing,
managing and monitoring all known forms of risk
across the Group. While operating risk cannot be fully
eliminated, the Group endeavours to minimise it by
ensuring that appropriate infrastructure, controls, systems
and ethical behaviour are applied and managed within
predetermined procedures and constraints.
The directors are of the opinion, based on the information
and explanations given by management, that the system
of internal control provides reasonable assurance that the
financial records may be relied on for the preparation of
the financial statements. However, any system of internal
financial control can provide only reasonable, and not
absolute, assurance against material misstatement or loss.
48
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Group Secretary’s certification
In terms of Section 88(2)(e) of the Companies Act, I certify
that the Group has lodged with the Commissioner all such
returns as are required of a public company in terms of
the Act and that all such returns are true, correct and up
to date.
Old Mutual Life Assurance Company
(South Africa) Limited
OLD MUTUAL INSURE LIMITED
Annual Report 2019
49
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesFinancial statements Directors’ report
The directors have pleasure in submitting their report on the financial statements of Old Mutual Insure Limited and the
Group for the year ended 31 December 2019.
1. Nature of business
Old Mutual Insure Limited was incorporated in South Africa with interests in the insurance industry. The activities of
the Group are undertaken through the company and its principal subsidiaries and associates. The Group operates in
South Africa, Zimbabwe and Mauritius.
There have been no material changes to the nature of the Group's business from the prior year.
2. Review of financial results and activities
The Group and company financial statements have been prepared in accordance with International Financial
Reporting Standards and the requirements of the Companies Act. The accounting policies have been applied
consistently compared to the prior year, except for the adoption of new or revised accounting standards as set out in
note 3.
Full details of the financial position, results of operations and cash flows of the Group are set out in these Group and
company financial statements.
3. Share capital
Authorised
Number of shares
2019
2018
Ordinary shares of 10 cents each
350,000,000
350,000,000
Issued
Ordinary shares of 10 cents each
2019
R mil
32
Number of shares
2018
R mil
2019
2018
32
319,823,465
319,823,465
There have been no changes to the authorised or issued share capital during the year under review.
4. Dividends
The company's dividend policy is to consider an interim and a final dividend in respect of each financial year. At its
discretion, the Board of Directors may consider a special dividend, where appropriate.
The Board of Directors recommend the approval of a dividend of R381,000,000 (2018: R229,000,000). This dividend
relates to the 2018 financial year and was approved and paid during the 2019 year.
50
OLD MUTUAL INSURE LIMITED
Annual Report 2019
5. Directorate
The directors in office at the date of this report are as follows:
Directors
Office
Designation
Changes
Mr SC Gilbert
Chairperson
Non-executive Independent Appointed 1 September 2019
Mr G Napier
Managing Director
Executive
Ms NB Manyoha
Financial Director
Executive
Mr M Ilsley
Non-executive
Mr P Moyo
Group Chief Executive
Non-executive
Resigned 27 June 2019
Mr G Palser
Lead Independent Director
Non-executive Independent
Mr P Rörich
Mr MA Scharneck
Mr PGM Truyens
Mr TP Zondi
6. Holding company
Non-executive Independent Resigned 31 May 2019
Non-executive Independent Appointed 1 June 2019
Non-executive Independent Resigned 31 May 2019
Non-executive Independent
The Group's holding company is Mutual and Federal Investments Proprietary Limited which holds 100% (2018: 100%)
of the Group's equity. Mutual and Federal Investments Proprietary Limited is incorporated in South Africa.
7. Ultimate holding company
The Group's ultimate holding company is Old Mutual Limited which is incorporated in South Africa.
8. Events after the reporting period
On 11 March 2020, COVID-19 was declared as a pandemic due to the rising rate and scale of infections observed.
Further on 23 March 2020 the President of South Africa announced a national lockdown for 21 days, expected to last
to 16 April 2020. The rapid spread of the virus has caused significant disruption in global equity markets and the
impact of lockdowns in several countries worldwide is expected to reduce GDP growth in 2020, both locally and
globally. These impacts associated with this pandemic could negatively impact the performance of the business in
2020 and we are in the process of assessing this impact.
There have been no other material events after 31 December 2019 up to the date of this report.
9. Going concern
The directors believe that the Group has adequate financial resources to continue in operation for the foreseeable
future and accordingly the Group and company financial statements have been prepared on a going-concern basis.
The directors have satisfied themselves that the Group is in a sound financial position and that it has adequate cash
resources to meet its foreseeable cash requirements. The directors are not aware of any new material changes that
may adversely impact the Group. The directors are also not aware of any material non-compliance with statutory or
regulatory requirements or of any pending changes to legislation which may affect the Group.
10. Auditors
KPMG Inc. continued in office as auditors for the company and its subsidiaries for 2019.
11. Secretary
The Company Secretary is Old Mutual Life Assurance Company (South Africa) Limited.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
51
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesFinancial statements Independent auditor’s report
To the shareholder of Old Mutual Insure Limited
Report on the audit of the Consolidated and Separate Financial Statements
Opinion
We have audited the consolidated and separate financial statements of Old Mutual Insure Limited (the group and
company) set out on pages 56 to 152, which comprise the statement of financial position as at 31 December 2019, and the
statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of
cash flows for the year then ended, accounting policies and the notes to the financial statements.
In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated
and separate financial position of Old Mutual Insure Limited as at 31 December 2019, and its consolidated and
separate financial performance and consolidated and separate cash flows for the year then ended in accordance with
International Financial Reporting Standards and the requirements of the Companies Act of South Africa.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the consolidated and separate
financial statements section of our report. We are independent of the group and company in accordance with the
sections 290 and 291 of the Independent Regulatory Board for Auditors’ Code of Professional Conduct for Registered
Auditors (Revised January 2018), parts 1 and 3 of the Independent Regulatory Board for Auditors’ Code of Professional
Conduct for Registered Auditors (Revised November 2018) (together the IRBA Codes) and other independence
requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical
responsibilities, as applicable, in accordance with the IRBA Codes and in accordance with other ethical requirements
applicable to performing audits in South Africa. The IRBA Codes are consistent with the corresponding sections of the
International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants and the International
Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including
International Independence Standards) respectively. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
consolidated and separate financial statements of the current period. These matters were addressed in the context of our
audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
Key audit matter
How the matter was addressed in our audit
Valuation of gross claims Incurred But Not Reported (IBNR)
This key audit matter relates to our audit of the consolidated and separate financial statements. Refer to accounting
policy 1.18, significant judgements and sources of estimation uncertainty note 1.22 and notes 23 and 42
At year-end, the group and company estimate insurance
claims that have been incurred before year-end but will
only be reported after year end. The IBNR is included
in outstanding claims which forms part of the general
insurance liabilities financial statement caption.
The calculation of IBNR is based on actuarial methods
which are subject to inherent uncertainty and
significant judgement is required in its determination.
In determining the IBNR the group and company used
patterns based on past experience and historical claims,
adjusted for current year developments, to provide a
basis for future development of claims.
The key procedures we undertook to address the valuation
of the IBNR provision included:
– Together with our actuarial specialists, we evaluated the
work of management's actuaries in determining the IBNR.
This included:
a) independent loss projection for selected classes of
business and compared the result to the point estimate
determined by management;
b) assessment of the appropriateness of the methodology
applied in the determination of the IBNR;
c) assessment of the reasonability of the key assumptions
used; and
d) assessment of the overall reasonability of the IBNR.
52
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Key audit matter
How the matter was addressed in our audit
This matter is a key audit matter due to the inherent
uncertainty and significant judgements required in the
actuarial modelling process.
– We tested the claims development data supporting the
IBNR percentages by agreeing the data in the actuarial
reports to data on the underlying claims system which
was adequately supported.
– We tested the design, implementation and operating
effectiveness of the control performed by management
over the reconciliation of the claims data to the general
ledger.
– Where insufficient data is available to perform an actuarial
analysis on specific business classes, we challenged the
method applied by management in determining the IBNR
percentages applied to these business classes.
– We evaluated the reasonableness of current year IBNR
estimates by comparing them to prior years’ estimates
which we had evaluated as being reasonable based on a
retrospective calculation of the actual IBNR.
Key audit matter
How the matter was addressed in our audit
Valuation of the investment in subsidiaries
This key audit matter relates to our audit of the separate financial statements. Refer to accounting policy 1.3, significant
judgements and sources of estimation uncertainty note 1.22 and note 9
At each year-end, the company estimates the fair value
of its investments in subsidiaries. The total value of the
company's investment in subsidiaries is R1,4 billion, as
disclosed in note 9.
The valuation is subject to inherent uncertainty
and significant judgement is applied in deriving
the assumptions used in the valuation model. In
determining the estimated fair values of the investments
in subsidiaries, the company uses a discounted
earnings model or net asset value if the net asset value
approximates fair value. The valuation model used is
sensitive to the projected business plans as well as the
risk- adjusted discount rates used
This matter is a key audit matter due to the significant
judgements applied in the determination of the fair
values of investments in subsidiaries.
Our procedures included:
– Together with our valuation specialists, we assessed
the key assumptions underlying the fair values of these
unlisted subsidiaries by performing the following:
a) We tested the inputs into the discounted earnings
models by agreeing the inputs to approved business plans
of the subsidiaries and assessed the appropriateness of
the business plans in the context of the South African
market. Previous budgets prepared were compared to
actual results, and the key drivers in the forecasts were
compared to our independent expectations, which are
based on historical experience.
b) Using independent discount rates and assumptions, we
compared our range of determined fair values to those
determined by management.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
53
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesFinancial statements Independent auditor’s report
(continued)
Other information
The directors are responsible for the other information.
The other information comprises the information included
in the document titled "Old Mutual Insure Limited Annual
Report 2019", which includes the Directors’ report, the
Audit committee report and the Group Secretary’s
certification as required by the Companies Act of South
Africa. The other information does not include the
consolidated and separate financial statements and our
auditor’s report thereon.
Our opinion on the consolidated and separate financial
statements does not cover the other information and we
do not express an audit opinion or any form of assurance
conclusion thereon.
In connection with our audit of the consolidated and
separate financial statements, our responsibility is to
read the other information and, in doing so, consider
whether the other information is materially inconsistent
with the consolidated and separate financial statements
or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If, based on the work
we have performed, we conclude that there is a material
misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the
consolidated and separate financial statements
The directors are responsible for the preparation and
fair presentation of the consolidated and separate
financial statements in accordance with International
Financial Reporting Standards and the requirements of
the Companies Act of South Africa, and for such internal
control as the directors determine is necessary to enable
the preparation of consolidated and separate financial
statements that are free from material misstatement,
whether due to fraud or error.
In preparing the consolidated and separate financial
statements, the directors are responsible for assessing
the group and company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting
unless the directors either intend to liquidate the group
and/or company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the
consolidated and separate financial statements
Our objectives are to obtain reasonable assurance
about whether the consolidated and separate
financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue
an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with
ISAs will always detect a material misstatement when it
54
OLD MUTUAL INSURE LIMITED
Annual Report 2019
exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
consolidated and separate financial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional
scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement
of the consolidated and separate financial statements,
whether due to fraud or error, design and perform
audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting
a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant
to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness
of the group's and company's internal control.
• Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by the directors.
• Conclude on the appropriateness of the directors' use
of the going concern basis of accounting and based
on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions
that may cast significant doubt on the group and
company’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we
are required to draw attention in our auditor’s report
to the related disclosures in the consolidated and
separate financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the
date of our auditor’s report. However, future events or
conditions may cause the group and/or company to
cease to continue as a going concern.
• Evaluate the overall presentation, structure and
content of the consolidated and separate financial
statements, including the disclosures, and whether
the consolidated and separate financial statements
represent the underlying transactions and events in a
manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding
the financial information of the entities or business
activities within the group to express an opinion on the
consolidated financial statements. We are responsible
for the direction, supervision and performance of the
group audit. We remain solely responsible for our
audit opinion.
We communicate with the directors regarding, among
other matters, the planned scope and timing of the audit
and significant audit findings, including any significant
deficiencies in internal control that we identify during
our audit.
We also provide the directors with a statement that
we have complied with relevant ethical requirements
regarding independence, and to communicate with them
all relationships and other matters that may reasonably
be thought to bear on our independence, and where
applicable, related safeguards.
From the matters communicated with the directors, we
determine those matters that were of most significance
in the audit of the consolidated and separate financial
statements of the current period and are therefore the
key audit matters. We describe these matters in our
auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should
not be communicated in our report because the
adverse consequences of doing so would reasonably
be expected to outweigh the public interest benefits of
such communication.
Report on other legal and regulatory requirements
In terms of the IRBA Rule published in Government
Gazette Number 39475 dated 4 December 2015, we report
that KPMG Inc. has been the auditor of Old Mutual Insure
Limited for 49 years.
KPMG Inc.
Registered auditor
Per Mark Danckwerts
Chartered Accountants (SA)
Registered Auditor
Director
31 March 2020
KPMG Crescent
85 Empire Road
Parktown
Johannesburg
OLD MUTUAL INSURE LIMITED
Annual Report 2019
55
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesFinancial statements Statement of financial position
as at 31 December 2019
GROUP
COMPANY
2019
2018
2019
2018
Notes
R million
R million
R million
R million
4
5
6
7
8
9
10
11
12
13
14
23
15
16
17
18
19
20
21
174
249
478
41
–
79
7
–
2
221
243
2,112
27
6,561
1,744
569
257
18
559
21
162
129
–
67
–
104
7
–
1
223
231
2,574
27
6,305
1,618
646
243
122
604
1,084
1,386
–
174
238
475
8
–
162
120
–
46
1,426
1,548
13
84
634
2
160
174
1,421
–
3,183
1,503
222
257
15
274
283
13
84
611
1
160
158
1,553
–
3,516
1,270
275
243
112
322
343
14,446
14,470
10,546
10,537
Assets
Goodwill
Intangible assets
Property and equipment
Right-of-use assets
Deferred tax
Investments in subsidiaries
Investments in associates
Loans to share trusts
Investments in employee share trusts
Loans receivable
Retirement benefit asset
Deferred acquisition cost
Reinsurers' share of general insurance liabilities
Deposits with cedants
Investments and securities
Amounts due from agents and reinsurers
Subrogation and salvage recoveries
Non-current asset held for sale
Current tax receivable
Trade and other receivables
Cash and cash equivalents
Total assets
Equity and liabilities
Equity
Equity attributable to equity holders of parent
Share capital
21
Reserves
Retained income
Non-controlling interest
1,797
25
2,072
3,894
287
4,181
1,797
62
2,162
4,021
268
4,289
1,797
90
2,157
4,044
–
4,044
1,797
90
2,375
4,262
–
4,262
56
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Liabilities
General insurance liabilities
Lease liabilities
Debt instrument
Deferred reinsurance commission revenue
Amounts due to agents and reinsurers
Retirement benefit obligation
Share-based payment liability
Employee benefits
Deferred tax
Deposits owing to reinsurers
Amounts payable to cell owners
Current tax payable
Trade and other payables
GROUP
COMPANY
2019
2018
2019
2018
Notes
R million
R million
R million
R million
23
7
24
14
16
13
25
26
8
27
28
5,639
494
500
196
1,103
243
91
160
41
239
1,119
8
432
6,119
3,641
3,829
–
500
186
514
254
68
213
103
796
878
7
543
491
500
125
884
178
80
141
–
226
–
–
236
–
500
114
355
191
54
201
–
672
–
–
359
Total liabilities
10,265
10,181
6,502
6,275
Total equity and liabilities
14,446
14,470
10,546
10,537
OLD MUTUAL INSURE LIMITED
Annual Report 2019
57
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesFinancial statements
Statement of profit or loss and
other comprehensive income
for the year ended 31 December 2019
GROUP
COMPANY
2019
2018
2019
2018
Notes
R million
R million
R million
R million
29
30
31
32
33
34
35
14,656
(4,710)
13,218
(4,148)
10,660
(1,645)
9,511
(1,320)
9,946
9,070
9,015
8,191
(97)
73
(24)
9,922
892
10,814
(9,295)
2,896
(6,399)
(2,096)
(175)
153
(22)
9,048
792
9,840
(8,839)
3,344
(5,495)
(1,932)
(79)
42
(37)
8,978
376
9,354
(6,727)
939
(5,788)
(1,588)
(156)
144
(12)
8,179
236
8,415
(5,942)
1,001
(4,941)
(1,351)
(2,261)
(2,003)
(1,984)
(1,815)
58
387
(76)
49
418
(95)
323
10
–
10
410
459
(51)
96
914
(209)
705
6
–
6
2
(36)
(6)
326
(76)
–
244
(94)
150
8
–
8
–
308
10
(51)
–
267
(143)
124
1
(5)
(4)
–
Gross written premiums
Reinsurers premiums
Net written premiums
Gross change in provision for unearned
premiums
Reinsurers’ share of change in provision for
unearned premiums
Net change in provision for unearned premiums
Net earned premiums
Commissions received
Net income
Gross claims incurred
Reinsurers’ share of claims incurred
Net claims incurred
Acquisition cost
Expenses
Operating profit
Investment income
Finance costs
Income from equity accounted investments
Profit before taxation
Taxation
Profit for the year
Other comprehensive income:
Items that will not be reclassified to profit or
loss (net of taxation):
Remeasurements on net defined benefit liability/
asset
Losses on property revaluation
Total items that will not be reclassified to profit
or loss
Items that may be reclassified to profit or loss
(net of taxation):
Exchange differences on translating foreign
operations
58
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Other comprehensive income for the year net
of taxation
Total comprehensive income for the year
Profit attributable to:
Owners of the parent
Non-controlling interest
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interest
GROUP
COMPANY
2019
2018
2019
2018
Notes
R million
R million
R million
R million
12
335
299
24
323
311
24
335
(30)
675
671
34
705
641
34
675
8
158
150
–
150
158
–
158
(4)
120
124
–
124
120
–
120
OLD MUTUAL INSURE LIMITED
Annual Report 2019
59
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesFinancial statements
Statement of changes in equity
for the year ended 31 December 2019
GROUP
Balance at 1 January 2018
Profit for the year
Other comprehensive income – Exchange differences on translating foreign
operations
Total comprehensive income for the year
Transfer between reserves
Other non-distributable reserve
Capital distributions from the share trusts
Dividends
Total contributions by and distributions to owners of company recognised
directly in equity
Balance at 1 January 2019
Profit for the year
Other comprehensive income remeasurements on net defined benefit liability/
asset
Other comprehensive income – Exchange differences on translating foreign
operations
Total comprehensive income for the year
Foreign currency translation on reserves
Capital distributions from the share trusts
Dividends
Total contributions by and distributions to owners of company recognised
directly in equity
Share
capital
R million
Share
premium
R million
Total share
capital
R million
Foreign
currency
Other non-
Non-
translation
Revaluation
distributable
Total
Retained
the Group/
controlling
reserve
reserve
reserve
reserves
income
company
interest
Total
R million
R million
R million
R million
R million
R million
R million
R million
Total
attributable
to equity
holders of
32
1,765
1,797
(2)
60
58
1,906
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
32
1,765
1,797
(38)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 December 2019
Notes
32
21
1,765
1,797
21
21
60
OLD MUTUAL INSURE LIMITED
Annual Report 2019
(36)
–
–
–
–
–
–
–
–
–
2
–
–
–
(37)
(37)
(75)
30
30
90
–
–
–
–
–
–
–
–
–
–
–
–
–
–
90
22
10
10
10
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,761
671
(36)
635
–
10
(156)
(229)
4,021
299
10
2
311
(37)
(25)
(376)
671
–
–
671
(30)
(156)
(229)
2,162
299
10
311
2
–
(25)
(376)
(415)
(375)
234
34
34
268
24
–
–
–
–
–
–
–
–
–
–
24
(5)
(5)
3,995
705
(36)
669
–
10
(156)
(229)
(375)
4,289
323
10
2
335
(37)
(25)
(381)
(443)
(36)
30
10
40
62
–
–
–
–
–
–
2
–
–
–
(37)
(37)
25
(401)
(438)
10
2,072
3,894
287
4,181
Other comprehensive income – Exchange differences on translating foreign
GROUP
Balance at 1 January 2018
Profit for the year
operations
Total comprehensive income for the year
Transfer between reserves
Other non-distributable reserve
Capital distributions from the share trusts
Dividends
directly in equity
Balance at 1 January 2019
Profit for the year
asset
operations
Total comprehensive income for the year
Foreign currency translation on reserves
Capital distributions from the share trusts
Dividends
directly in equity
Balance at 31 December 2019
Notes
Total contributions by and distributions to owners of company recognised
32
1,765
1,797
Other comprehensive income remeasurements on net defined benefit liability/
Other comprehensive income – Exchange differences on translating foreign
Total contributions by and distributions to owners of company recognised
Share
capital
Share
Total share
premium
capital
R million
R million
R million
32
1,765
1,797
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
32
21
1,765
1,797
21
21
Foreign
currency
translation
reserve
R million
Revaluation
reserve
R million
Other non-
distributable
reserve
R million
Total
reserves
R million
Retained
income
R million
Total
attributable
to equity
holders of
the Group/
company
R million
(2)
–
(36)
–
–
–
–
–
–
(38)
–
–
2
–
(37)
–
–
(37)
(75)
60
–
–
–
30
–
–
–
30
90
–
–
–
–
–
–
–
–
90
22
–
–
–
–
–
10
–
–
10
10
–
–
–
–
–
–
–
–
10
58
–
(36)
–
30
10
–
–
40
62
–
–
2
–
(37)
–
–
(37)
25
Non-
controlling
interest
R million
Total
R million
234
3,995
34
–
34
–
–
–
–
–
268
24
–
–
24
–
–
(5)
(5)
705
(36)
669
–
10
(156)
(229)
(375)
4,289
323
10
2
335
(37)
(25)
(381)
(443)
1,906
671
–
671
(30)
–
(156)
(229)
3,761
671
(36)
635
–
10
(156)
(229)
(415)
(375)
2,162
299
10
2
311
–
(25)
(376)
4,021
299
10
2
311
(37)
(25)
(376)
(401)
(438)
2,072
3,894
287
4,181
OLD MUTUAL INSURE LIMITED
Annual Report 2019
61
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesFinancial statements Statement of changes in equity
(continued)
For the year ended 31 December 2019
Share
capital
R million
Share
premium
R million
Total share
capital
R million
Foreign
currency
Other non-
Non-
translation
Revaluation
distributable
Total
Retained
the Group/
controlling
reserve
reserve
reserve
reserves
income
company
interest
Total
R million
R million
R million
R million
R million
R million
R million
R million
32
1,765
1,797
(2)
86
84
2,480
4,361
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
32
1,765
1,797
90
90
2,375
4,262
–
–
–
–
–
32
21
–
–
–
–
–
–
–
–
–
–
1,765
1,797
21
21
Total
attributable
to equity
holders of
124
124
1
(5)
120
–
(225)
150
8
158
–
–
2
124
(225)
150
8
158
(225)
(223)
(376)
(376)
(376)
(376)
90
2,157
4,044
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4
4
2
–
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,361
124
–
–
2
124
(225)
(223)
4,262
150
8
158
(376)
(376)
4,044
–
–
–
–
2
–
2
–
–
–
–
–
–
–
–
–
4
4
–
–
–
–
–
–
–
–
90
22
COMPANY
Balance at 1 January 2018
Profit for the year
Other comprehensive income – Remeasurements on net defined benefit
liability/asset
Other comprehensive income – Losses on property revaluation
Total comprehensive income for the year
Foreign currency translation reserve
Dividends
Total contributions by and distributions to owners of company recognised
directly in equity
Balance at 1 January 2019
Profit for the year
Other comprehensive income – Remeasurements on net defined benefit
liability/asset
Total comprehensive income for the year
Dividends
Total contributions by and distributions to owners of company recognised
directly in equity
Balance at 31 December 2019
Notes
62
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Share
capital
Share
Total share
premium
capital
R million
R million
R million
Foreign
currency
translation
reserve
R million
Revaluation
reserve
R million
Other non-
distributable
reserve
R million
Total
reserves
R million
Retained
income
R million
Total
attributable
to equity
holders of
the Group/
company
R million
Non-
controlling
interest
R million
Total
R million
COMPANY
Balance at 1 January 2018
Profit for the year
liability/asset
Other comprehensive income – Remeasurements on net defined benefit
Other comprehensive income – Losses on property revaluation
Total contributions by and distributions to owners of company recognised
Other comprehensive income – Remeasurements on net defined benefit
Total comprehensive income for the year
Foreign currency translation reserve
Dividends
Total comprehensive income for the year
directly in equity
Balance at 1 January 2019
Profit for the year
liability/asset
Dividends
directly in equity
Balance at 31 December 2019
Notes
Total contributions by and distributions to owners of company recognised
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
32
1,765
1,797
32
21
1,765
1,797
21
21
32
1,765
1,797
(2)
86
–
–
–
–
2
–
2
–
–
–
–
–
–
–
–
–
4
4
–
–
–
90
–
–
–
–
–
90
22
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
84
2,480
4,361
–
–
4
4
2
–
2
124
124
1
(5)
120
–
(225)
–
–
124
2
(225)
(225)
(223)
90
2,375
4,262
–
–
–
–
–
150
8
158
150
8
158
(376)
(376)
(376)
(376)
90
2,157
4,044
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,361
124
–
–
124
2
(225)
(223)
4,262
150
8
158
(376)
(376)
4,044
OLD MUTUAL INSURE LIMITED
Annual Report 2019
63
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesFinancial statements Statement of cash flows
for the year ended 31 December 2019
Cash flows generated from operating activities
Cash generated from operations
Interest income
Dividends received
Finance costs
Tax (paid)/received
Net cash generated from operating activities
Cash flows (used in)/generated from investing
activities
Purchase of property and equipment
Sale of property and equipment
Purchase of other intangible assets
Purchase of non-current asset held for sale
Purchase of subsidiary
Sale of investments and securities
Purchase of investments and securities
(Repayments)/Receipts from loans receivable at
amortised cost
Net cash (used in)/generated from investing
activities
Cash flows used in financing activities
Dividends paid
Total cash movement for the year
Cash at the beginning of the year
GROUP
COMPANY
2019
2018
2019
2018
Notes
R million
R million
R million
R million
37
38
6
6
5
321
329
61
(76)
(26)
609
(197)
3
(44)
(14)
–
7,083
(7,361)
823
366
102
(51)
(344)
896
(188)
10
(43)
–
(21)
(766)
–
3
(164)
215
168
(76)
41
184
542
253
25
(9)
(272)
539
(192)
(186)
4
(44)
(14)
–
4,397
(4,019)
10
(43)
–
(21)
(53)
–
3
(530)
(1,005)
132
(290)
(381)
(302)
1,386
(229)
(338)
1,724
(376)
(60)
343
283
(225)
24
319
343
Total cash at the end of the year
20
1,084
1,386
64
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Accounting policies
Corporate information
Old Mutual Insure Limited is a public company incorporated and domiciled in South Africa.
The Group and company financial statements for the year ended 31 December 2019 were authorised for issue in
accordance with a resolution of the directors on 12 March 2020.
1. Significant accounting policies
The principal accounting policies applied in the preparation of these Group and company financial statements are
set out below:
1.1
Basis of preparation
The Group and company financial statements have been prepared on the going concern basis in accordance
with, and in compliance with, International Financial Reporting Standards ("IFRS") and International Financial
Reporting Interpretations Committee ("IFRIC") interpretations issued and effective at the time of preparing
these financial statements and are in compliance with the Companies Act.
These financial statements comply with the requirements of the South African Institute of Chartered
Accountants Financial Reporting Guides and the Financial Reporting Pronouncements as issued by the
Financial Reporting Standards Council and the JSE requirements for financial statements.
The financial statements have been prepared on the historic cost convention, unless otherwise stated in the
accounting policies which follow and incorporate the principal accounting policies set out below. They are
presented in Rand, which is the Group presentation currency.
These accounting policies are consistent with the previous period, except for the changes set out in note 3.
1.2
Segmental reporting
The segmental results are reported on a basis consistent with the manner in which the Executive committee
assesses performance of the underlying businesses and allocated resources. The Group’s reported
segments are Commercial lines, Personal lines, Risk financing, Specialty lines and CGIC Guarantee Products.
The performance of insurance activities is based on gross written premium as a measure of growth, with net
underwriting result as a measure of profitability. The reporting segments are described as follows:
• Commercial lines: The commercial business portfolio that serves small to large enterprises by providing
commercial insurance solutions that suit the needs of entrepreneurs and businesses.
• Personal lines: The personal business portfolio offers a multiproduct and multichannel distribution
portfolio that provides individuals with cover through a wide range of products.
• Risk financing: Risk financing includes specialist cell captive business.
• Specialty: The Specialty business portfolio focuses on the insurance of large and complex risks in niche
market segments.
• CGIC Guarantee: The main business is that of trade credit insurance in both the domestic and export trade
credit insurance market.
Segment revenue is revenue that is directly attributable to a segment and the relevant portion of the Group’s
revenue that can be allocated on a reasonable basis. Segment expenses are expenses resulting from the
operating activities of a segment that are directly attributable to the segment and the relevant portion of an
expense that can be allocated on a reasonable basis.
The segmental information has been set out in note 39.
1.3 Consolidation
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the company and all
subsidiaries. Subsidiaries are entities (including structured entities) which are controlled by the Group.
The Group has control of an entity when it is exposed to or has rights to variable returns from involvement
with the entity and it has the ability to affect those returns through use of its power over the entity.
The results of subsidiaries are included in the consolidated financial statements from the effective date of
acquisition to the effective date of disposal.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
65
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesFinancial statements 1. Significant accounting policies (continued)
1.3 Consolidation (continued)
Adjustments are made when necessary to the financial statements of subsidiaries to bring their accounting
policies in line with those of the Group.
All inter-company transactions, balances, and unrealised gains on transactions between Group companies
are eliminated in full on consolidation. Unrealised losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred.
Non-controlling interests in the net assets of consolidated subsidiaries are identified and recognised
separately from the Group's interest therein, and are recognised within equity. Losses of subsidiaries
attributable to non-controlling interests are allocated to the non-controlling interest even if this results in a
debit balance being recognised for non-controlling interest.
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity
transactions and are recognised directly in the statement of changes in equity.
The difference between the fair value of consideration paid or received and the movement in non-controlling
interest for such transactions is recognised in equity attributable to the owners of the company.
Where a subsidiary is disposed of and a non-controlling shareholding is retained, the remaining investment
is measured to fair value with the adjustment to fair value recognised in profit or loss as part of the gain or
loss on disposal of the controlling interest. The fair value is the initial carrying amount for the purposes of
subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition,
any amounts previously recognised in other comprehensive income in respect of that entity are accounted
for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts
previously recognised in other comprehensive income are reclassified to profit or loss.
Investments in subsidiaries in the separate financial statements
In the company's separate financial statements, investments in subsidiaries are carried at fair value.
1.4
Investment in structured entities
Special purpose vehicles are those entities directly or indirectly controlled by the Group and include share
incentive trusts. To consider if control exists, consideration is given to how decisions about the relevant
activities of the trusts are made. Control is assessed on a continuous basis and is reassessed as facts and
circumstances change.
Special purpose vehicles are consolidated from the date on which the Group obtains control and are
deconsolidated when control ceases.
Investments in special purpose vehicles in the financial statements of the company are designated as at fair
value through profit or loss.
1.5
Investments in associates
An associate is an entity over which the Group has significant influence and which is neither a subsidiary nor
a joint arrangement. Significant influence is the power to participate in the financial and operating policy
decisions of the investee but is not control or joint control over those policies. It generally accompanies a
shareholding of between 20% and 50% of the voting rights.
Investments in associates are accounted for using the equity method for the Group and company, except
when the investment is classified as held for sale in accordance with IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations. Under the equity method, investments in associates are carried in the
Statement of Financial Position at cost adjusted for post-acquisition changes in the Group's share of net
assets of the associate, less any impairment losses.
The Group's share of post-acquisition profit or loss is recognised in profit or loss, and its share of movements
in other comprehensive income is recognised in other comprehensive income with a corresponding
adjustment to the carrying amount of the investment. Losses in an associate in excess of the Group's interest
in that associate, including any other unsecured receivables, are recognised only to the extent that the Group
has incurred a legal or constructive obligation to make payments on behalf of the associate.
Dividends declared by associates reduce the carrying value of the equity accounted investments
in associates.
Any goodwill on acquisition of an associate is included in the carrying amount of the investment, however, a
gain on acquisition is recognised immediately in profit or loss.
66
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Profits or losses on transactions between the Group and an associate are eliminated to the extent of the
Group's interest therein. Unrealised losses are eliminated unless the transaction provides evidence of an
impairment of the asset transferred. Accounting policies of associates have been changed where necessary to
ensure consistency with the policies adopted by the Group.
When the Group reduces its level of significant influence or loses significant influence, the Group
proportionately reclassifies the related items which were previously accumulated in equity through other
comprehensive income to profit or loss as a reclassification adjustment. In such cases, if an investment
remains, that investment is measured to fair value, with the fair value adjustment being recognised in profit
or loss as part of the gain or loss on disposal.
The Group determines at each reporting date whether there is any objective evidence that the investment in
associates is impaired. If this is the case, the Group calculates the amount of the impairment as the difference
between the recoverable amount of the associate and its carrying value. The carrying amount of such
investments is reduced to recognise any impairment in the value of individual investments.
1.6
Property and equipment
Property and equipment are tangible assets which the Group holds for its own use or for rental to others and
which are expected to be used for more than one year.
An item of property and equipment is recognised as an asset when it is probable that future economic
benefits associated with the item will flow to the Group, and the cost of the item can be measured reliably.
Property and equipment is initially measured at cost. Cost includes all of the expenditure which is directly
attributable to the acquisition or construction of the asset, including the capitalisation of borrowing costs on
qualifying assets and adjustments in respect of hedge accounting, where appropriate.
Expenditure incurred subsequently for major services, additions to or replacements of parts of property and
equipment are capitalised if it is probable that future economic benefits associated with the expenditure will
flow to the Group and the cost can be measured reliably. Day-to-day servicing costs are included in profit or
loss in the year in which they are incurred.
Revaluations are made with sufficient regularity such that the carrying amount does not differ materially
from that which would be determined using fair value at the end of the reporting year.
When an item of property and equipment is revalued, the gross carrying amount is adjusted consistently
with the revaluation of the carrying amount. The accumulated depreciation at that date is adjusted to
equal the difference between the gross carrying amount and the carrying amount after taking into account
accumulated impairment losses.
Any increase in an asset’s carrying amount, as a result of a revaluation, is recognised in other comprehensive
income and accumulated in the revaluation reserve in equity. The increase is recognised in profit or loss to
the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss.
Any decrease in an asset’s carrying amount, as a result of a revaluation, is recognised in profit or loss in the
current year. The decrease is recognised in other comprehensive income to the extent of any credit balance
existing in the revaluation reserve in respect of that asset. The decrease recognised in other comprehensive
income reduces the amount accumulated in the revaluation reserve in equity.
The revaluation reserve related to a specific item of property and equipment and is transferred directly to
retained income when the asset is derecognised.
Depreciation of an asset commences when the asset is available for use as intended by management.
Depreciation is charged to write off the asset's carrying amount over its estimated useful life to its estimated
residual value, using a method that best reflects the pattern in which the asset's economic benefits are
consumed by the Group. Leasehold improvements are depreciated in a consistent manner over the shorter of
their expected useful lives and the lease term. Depreciation is not charged to an asset if its estimated residual
value exceeds or is equal to its carrying amount. Depreciation of an asset ceases at the earlier of the date that
the asset is classified as held for sale or derecognised.
The useful lives of items of property and equipment have been assessed as follows:
Item
Depreciation method
Average useful life
Furniture and fixtures
Motor vehicles
IT equipment
Leasehold improvements
Straight-line
Straight-line
Straight-line
Straight-line
6
4 – 5
3
over the lease term
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1.6 Property and equipment (continued)
The residual value, useful life and depreciation method of each asset are reviewed at the end of each
reporting year. If the expectations differ from previous estimates, the change is accounted for prospectively as
a change in accounting estimate.
Each part of an item of property and equipment with a cost that is significant in relation to the total cost of
the item is depreciated separately.
The depreciation charge for each year is recognised in profit or loss.
Impairment tests are performed on property and equipment when there is an indicator that they may be
impaired. When the carrying amount of an item of property and equipment is assessed to be higher than the
estimated recoverable amount, an impairment loss is recognised immediately in profit or loss to bring the
carrying amount in line with the recoverable amount.
An item of property and equipment is derecognised upon disposal or when no future economic benefits
are expected from its continued use or disposal. Any gain or loss arising from the derecognition of an item of
property and equipment, determined as the difference between the net disposal proceeds, if any, and the
carrying amount of the item, is included in profit or loss when the item is derecognised.
1.7 Goodwill and intangible assets
An intangible asset is recognised when:
• it is probable that the expected future economic benefits that are attributable to the asset will flow to the
entity; and
• the cost of the asset can be measured reliably.
Intangible assets consist of internally developed computer software. Costs include employee costs of the
software development team and an appropriate portion of relevant overheads.
Intangible assets are initially recognised at cost.
Expenditure on research (or on the research phase of an internal project) is recognised as an expense when it
is incurred.
An intangible asset arising from development (or from the development phase of an internal project) is
recognised when:
• it is technically feasible to complete the asset so that it will be available for use or sale;
• there is an intention to complete and use or sell it;
• there is an ability to use or sell it;
• it will generate probable future economic benefits;
• there are available technical, financial and other resources to complete the development and to use or sell
the asset; and
• the expenditure attributable to the asset during its development can be measured reliably.
Intangible assets are carried at cost less any accumulated amortisation and any impairment losses.
Intangible assets are amortised on a straight-line basis over their useful life ranging between two to ten
years and are expected to have a nil residual value. The amortisation method, period and residual values are
reviewed at each reporting period.
Internally generated brands, customer lists and items similar in substance are not recognised as
intangible assets.
The carrying value of intangible assets is reviewed for indicators of impairment annually. If indicators of
impairment exist, the particular asset is tested for impairment. An intangible asset that is not yet available for
use or has an indefinite useful life is tested for impairment on an annual basis.
Goodwill arising from business combinations
Goodwill is determined as the consideration paid, plus the fair value of any shareholding held prior to
obtaining control, plus non-controlling interest and less the fair value of the identifiable assets and liabilities
of the acquiree. If, in the case of a bargain purchase, the result of this formula is negative, then the difference
is recognised directly in profit or loss.
Goodwill is not amortised but is tested on an annual basis for impairment. If goodwill is assessed to be
impaired, that impairment is not subsequently reversed.
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1.8
Financial instruments
Financial instruments held by the Group are classified in accordance with the provisions of IFRS 9 Financial
Instruments.
Broadly, the classifications, which are adopted by the Group, as applicable, are as follows:
Financial assets which are equity instruments are measured at:
• Mandatorily at fair value through profit or loss; or
• Designated as at fair value through other comprehensive income. This designation is not available
to equity instruments which are held for trading or which are contingent consideration in a
business combination.
Financial assets which are debt instruments are measured at:
• Amortised cost. This category applies only when the contractual terms of the instrument give rise, on
specified dates, to cash flows that are solely payments of principal and interest on principal, and where the
instrument is held under a business model whose objective is met by holding the instrument to collect
contractual cash flows; or
• Fair value through other comprehensive income. This category applies only when the contractual terms of
the instrument give rise, on specified dates, to cash flows that are solely payments of principal and interest
on principal, and where the instrument is held under a business model whose objective is achieved by
both collecting contractual cash flows and selling the instruments; or
• Mandatorily at fair value through profit or loss. This classification automatically applies to all debt
instruments which do not qualify as at amortised cost or at fair value through other comprehensive
income; or
• Designated at fair value through profit or loss. This classification option can only be applied when it
eliminates or significantly reduces an accounting mismatch.
Financial liabilities:
• Amortised cost; or
• Mandatorily at fair value through profit or loss. This applies to contingent consideration in a business
combination or to liabilities which are held for trading; or
• Designated at fair value through profit or loss. This classification option can be applied when it eliminates
or significantly reduces an accounting mismatch; the liability forms part of a group of financial instruments
managed on a fair value basis; or it forms part of a contract containing an embedded derivative and the
entire contract is designated as at fair value through profit or loss.
The specific accounting policies for the classification, recognition and measurement of each type of financial
instrument held by the Group are presented below:
Loans receivable at amortised cost
Classification
Amounts due from group companies (note 19), loans to share trusts (note 11), deposits with cedants and
loans receivable are classified as financial assets subsequently measured at amortised cost.
They have been classified in this manner because the contractual terms of these loans give rise, on specified
dates, to cash flows that are solely payments of principal and interest on the principal outstanding, and the
Group's business model is to collect the contractual cash flows on these loans.
Recognition and measurement
Loans receivable are recognised when the Group becomes a party to the contractual provisions of the loan.
The loans are measured, at initial recognition, at fair value plus transaction costs, if any.
They are subsequently measured at amortised cost.
The amortised cost is the amount recognised on the loan initially, minus principal repayments, plus
cumulative amortisation (interest) using the effective interest method of any difference between the initial
amount and the maturity amount, adjusted for any loss allowance.
Application of the effective interest method
Interest income is calculated using the effective interest method, and is included in profit or loss in
investment income.
The application of the effective interest method to calculate interest income on a loan receivable is
dependent on the credit risk of the loan as follows:
• The effective interest rate is applied to the gross carrying amount of the loan, provided the loan is not
credit impaired. The gross carrying amount is the amortised cost before adjusting for a loss allowance.
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Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesFinancial statements 1. Significant accounting policies (continued)
1.8 Financial instruments (continued)
Impairment
The Group recognises a loss allowance for expected credit losses on all loans receivable measured at
amortised cost. The amount of expected credit losses is updated at each reporting date to reflect changes in
credit risk since initial recognition of the respective loans.
The Group measures the loss allowance at an amount equal to lifetime expected credit losses (lifetime ECL)
when there has been a significant increase in credit risk since initial recognition. If the credit risk on a loan
has not increased significantly since initial recognition, then the loss allowance for that loan is measured at
12-month expected credit losses (12 month ECL).
Lifetime ECL represents the expected credit losses that will result from all possible default events over the
expected life of a loan. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to
result from default events on a loan that are possible within 12-months after the reporting date.
In order to assess whether to apply lifetime ECL or 12-month ECL, in other words, whether or not there has
been a significant increase in credit risk since initial recognition, the Group considers whether there has been
a significant increase in the risk of a default occurring since initial recognition rather than at evidence of a
loan being credit impaired at the reporting date or of an actual default occurring.
Significant increase in credit risk
In assessing whether the credit risk on a loan has increased significantly since initial recognition, the Group
compares the risk of a default occurring on the loan as at the reporting date with the risk of a default
occurring as at the date of initial recognition.
The Group considers both quantitative and qualitative information that is reasonable and supportable,
including historical experience and forward-looking information that is available without undue cost or
effort. Forward-looking information considered includes the future prospects of the industries in which the
counterparties operate, obtained from economic expert reports, financial analysts, governmental bodies,
relevant think-tanks and other similar organisations, as well as consideration of various external sources of
actual and forecast economic information.
Irrespective of the outcome of the above assessment, the credit risk on a loan is always presumed to have
increased significantly since initial recognition if the contractual payments are more than 30 days past due,
unless the Group has reasonable and supportable information that demonstrates otherwise.
By contrast, if a loan is assessed to have a low credit risk at the reporting date, then it is assumed that the
credit risk on the loan has not increased significantly since initial recognition.
The Group regularly monitors the effectiveness of the criteria used to identify whether there has been a
significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of
identifying significant increases in credit risk before the amount becomes past due.
Definition of default
For purposes of internal credit risk management purposes, the Group consider that a default event has
occurred if there is either a breach of financial covenants by the counterparty, or if internal or external
information indicates that the counterparty is unlikely to pay its creditors in full (without taking collateral
into account).
Write-off policy
The Group writes off a loan when there is information indicating that the counterparty is in severe financial
difficulty and there is no realistic prospect of recovery, e.g. when the counterparty has been placed under
liquidation or has entered into bankruptcy proceedings. Loans written off may still be subject to enforcement
activities under the Group recovery procedures, taking into account legal advice where appropriate.
Any recoveries made are recognised in profit or loss.
Measurement and recognition of expected credit losses
The measurement of expected credit losses is a function of the probability of default, loss given default (i.e.
the magnitude of the loss if there is a default) and the exposure at default, taking the time value of money
into consideration.
The assessment of the probability of default and loss given default is based on historical data adjusted by
forward-looking information as described above. The exposure at default is the gross carrying amount of the
loan at the reporting date.
An impairment gain or loss is recognised for all loans in profit or loss with a corresponding adjustment to
their carrying amount through a loss allowance account. The impairment loss is included in other operating
expenses in profit or loss as a movement in credit loss allowance.
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Trade and other receivables
Classification
Trade and other receivables, excluding, when applicable, VAT and prepayments, are classified as financial
assets subsequently measured at amortised cost (note 19).
They have been classified in this manner because their contractual terms give rise, on specified dates to
cash flows that are solely payments of principal and interest on the principal outstanding, and the Group's
business model is to collect the contractual cash flows on trade and other receivables.
Recognition and measurement
Trade and other receivables are recognised when the Group becomes a party to the contractual provisions of
the receivables. They are measured, at initial recognition, at fair value plus transaction costs, if any.
They are subsequently measured at amortised cost.
The amortised cost is the amount recognised on the receivable initially, minus principal repayments, plus
cumulative amortisation (interest) using the effective interest method of any difference between the initial
amount and the maturity amount, adjusted for any loss allowance.
Impairment
The Group recognises a loss allowance for expected credit losses on trade and other receivables, excluding
VAT and prepayments. The amount of expected credit losses is updated at each reporting date.
The Group measures the loss allowance for trade and other receivables at an amount equal to lifetime
expected credit losses (lifetime ECL), which represents the expected credit losses that will result from all
possible default events over the expected life of the receivable.
Measurement and recognition of expected credit losses
The Group makes use of a provision matrix as a practical expedient to the determination of expected credit
losses on trade and other receivables. The provision matrix is based on historic credit loss experience,
adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both
the current and forecast direction of conditions at the reporting date, including the time value of money,
where appropriate.
The customer base is widespread and does not show significantly different loss patterns for different
customer segments. The loss allowance is calculated on a collective basis for all trade and other receivables
in totality.
An impairment gain or loss is recognised in profit or loss with a corresponding adjustment to the carrying
amount of trade and other receivables, through use of a loss allowance account. The impairment loss is
included in other operating expenses in profit or loss as a movement in credit loss allowance.
Write-off policy
The Group writes off a receivable when there is information indicating that the counterparty is in severe
financial difficulty and there is no realistic prospect of recovery, e.g. when the counterparty has been placed
under liquidation or has entered into bankruptcy proceedings. Receivables written off may still be subject
to enforcement activities under the Group recovery procedures, taking into account legal advice where
appropriate. Any recoveries made are recognised in profit or loss.
Investments in equity instruments
Classification
Investments in equity instruments are presented in note 15. They are classified as mandatorily at fair value
through profit or loss. As an exception to this classification, the Group may make an irrevocable election,
on an instrument by instrument basis, and on initial recognition, to designate certain investments in equity
instruments as at fair value through other comprehensive income.
The designation as at fair value through other comprehensive income is never made on investments which
are either held for trading or contingent consideration in a business combination.
Recognition and measurement
Investments in equity instruments are recognised when the Group becomes a party to the contractual
provisions of the instrument. The investments are measured, at initial recognition, at fair value. All other
transaction costs are recognised in profit or loss.
Investments in equity instruments are subsequently measured at fair value with changes in fair value
recognised either in profit or loss or in other comprehensive income (and accumulated in equity in the
reserve for valuation of investments), depending on their classification.
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Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesFinancial statements 1. Significant accounting policies (continued)
1.8 Financial instruments (continued)
Dividends received on equity investments are recognised in profit or loss when the Group's right to receive
the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the
investment. Dividends are included in investment income (note 33).
Impairment
Investments in equity instruments are not subject to impairment provisions.
Trade and other payables
Classification
Trade and other payables (note 28), excluding VAT and amounts received in advance, are classified as financial
liabilities subsequently measured at amortised cost.
Recognition and measurement
They are recognised when the Group becomes a party to the contractual provisions, and are measured, at
initial recognition, at fair value plus transaction costs, if any.
They are subsequently measured at amortised cost using the effective interest method.
Trade and other payables expose the Group to liquidity risk and possibly to interest rate risk. Refer to
note 43 for details of risk exposure and management thereof.
Cash and cash equivalents
Cash and cash equivalents are measured at amortised cost.
Debt instrument
Debt instruments issued by the Group comprise subordinated debt instruments held at amortised
cost. Interest accruals are recognised as finance costs in the statement of profit or loss and other
comprehensive income.
Periodic re-estimation of cash flows to reflect the movements in the market rates of interest will alter the
effective interest rate. A floating-rate financial liability is recognised initially at an amount equal to the
principal payable on maturity, re-estimating the future interest payments has no significant effect on the
carrying amount of the liability.
Derecognition
Financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset
expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of
the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of
ownership and continues to control the transferred asset, the Group recognises its retained interest in the
asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks
and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset
and also recognises a collateralised borrowing for the proceeds received.
Financial liabilities
The Group derecognises financial liabilities when, and only when, the Group obligations are discharged,
cancelled or they expire. The difference between the carrying amount of the financial liability derecognised
and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is
recognised in profit or loss.
Reclassification
Financial assets
The Group only reclassifies affected financial assets if there is a change in the business model for managing
financial assets. If a reclassification is necessary, it is applied prospectively from the reclassification date.
Any previously stated gains, losses or interest are not restated.
The reclassification date is the beginning of the first reporting period following the change in business model
which necessitates a reclassification.
Financial liabilities
Financial liabilities are not reclassified.
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1.9
Tax
Current tax assets and liabilities
Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount
already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is
recognised as an asset.
Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be
paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period.
Deferred tax assets and liabilities
A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the
deferred tax liability arises from the initial recognition of an asset or liability in a transaction which at the time
of the transaction, affects neither accounting profit nor taxable profit (tax loss).
A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable
that taxable profit will be available against which the deductible temporary difference can be utilised.
A deferred tax asset is not recognised when it arises from the initial recognition of an asset or liability in a
transaction at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).
A deferred tax asset is recognised for the carry forward of unused tax losses to the extent that it is probable
that future taxable profit will be available against which the unused tax losses can be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when
the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period.
Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to set off
current tax assets against current tax liabilities and when the deferred tax assets and deferred tax liabilities
relate to income taxes levied by the same taxation authority on either the same taxable entity or different
taxable entities which intend to settle the balances on a net basis.
Tax expenses
Current and deferred taxes are recognised as income or an expense and included in profit or loss for the
period, except to the extent that the tax arises from:
• a transaction or event which is recognised, in the same or a different period, to other comprehensive
income or equity; or
• a business combination.
Current tax and deferred taxes are charged or credited to other comprehensive income if the tax relates to
items that are credited or charged, in the same or a different period, to other comprehensive income.
Current tax and deferred taxes are charged or credited directly to equity if the tax relates to items that are
credited or charged, in the same or a different period, directly in equity.
Withholding tax on dividends and invoices is measured at the amount expected to be paid to the relevant
tax authorities in the country from which dividend income or services rendered originates. The tax rates and
tax laws used to compute the amount are those that are enacted when the dividend was declared.
1.10 Leases
The Group assesses whether a contract is, or contains a lease, at the inception of the contract.
A contract is, or contains a lease if the contract conveys the right to control the use of an identified asset for a
period of time in exchange for consideration.
In order to assess whether a contract is, or contains a lease, management determine whether the asset
under consideration is "identified", which means that the asset is either explicitly or implicitly specified in the
contract and that the supplier does not have a substantial right of substitution throughout the period of use.
Once management has concluded that the contract deals with an identified asset, the right to control the
use thereof is considered. To this end, control over the use of an identified asset only exists when the Group
has the right to substantially all of the economic benefits from the use of the asset as well as the right to
direct the use of the asset.
In circumstances where the determination of whether the contract is or contains a lease requires significant
judgement, the relevant disclosures are provided in the significant judgements and sources of estimation
uncertainty section of these accounting policies.
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Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesFinancial statements 1. Significant accounting policies (continued)
1.10 Leases (continued)
Group as lessee
A lease liability and corresponding right-of-use asset are recognised at the lease commencement date,
for all lease agreements for which the Group is a lessee, except for short-term leases of 12 months or less,
or leases of low value assets. For these leases, the Group recognises the lease payments as an operating
expense (note 32) on a straight-line basis over the term of the lease unless another systematic basis is more
representative of the time pattern in which economic benefits from the leased asset are consumed.
The various lease and non-lease components of contracts containing leases are accounted for separately,
with consideration being allocated to each lease component on the basis of the relative stand alone prices of
the lease components and the aggregate stand alone price of the non-lease components (where non-lease
components exist).
However, as an exception to the preceding paragraph, the Group has elected not to separate the non-lease
components for leases of land and buildings.
Details of leasing arrangements where the Group is a lessee are presented in note 7 Leases (Group as lessee).
Lease liability
The lease liability is initially measured at the present value of the lease payments that are not paid at the
commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily
determined, the Group uses its incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise the following:
• Fixed lease payments, including in-substance fixed payments, less any lease incentives;
• lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension
option; and
• penalties for early termination of a lease, if the lease term reflects the exercise of an option to terminate
the lease.
Variable rents that do not depend on an index or rate are not included in the measurement of the lease
liability (or right-of-use asset). The related payments are recognised as an expense in the period incurred and
are included in operating expenses.
The lease liability is presented as a separate line item on the statement of financial position.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease
liability (using the effective interest method) and by reducing the carrying amount to reflect lease payments
made. Interest charged on the lease liability is included in finance costs (note 34).
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use
asset) when:
• there has been a change to the lease term, in which case the lease liability is remeasured by discounting
the revised lease payments using a revised discount rate;
• there has been a change in the assessment of whether the Group will exercise a purchase, termination or
extension option, in which case the lease liability is remeasured by discounting the revised lease payments
using a revised discount rate; and
• a lease contract has been modified and the lease modification is not accounted for as a separate lease,
in which case the lease liability is remeasured by discounting the revised payments using a revised
discount rate.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying
amount of the right-of-use asset, or is recognised in profit or loss if the carrying amount of the right-of-use
asset has been reduced to zero.
Right-of-use assets
Right-of-use assets are presented as a separate line item on the Statement of Financial Position.
Lease payments included in the measurement of the right of use asset comprise the following:
• The initial amount of the corresponding lease liability;
• any lease payments made at or before the commencement date;
• any initial direct costs incurred;
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• any estimated costs to dismantle and remove the underlying asset or to restore the underlying asset or the
site on which it is located, when the Group incurs an obligation to do so, unless these costs are incurred to
produce inventories; and
• less any lease incentives received.
Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying
asset. However, if a lease transfers ownership of the underlying asset or the cost of the right-of-use asset
reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over
the useful life of the underlying asset. Depreciation starts at the commencement date of a lease.
For right-of-use assets which are depreciated over their useful lives, the useful lives are determined
consistently with items of the same class of property and equipment. Refer to the accounting policy for
property and equipment for details of useful lives.
The useful life and depreciation method of each asset are reviewed at the end of each reporting year. If the
expectations differ from previous estimates, the change is accounted for prospectively as a change in
accounting estimate. Each part of a right-of-use asset with a cost that is significant in relation to the total cost
of the asset is depreciated separately.
The depreciation charge for each year is recognised in profit or loss unless it is included in the carrying
amount of another asset.
1.11 Leases (Comparatives under IAS 17)
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to
ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and
rewards incidental to ownership.
Operating leases – lessee (prior year and short-term leases)
Operating lease payments are recognised as an expense on a straight-line basis over the lease term.
The difference between the amounts recognised as an expense and the contractual payments are recognised
as an operating lease asset. This liability is not discounted.
Any contingent rents are expensed in the period they are incurred.
1.12 Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered
through a sale transaction rather than through continuing use. This condition is regarded as met only when
the sale is highly probable and the asset is available for immediate sale in its present condition. Management
must be committed to the sale, which should be expected to qualify for recognition as a completed sale
within one year from the date of classification.
Non-current assets and disposal groups are classified as held for distribution to owners when the entity is
committed to distribute the asset or disposal group to the owners. This condition is regarded as met only
when the distribution is highly probable and the asset or disposal group is available for immediate distribution
in its present condition, provided the distribution is expected to be completed within one year from the
classification date.
Non-current assets or disposal groups held for sale (distribution to owners) are measured at the lower of their
carrying amount and fair value less costs to sell (distribute).
A non-current asset is not depreciated or amortised while it is classified as held for sale (held for distribution
to owners), or while it is part of a disposal group classified as such.
Investments which are held for sale are accounted for in accordance with IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations.
1.13 Impairment of non-financial assets
The Group assesses at each end of the reporting period whether there is any indication that an asset may be
impaired. If any such indication exists, the Group estimates the recoverable amount of the asset.
Irrespective of whether there is any indication of impairment, the Group also:
• tests intangible assets with an indefinite useful life or intangible assets not yet available for use for
impairment annually by comparing its carrying amount with its recoverable amount. This impairment test
is performed during the annual period and at the same time every period; and
• tests goodwill acquired in a business combination for impairment annually.
If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual
asset. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount
of the cash-generating unit to which the asset belongs is determined.
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1.13
Impairment of non-financial assets (continued)
The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell
and its value in use.
If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is
reduced to its recoverable amount. That reduction is an impairment loss.
An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised
immediately in profit or loss. Any impairment loss of a revalued asset is treated as a revaluation decrease.
Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the
cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of
the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units
or groups of units.
Each unit or group of units to which the goodwill is so allocated represents the lowest level within the entity
at which the goodwill is monitored for internal management purposes, and is not larger than an operating
segment as defined by paragraph 5 of IFRS 8 Operating Segments before aggregation.
An impairment loss is recognised for cash-generating units if the recoverable amount of the unit is less than
the carrying amount of the units. The impairment loss is allocated to reduce the carrying amount of the
assets of the unit in the following order:
• first, to reduce the carrying amount of any goodwill allocated to the cash-generating unit; and
• then, to the other assets of the unit, pro rata on the basis of the carrying amount of each asset in the unit.
An entity assesses at each reporting date whether there is any indication that an impairment loss recognised
in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such
indication exists, the recoverable amounts of those assets are estimated.
The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment
loss does not exceed the carrying amount that would have been determined had no impairment loss been
recognised for the asset in prior periods.
A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other
than goodwill is recognised immediately in profit or loss. Any reversal of an impairment loss of a revalued
asset is treated as a revaluation increase.
1.14 Share capital and equity
Ordinary shares are recognised and classified as 'share capital' in equity. Incremental costs directly
attributable to the issue of ordinary shares are recognised in equity as a deduction from the proceeds, net of
taxation. Transaction costs of an equity transaction are accounted for as a deduction from the proceeds to
the extent that they are incremental costs directly attributable to the equity transaction that otherwise would
have been avoided.
1.15 Cash-settled share-based payments
Services received in a share-based payment transaction are recognised when the services are received.
A corresponding increase in a liability is recognised if the services were acquired in a cash-settled
share-based payment transaction.
When the services received or acquired in a share-based payment transaction do not qualify for recognition
as assets, they are recognised as expenses.
For cash-settled share-based payment transactions, the services acquired and the liability incurred
are measured at the fair value of the liability. Until the liability is settled, the fair value of the liability is
re-measured at each reporting date and at the date of settlement, with any changes in fair value recognised
in profit or loss for the period.
Vesting conditions, other than market conditions, are not taken into account when estimating the fair
value of cash-settled share-based payment at the measurement dates. These vesting conditions are taken
into account by adjusting the number of awards included in the measurement of the liability arising from
the transaction.
Market conditions and non-vesting conditions are taken into account when estimating the fair value of the
cash-settled share-based payment.
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If the share-based payments granted do not vest until the counterparty completes a specified period of
service, the Group accounts for those services as they are rendered by the counterparty during the vesting
period, or on a straight-line basis over the vesting period.
If the share-based payments vest immediately the services received are recognised in full.
In circumstances where the Group is involved in a share-based payment transaction among entities in the
Group, the following is applied in the entity’s separate financial statements:
• Where the Group settles the share-based payment transaction and another entity in the Group receives
the goods or services, the entity recognises the transaction as an equity settled share-based payment
transaction only if it is settled in the entity’s own equity instruments. In all other circumstances, the
transaction is recognised as a cash-settled share-based payment transaction.
1.16 Employee benefits
Short-term employee benefits
The cost of short-term employee benefits, (those payable within 12 months after the service is rendered,
such as paid vacation leave and sick leave, bonuses, and non-monetary benefits such as medical care), are
recognised in the period in which the service is rendered and are not discounted.
The expected cost of compensated absences is recognised as an expense as the employees render services
that increase their entitlement or, in the case of non-accumulating absences, when the absence occurs.
The expected cost of profit sharing and bonus payments is recognised as an expense when there is a legal or
constructive obligation to make such payments as a result of past performance.
When employees are paid retention bonuses in terms of the retention bonus plan and these beneficiaries
are subject to retention periods, the cost associated with the retention bonus plan are recognised in the
statement of profit or loss and other comprehensive income over the retention period.
Defined contribution plans
Payments to defined contribution retirement benefit plans are charged as an expense as they fall due.
The Group contributes a fixed percentage of salary in respect of members of the defined contribution
pension plans and this cost is recognised as an expense in profit or loss. The Group has no constructive
obligation to pay further contributions to the fund if the fund does not hold sufficient assets to pay all
employees the benefits relating to employee service in the current and prior periods.
Defined benefit plans
For defined benefit plans the cost of providing the benefits is determined using the projected unit credit
method for a fund closed to new entrants and with less than 5% of the Group’s employees participating in
the fund.
Actuarial valuations are conducted on an annual basis by independent actuaries separately for each plan.
Consideration is given to any event that could impact the fund up to the end of the reporting period where
the interim valuation is performed at an earlier date.
Past service costs are recognised as an expense at the earlier of the following dates:
• when the plan amendment or curtailment occurs; and
• when the Group recognises related restructuring cost or termination benefits.
Actuarial gains and losses are recognised in the year in which they arise, in other comprehensive income.
The amount recognised in the statement of financial position represents the present value of the defined
benefit obligation reduced by the fair value of plan assets and adjusted for the asset ceiling. The asset is the
lower of the present value of the available refund and reduction in future contribution to the plan and the
surplus in the plan.
Any asset is limited to recognised actuarial losses and past service costs, plus the present value of available
refund and reduction in future contributions to the plan.
Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date or
when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises
termination benefits at the earlier of the following dates:
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1.16 Employee benefits (continued)
• when the entity can no longer withdraw the offer of those benefits;
• when the entity recognises costs for a restructuring which involves the payment of termination benefits.
Post-employment benefits
The Group provides post-retirement medical benefits to qualifying employees who joined the Group prior to
15 March 1999 by way of subsidising medical scheme contributions. The expected costs of these benefits are
assessed in accordance with advice of qualified actuaries on an annual basis, using the projected unit credit
method. The last valuation was performed at 31 December 2019. Service costs are recognised in profit or loss.
Actuarial gains or losses are recognised in other comprehensive income.
1.17 Provisions, commitments and contingencies
Provisions are recognised when:
• the Group has a present obligation as a result of a past event;
• it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation; and
• a reliable estimate can be made of the obligation.
Provisions are not recognised for future operating losses.
If an entity has a contract that is onerous, the present obligation under the contract shall be recognised and
measured as a provision.
A constructive obligation to restructure arises only when an entity:
• has a detailed formal plan for the restructuring, identifying at least:
– the business or part of a business concerned;
– the principal locations affected;
– the location, function, and approximate number of employees who will be compensated for
terminating their services;
– the expenditures that will be undertaken; and
– when the plan will be implemented; and
• has raised a valid expectation in those affected that it will carry out the restructuring by starting to
implement that plan or announcing its main features to those affected by it.
Transactions are classified as contingencies where the Group’s obligations depend on uncertain future events.
Items are classified as commitments where the Group commits itself to future transactions with
external parties.
Contingent assets and contingent liabilities are not recognised.
1.18 Insurance contracts
Classification
Insurance contracts are classified into two main categories, namely general insurance and cell insurance.
General insurance provides benefits under general insurance policies, which include engineering, marine,
guarantee, liability, miscellaneous, motor, accident and health, property, transportation and crop policies, or a
contract comprising a combination of any of those policies. General insurance contracts are further classified
into the following categories:
• Personal insurance, consisting of insurance provided to individuals and their personal property.
• Commercial insurance, providing cover on the assets and liabilities of business enterprises.
• Corporate insurance, providing cover on the assets and liabilities of business enterprises exceeding a limit
of R250 000 000.
• Credit guarantees.
Contracts under which the Group accepts significant insurance risk from another party (the policyholder)
by agreeing to compensate the policyholder or other beneficiary if a specified uncertain future event (the
insured event) adversely affects the policyholder or other beneficiary are classified as insurance contracts.
Insurance risk is risk, other than financial risk, transferred from the holder of the contract to the issuer.
The Group defines significant insurance risk as the possibility of having to pay benefits on the occurrence of
an insured event that is significantly more than the benefits payable if the insured event did not occur.
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Premiums
Premiums exclude value-added taxation and any other foreign indirect taxes. Premiums are earned from the
date of attachment of risk, spread over the indemnity period by using an unearned premium provision, based
on the pattern of risks underwritten and are recognised in profit or loss. This includes premiums received
in terms of inward reinsurance arrangements. All premiums are shown before deduction of commission
payable to intermediaries.
Premiums on reinsurance assumed are included in gross written premiums as if this was direct business
taking into account the product classification of the reinsured business and are recognised in profit or loss.
Claims incurred
Claims incurred consist of claims and claims-handling expenses paid during the financial year, together
with the movement in the provision for outstanding claims. Claims outstanding comprise provisions for the
Group’s estimate of the ultimate cost of settling all claims incurred, but unpaid at the reporting date, whether
reported or not, and an appropriate risk margin.
Adjustments to the amounts of claims provisions established in prior years are reflected in profit or loss for
the period in which the adjustments are made and disclosed separately, if material.
The ultimate cost of the reported claims may vary as a result of future developments or better information
becoming available about the current circumstances.
Case estimates are therefore reviewed regularly and updated if new information becomes available.
The provisions for the notified claims are initially estimated at a gross level. Each notified claim is assessed
on a separate, case-by-case basis with due regard to the specific circumstances, information available from
the insured and/or loss adjuster and past experience with similar claims. The provision for each notified claim
includes value-added taxation, where applicable.
Claims incurred but not yet reported (IBNR)
The IBNR provision is initially estimated at a gross level and incorporates future developments on the case
estimates of notified claims (claims incurred but not enough reported or “IBNER”) and claims reported after
the reporting date (true IBNR claims). The IBNR provision consists of a best-estimate reserve and an explicit
risk margin.
Salvage and subrogation reimbursements
Some insurance contracts permit the Group to sell property acquired in settling a claim (salvage). The Group
also has the right to pursue third parties for payment on some or all costs (subrogation). After the occurrence
of a cause of loss or payment of an indemnity, the insured, at the request of the Group, remains obligated
to take all reasonable steps, including legal proceedings, in order to obtain recoveries from whatever source.
Any salvage and subrogation collected by the insured or the Group shall be shared in proportion to their
respective interests.
Estimates of salvage and subrogation receivables are raised as a separate asset only when the reimbursement
has a high probability of certainty and movements in the asset are recognised in profit or loss.
Unexpired risk provision
Provision is made for unexpired risks arising where the expected value of claims and expenses attributable
to the unexpired periods of policies in force at the reporting date exceeds the unearned premium provision
in relation to such policies after the deduction of any deferred acquisition costs. Movements in the unexpired
risk provision are recognised in profit or loss.
The net liability recognised for insurance contracts is tested for adequacy by discounting current estimates
of all future contractual cash flows and comparing this amount to the carrying value of the total insurance
liability net of deferred acquisition costs. Where a shortfall is identified, an additional provision is made and
the Group recognises the deficiency in profit or loss for the year.
Unearned premium provision
The provision for unearned premiums represents the portion of the current year’s premiums that relate
to risk periods extending into the following year. The Group raises provisions for unearned premiums on a
basis that reflects the underlying risk profile of its insurance contracts. An unearned premium provision is
created at the commencement of each insurance contract and is then released as the risk under the contract
expires. The majority of the Group’s insurance contracts have an even risk profile. Movement in the gross and
reinsured earned premium provision is recognised in profit or loss.
Low claims and no-claims bonus
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1.18
Insurance contracts (continued)
Included in the unearned premium provision is a provision made for probable future low claims and
no-claims cash bonus payments. The probability of paying out the provision is calculated based on claim
frequency and lapse assumptions for active policies and based on the total number of event-free months.
A low claims or no-claims bonus is paid to policyholders based on a fixed calculation as per endorsements
that form part of the insurance contract. The bonuses are paid upon the policyholder meeting certain
criteria in terms of their policy for a specific underwriting year. The low-claims bonus is determined over a
12-month period and is calculated as a percentage of premium, less net claims paid during the bonus period.
The no-claims bonus becomes payable after the 12-month period of the expired policy, provided that no
indemnity has been paid and that a written confirmation has been received from the insured that no claim
will be payable in respect of insurable transactions concluded during the period. A provision is made for
unpaid bonuses at each reporting date and movements in the provision are recognised in profit or loss.
Reinsurance
The Group cedes reinsurance in the normal course of business for the purpose of limiting its net loss
potential through the transfer of its risks. Only reinsurance agreements that give rise to a significant transfer
of insurance risk are accounted for as reinsurance contracts. Reinsurance agreements that do not transfer
significant insurance risk are accounted for as financial assets.
Reinsurance arrangements do not relieve the Group from its direct obligations to its policyholders.
A separate calculation is carried out to determine the estimated reinsurers’ share of insurance liabilities.
The calculation of these reinsurance recoveries considers the type of risk underwritten, the year the gross
claim occurred and therefore under which reinsurance contract the recovery will be made, the size of the
claim and whether the claim was an isolated incident or forms part of a catastrophe reinsurance claim.
The asset is then estimated using similar methods to those used to estimate the gross provision. There is no
risk margin added to the best estimate of reinsurance IBNR provisions, consistent with the treatment of other
insurance assets.
Amounts recoverable under reinsurance contracts are recognised in the same year as the related claim and
are assessed for impairment at each reporting date. Such assets are deemed impaired if there is objective
evidence, as a result of an event that occurred after its initial recognition, that the Group may not recover
all amounts due and that the event has a reliably measurable impact on the amounts that the Group will
receive from the reinsurer. Movements in reinsurance assets are accounted for in profit or loss.
Acquisition cost and deferred acquisition costs
Acquisition costs comprise all direct and indirect costs arising from the conclusion of insurance contracts.
Deferred acquisition costs represent the proportion of acquisition costs incurred in order to secure new
contracts and renewing of existing contracts and are deferred over the period in which the related premiums
are earned, and recognised as an asset.
Acquisition costs relevant for the financial period (including the movement in deferred acquisition costs) are
recognised in profit or loss. All other costs are recognised as expenses when incurred.
Commission income
Commission income comprises commissions earned in respect of reinsurance contracts. Commission
income is recognised on the effective commencement or renewal date of the reinsurance contract. A portion
of the income is deferred when further servicing is required to be rendered. The amount deferred is that
which will cover the expected future servicing costs, together with a reasonable profit thereon, and is
recognised as a liability. Deferred income is recognised in profit or loss evenly over the period of the policy.
Where commission income is earned on an indemnity basis, provision is made for the potential repayment
of commissions.
Agents’ and reinsurers’ balances
Agents’ and reinsurers’ balances are measured at transaction price when due, and the Group is of the opinion
that the carrying values of these receivables are a reasonable approximation of fair value. The amounts
include amounts due to and from agents, brokers and insurance contract holders.
Portfolio impairment allowance
Included in the agents' and reinsurance balances are a portfolio impairment allowance and specific
allowances for possible losses.
A loss allowance is recognised for amounts due from agents and reinsurers and is monitored at the end
of each reporting period. In addition to the loss allowance, amounts due from agents and reinsurers are
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written off when there is no reasonable expectation of recovery, for example, when a debtor has been placed
under liquidation. Amounts due from agents and reinsurers which have been written off are not subject to
enforcement activities.
The Group measures the loss allowance for amounts due from agents and reinsurers by applying the
simplified approach which is prescribed by IFRS 9. In accordance with this approach, the loss allowance on
amounts due from agents and reinsurers is determined as the lifetime expected credit losses on amounts
due from agents and reinsurers. These lifetime expected credit losses are estimated using a provision
matrix. The provision matrix has been developed by making use of past default experience of debtors but
also incorporates forward looking information and general economic conditions of the industry as at the
reporting date.
Deposits with reinsurers and cedants
Deposits with reinsurers and cedants are cash held by the Group on behalf of reinsurers and cedants.
Amounts payable to cell owners
The Group offers cell captive facilities to clients. A cell captive is a contractual arrangement entered into by
the Group with a cell shareholder, whereby the risks and rewards associated with certain insurance activities
accrue to the cell shareholder. Cell captives allow clients to purchase non-convertible preference shares in
the registered insurance company which undertakes the professional insurance management of the cell,
including underwriting, reinsurance, claims management, actuarial and statistical analysis, investment and
accounting services. The terms and conditions are governed by the shareholders’ agreement. There are
currently two distinct types of cell captive arrangements.
First party cell captive arrangements, where the cell owner insures their own risk. First party cell captives
arrangements are accounted for as financial liabilities.
Third party cell captive arrangements where the cell owner provides the opportunity to its own client base
to purchase branded insurance products. The insurance company is the principal to the insurance contract,
although the business is underwritten on behalf of the cell owner.
The shareholder’s agreement, however, determines that the cell owner remains responsible for the solvency
of the cell captive arrangements. In substance, the insurance company therefore reinsures this business to the
cell owner as the cell owner remains responsible for the solvency of the cell captive arrangement.
The cell shareholder’s interest represents the cell shareholder’s funds, in respect of the insurance business
conducted in the cell structures, held by the insurer and is included in amounts payable to cell owners.
The carrying value of amounts payable to cell owners is the consideration received for preference shares plus
the accumulated funds in respect of business conducted in the cells less repayment to cell owners.
1.19 Investment returns
Investment returns comprises interest, dividends, as well as net fair value gains or losses on financial assets
held at fair value through profit or loss. Interest income is presented separately from fair value movements.
Investment income is accounted for as follows:
• interest income is recognised in profit or loss as it accrues, using the effective interest method;
• dividend income is recognised in profit or loss when the right to receive payment is established; and
• net unrealised and realised profits and losses on financial assets held at fair value through profit or loss
comprise of gains and losses on disposal or revaluation of assets to fair values and are recognised in profit
or loss.
1.20 Finance cost
Finance costs are recognised in profit or loss in the period they are incurred using the effective
interest method.
1.21 Translation of foreign currencies
Functional and presentation currency
The consolidated financial statements are presented in Rand which is the Group's presentation currency.
The functional currency of the separate financial statements of the Group entities are in Rand, except for
Mutual and Federal Company of Zimbabwe which is presented in RTGS and Old Mutual Holdings (Mauritius)
Limited and its subsidiaries which are presented in United States Dollar.
Foreign currency transactions
A foreign currency transaction is recorded, on initial recognition in Rand, by applying to the foreign currency
amount the spot exchange rate between the functional currency and the foreign currency at the date of
the transaction.
At the end of the reporting period:
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1.21 Translation of foreign currencies (continued)
• foreign currency monetary items are translated using the closing rate;
• non-monetary items that are measured in terms of historical cost in a foreign currency are translated using
the exchange rate at the date of the transaction; and
• non-monetary items that are measured at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value was determined.
In circumstances where the Group receives or pays an amount in foreign currency in advance of a transaction,
the transaction date for purposes of determining the exchange rate to use on initial recognition of the related
asset, income or expense is the date on which the Group initially recognised the non-monetary item arising
on payment or receipt of the advance consideration.
If there are multiple payments or receipts in advance, the Group determines a date of transaction for each
payment or receipt of advance consideration.
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates
different from those at which they were translated on initial recognition during the period or in previous
financial statements are recognised in profit or loss in the period in which they arise.
When a gain or loss on a non-monetary item is recognised to other comprehensive income and accumulated
in equity, any exchange component of that gain or loss is recognised to other comprehensive income and
accumulated in equity. When a gain or loss on a non-monetary item is recognised in profit or loss, any
exchange component of that gain or loss is recognised in profit or loss.
Cash flows arising from transactions in a foreign currency are recorded in Rand by applying to the foreign
currency amount the exchange rate between the Rand and the foreign currency at the date of the cash flow.
Investments in subsidiaries and associates as foreign operations
The results and financial position of a foreign operation are translated into the functional currency using the
following procedures:
• assets and liabilities for each statement of financial position presented are translated at the closing rate at
the date of that statement of financial position;
• income and expenses for each item of profit or loss are translated at exchange rates at the dates of
the transactions.
Exchange differences arising on a monetary item that forms part of a net investment in a foreign operation
are recognised initially to other comprehensive income and accumulated in the translation reserve. Such
exchange differences shall be recognised initially in other comprehensive income and reclassified from
equity to profit or loss on disposal of the net investment.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying
amounts of assets and liabilities arising on the acquisition of that foreign operation are treated as assets and
liabilities of the foreign operation.
1.22 Significant judgements and sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS requires management, from time to time,
to make judgements, estimates and assumptions that affect the application of policies and reported
amounts of assets, liabilities, income and expenses. These estimates and associated assumptions are based
on experience and various other factors that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates. The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are
revised and in any future periods affected.
Key sources of estimation uncertainty
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Fair value estimation
Several assets and liabilities of the Group are either measured at fair value or disclosure is made of their
fair values.
The Old Mutual Insure Capital Management Committee approves the assumptions and inputs applied in the
fair value calculations relating to investments in subsidiaries, associates, unlisted shares and share trusts.
Observable market data is used as inputs to the extent that it is available. The valuation model used to
determine the value of the subsidiaries is sensitive to the inputs (the projected business plans) as well as
the assumptions (risk-adjusted discount rates) used. Judgement is applied in deriving these inputs and
assumptions as set out in Note 9.
Impairment testing
The Group reviews and tests the carrying value of assets when events or changes in circumstances suggest
that the carrying amount may not be recoverable. When such indicators exist, management determine
the recoverable amount by performing value in use and fair value calculations. These calculations require
the use of estimates and assumptions. When it is not possible to determine the recoverable amount for an
individual asset, management assesses the recoverable amount for the cash-generating unit to which the
asset belongs.
Valuation of insurance policy liabilities and assets
Claims incurred
The Group's estimates for reported and unreported claims are continually reviewed and updated, and
adjustments resulting from this review are reflected in profit or loss. The process relies upon the assumption
that past experience, adjusted for the effect of current developments and likely trends, is an appropriate basis
for predicting future events as set out in note 23.
Incurred but not reported claims (IBNR)
The IBNR provision comprises the Group's estimate at a 75% confidence level of the undiscounted cost of
settling all claims incurred but not yet reported at the reporting date and related claims handling expenses.
The assumptions used in the calculation is set out in note 23.
Subrogation and salvage recoveries
An asset is raised for expected subrogation and salvage recoveries that have occurred, whether reported or
based on past experience. The ultimate amounts recovered will vary as a result of subsequent information
and events and may result in significant adjustments to the amounts estimated. The methods used to
determine the expected amounts are reviewed regularly by management. The assumptions used in the
calculation is set out in note 23.
Defined post-employment benefits
Assumptions are made regarding the discount rates, inflation rates and retirement ages in calculating the
Group’s post-retirement medical benefits. Details of these assumptions are set out in note 13.
Share-based payment liability
The judgement applied in valuing the cash-settled share-based payment liability for employees relates to the
assumption of the expected employee attrition and the associated vesting that is expected for each tranche
of shares issued as set out in note 25.
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Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesFinancial statements Notes to the group and company
Financial Statements
2. New Standards and Interpretations
2.1
Standards and interpretations effective and adopted in the current year
In the current year, the Group has adopted the following standards and interpretations that are effective for
the current financial year and that are relevant to its operations:
IFRS 16 Leases
IFRS 16 Leases is a new standard which replaces IAS 17 Leases, and introduces a single lessee accounting
model. The main changes arising from the issue of IFRS 16 which are likely to impact the Group are as follows:
Group as lessee:
• Lessees are required to recognise a right-of-use asset and a lease liability for all leases, except short-term
leases or leases where the underlying asset has a low value, which are expensed on a straight-line or other
systematic basis.
• The cost of the right-of-use asset includes, where appropriate, the initial amount of the lease liability;
lease payments made prior to commencement of the lease less incentives received; initial direct costs
of the lessee; and an estimate for any provision for dismantling, restoration and removal related to the
underlying asset.
• The lease liability takes into consideration, where appropriate, fixed and variable lease payments; residual
value guarantees to be made by the lessee; exercise price of purchase options; and payments of penalties
for terminating the lease.
• The right-of-use asset is subsequently measured on the cost model at cost less accumulated depreciation
and impairment and adjusted for any re-measurement of the lease liability. However, right-of-use assets
are measured at fair value when they meet the definition of investment property and all other investment
property is accounted for on the fair value model. If a right-of-use asset relates to a class of property,
plant and equipment which is measured on the revaluation model, then that right-of-use asset may be
measured on the revaluation model.
• The lease liability is subsequently increased by interest, reduced by lease payments and re-measured for
reassessments or modifications.
• Re-measurements of lease liabilities are affected against right-of-use assets, unless the assets have been
reduced to nil, in which case further adjustments are recognised in profit or loss.
• The lease liability is re-measured by discounting revised payments at a revised rate when there is a change
in the lease term or a change in the assessment of an option to purchase the underlying asset.
• The lease liability is re-measured by discounting revised lease payments at the original discount rate when
there is a change in the amounts expected to be paid in a residual value guarantee or when there is a
change in future payments because of a change in index or rate used to determine those payments.
• Certain lease modifications are accounted for as separate leases. When lease modifications which
decrease the scope of the lease are not required to be accounted for as separate leases, then the lessee
re-measures the lease liability by decreasing the carrying amount of the right of lease asset to reflect the
full or partial termination of the lease. Any gain or loss relating to the full or partial termination of the lease
is recognised in profit or loss. For all other lease modifications which are not required to be accounted for
as separate leases, the lessee re-measures the lease liability by making a corresponding adjustment to the
right-of-use asset.
• Right-of-use assets and lease liabilities should be presented separately from other assets and liabilities.
If not, then the line item in which they are included must be disclosed. This does not apply to right-of-use
assets meeting the definition of investment property which must be presented within investment
property. IFRS 16 contains different disclosure requirements compared to IAS 17 leases.
The effective date of the standard is for years beginning on or after 01 January 2019.
The Group has adopted the standard for the first time in the 2019 financial statements.
The impact of the standard is set out in note 3 Changes in Accounting Policy.
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2.2
Standards and interpretations not yet effective
The Group has chosen not to early adopt the following standards and interpretations, which have been
published and are mandatory for the Group’s accounting periods beginning on or after 01 January 2020 or
later periods:
IFRS 17 Insurance Contracts
IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance
contracts issued. It will replace IFRS 4 Insurance Contracts.
The effective date of the standard is for years beginning on or after 1 January 2021, with comparative
numbers for 2020 (however the IASB has made a tentative decision to defer the effective date to 2023,
subject to due process).
The standard combines current measurement of the future cash flows with the recognition of profit over the
services period under the contract. The standard looks at the presentation of insurance revenue separately
from insurance finance income or expenses and requires and entity to make an accounting policy choice of
whether to recognise all insurance finance income or expenses in profit or loss or to recognise some of that
income or expenses in other comprehensive income.
The Old Mutual Limited Group has instituted an implementation programme under the sponsorship of the
Old Mutual Limited Chief Financial Officer, who chairs a programme steering committee consisting of senior
finance, actuarial and information technology executives from impacted business areas. The company, as a
specific IFRS 17 focus area within Old Mutual Limited, has established a project within the Old Mutual Limited
programme structure. The company’s project is governed by a delivery committee, which consists of senior
finance and actuarial managers who make decisions on scope, design and enablement for their relevant
focus areas. All decisions relating to the interpretation of the standard (i.e. policies and methodologies) are
made by a Technical Review Committee (TRC), which consists of actuarial and finance subject matter experts
across the company. Ratification of major decisions is done by the Old Mutual Limited programme steering
committee. Project resources include a mix of dedicated and shared internal technical experts, as well as
external consultants where appropriate.
During 2017, 2018 and 2019, the company completed a gap analysis, initial impact assessments and provided
training to the actuarial and finance teams. Progress has been made on the development of accounting and
actuarial policies and methodologies for the company, with formal sign off from the TRC on each version of a
paper, as well as outcomes of investigations. This also includes a comprehensive product classification model.
The company’s project is in the process of defining detailed enablement requirements and is also currently
focusing on implementing a procured IFRS 17 reporting solution.
2.3
Standards and interpretations effective and not yet effective and not material to the Group
The following standards and interpretations have been published and are mandatory for the Group’s
accounting periods beginning on or after 1 January 2019 or later periods but are not material to its
operations:
Standard/ Interpretation
Effective date:
Years beginning on or
after
• Definition of a business – Amendments
1 January 2020
to IFRS 3
• Presentation of Financial Statements:
1 January 2020
Disclosure initiative
• Accounting Policies, Changes in
1 January 2020
Accounting Estimates and Errors:
Disclosure initiative
• Plan Amendment, Curtailment or
1 January 2019
Settlement – Amendments to IAS 19
• Long–term Interests in Joint Ventures
1 January 2019
and Associates – Amendments to IAS 28
• Prepayment Features with Negative
1 January 2019
Compensation – Amendment to IFRS 9
• Amendments to IFRS 3 Business
1 January 2019
Combinations: Annual Improvements to
IFRS 2015 – 2017 cycle
Expected impact:
Unlikely there will be a material
impact
Unlikely there will be a material
impact
Unlikely there will be a material
impact
The impact of the amendment is
not material.
The impact of the amendment is
not material.
The impact of the amendment is
not material.
The impact of the amendment is
not material.
OLD MUTUAL INSURE LIMITED
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85
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesFinancial statements
2. New standards and interpretations (continued)
2.3 Standards and interpretations effective and not yet effective and not material to the Group
(continued)
Standard/ Interpretation
Effective date:
Years beginning on or
after
Expected impact:
• Amendments to IFRS 11 Joint
1 January 2019
The impact of the amendment is
not material.
Arrangements: Annual Improvements to
IFRS 2015 – 2017 cycle
• Amendments to IAS 12 Income Taxes:
Annual Improvements to IFRS 2015 –
2017 cycle
1 January 2019
The impact of the amendment is
not material.
• IFRIC 23 Uncertainty Over Income Tax
01 January 2019
Treatments
The impact of the amendment is
not material.
3. Changes in accounting policy
The financial statements have been prepared in accordance with International Financial Reporting Standards on a
basis consistent with the prior year except for the adoption of the following new standard.
Application of IFRS 16 Leases
In the current year, the company has adopted IFRS 16 Leases (as issued by the IASB in January 2016) with the
date of initial application being 1 January 2019. IFRS 16 replaces IAS 17 Leases, IFRIC 4 Determining whether an
Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC 27 – Evaluating the Substance of
Transactions Involving the Legal Form of a Lease.
IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant
changes to the lessee accounting by removing the distinction between operating and finance leases and requiring
the recognition of a right-of-use asset and a lease liability at the lease commencement for all leases, except for
short-term leases and leases of low value assets. In contrast to lessee accounting, the requirements for lessor
accounting have remained largely unchanged. Details of these new requirements are described in the accounting
policy for leases. The impact of the adoption of IFRS 16 on the Group’s financial statements is described below.
The lease agreement for 1 Mutual Place is with a related party. The floor space can change annually to meet
demand requirements to ensure optimal usage of the premises. The lease amount is variable according to the floor
space consumed. The rental charges of leases with variable rates are expensed as they are incurred.
IFRS 16 has been adopted by applying the modified retrospective approach, whereby the comparative figures are
not restated.
Leases where Group is lessee
Leases previously classified as operating leases
The Group undertook the following at the date of initial application for leases which were previously recognised as
operating leases:
• Recognised a lease liability, measured at the present value of the remaining lease payments, discounted at the
Group’s weighted average incremental borrowing rate at the date of initial application.
• Recognised right-of-use assets measured on a lease by lease basis at an amount equal to the lease liability
adjusted for accruals or prepayments relating to that lease prior to the date of initial application.
The Group did not apply IAS 36 to consider if these right-of-use assets are impaired, but rather applied the practical
expedient of IFRS 16 par C10(b). In accordance with this practical expedient, the carrying amounts were adjusted
with the amount of any onerous provision which existed immediately prior to the date of initial application.
As an exception to the above, no adjustments were made on initial application of IFRS 16 for leases previously
classified as operating leases:
• for which the underlying asset is of low value. From the date of initial application, these leases are accounted for
in accordance with paragraph 6 of IFRS 16 by recognising the lease payments on a straight-line basis or another
systematic basis which is more representative of the pattern of benefits consumed.
86
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued)
The Group applied the following practical expedients when applying IFRS 16 to leases previously classified as
operating leases in terms of IAS 17. Where necessary, they have been applied on a lease by lease basis:
• when a portfolio of leases contained reasonably similar characteristics, the Group applied a single discount rate
to that portfolio;
• leases which were expiring within 12 months of 1 January 2019 were treated as short-term leases, with remaining
lease payments recognised as an expense on a straight-line basis or another systematic basis which is more
representative of the pattern of benefits consumed;
• hindsight was applied where appropriate. This was specifically the case for determining the lease term for leases
which contained extension or termination options.
Impact on financial statements
On transition to IFRS 16, the Group recognised an additional R101 million of right-of-use assets and R101 million of
lease liabilities.
When measuring lease liabilities, the Group discounted lease payments using its weighted average incremental
borrowing rate at 1 January 2019. The weighted average rate applied is 9%.
4. Goodwill
Group
2019
2018
Cost
R million
Accumulated
impairment
R million
Carrying
value
R million
Cost
R million
Accumulated
impairment
R million
Carrying
value
R million
Goodwill
21
–
21
21
–
21
Reconciliation of goodwill – Group – 2019
Goodwill
Reconciliation of goodwill – Group – 2018
Opening
balance
R million
Total
R million
21
21
Opening balance
R million
Additions
through business
combinations
R million
Total
R million
Goodwill
–
21
21
The goodwill relates to a 100% equity stake in Sintelum Proprietary Limited. The value of goodwill is reviewed
annually for indicators of impairment. The Group uses a discounted cashflow methodology to make this
assessment. Cashflows are projected over a three-year period, with a growth rate of 5% and discounted at a rate of
17%. There were no indicators of impairment of goodwill.
5.
Intangible assets
Group
2019
2018
Cost
R million
Accumulated
amortisation
R million
Carrying
value
R million
Cost
R million
Accumulated
amortisation
R million
Carrying
value
R million
Computer software
848
(674)
174
804
(642)
162
Company
Computer software
848
(674)
174
804
(642)
162
OLD MUTUAL INSURE LIMITED
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Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 5.
Intangible assets (continued)
Reconciliation of intangible assets – Group – 2019
Opening
balance
R million
Additions Amortisation
R million
R million
Total
R million
Computer software
162
44
(32)
174
Reconciliation of intangible assets – Group – 2018
Opening
balance
R million
Additions Amortisation
R million
R million
Impairment
loss
R million
Total
R million
Computer software
161
43
(32)
(10)
162
Reconciliation of intangible assets – Company – 2019
Opening
balance
R million
Additions Amortisation
R million
R million
Total
R million
Computer software
162
44
(32)
174
Reconciliation of intangible assets – Company – 2018
Opening
balance
R million
Additions Amortisation
R million
R million
Impairment
loss
R million
Total
R million
Computer software
161
43
(32)
(10)
162
6. Property and equipment
Group
2019
2018
Cost or
revaluation
R million
Accumulated
depreciation
R million
Carrying
value
R million
Cost or
revaluation
R million
Accumulated
depreciation
R million
Carrying
value
R million
Buildings
Furniture and fixtures
Motor vehicles
IT equipment
Leasehold improvements
Total
1
109
16
574
40
740
–
(49)
(7)
(431)
(4)
(491)
1
60
9
143
36
249
3
45
16
504
–
568
(1)
(41)
(7)
(390)
–
(439)
2
4
9
114
–
129
88
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) Company
2019
2018
Cost or
revaluation
R million
Accumulated
depreciation
R million
Carrying
value
R million
Cost or
revaluation
R million
Accumulated
depreciation
R million
Carrying
value
R million
Buildings
Furniture and fixtures
Motor vehicles
IT equipment
Leasehold improvements
Total
1
106
8
552
39
706
–
(47)
(3)
(414)
(4)
(468)
1
59
5
138
35
238
3
41
8
470
–
522
(1)
(39)
(3)
(359)
–
(402)
2
2
5
111
–
120
Reconciliation of property and equipment – Group – 2019
Buildings
Furniture and fixtures
Motor vehicles
IT equipment
Leasehold improvements
Opening
balance
R million
2
4
9
114
–
129
Additions
R million
Disposals
R million
Transfers Depreciation
R million
R million
Total
R million
1
66
1
92
37
197
–
(2)
–
(1)
–
(3)
(2) –
–
–
–
2
–
(8)
(1)
(62)
(3)
(74)
1
60
9
143
36
249
Reconciliation of property and equipment – Group – 2018
Opening
balance Additions Disposals
R million
R million
R million
Classified
as held
for sale
Revalua-
tions*
Other
changes,
move-
ments
Depreci-
ation
Impair-
ment
loss
Total
R million R million R million R million R million R million
Buildings
Furniture and
fixtures
Motor vehicles
IT equipment
161
6
14
72
89
2
3
94
253
188
–
–
–
(10)
(10)
(243)
–
–
–
(243)
5
–
–
–
5
–
–
–
1
1
(10)
(4)
(3)
(43)
(60)
–
–
(5)
–
(5)
2
4
9
114
129
Reconciliation of property and equipment – Company – 2019
Buildings
Furniture and fixtures
Motor vehicles
IT equipment
Leasehold improvements
Opening
balance
R million
2
2
5
111
–
120
Additions
R million
Disposals
R million
Transfers Depreciation
R million
R million
Total
R million
1
66
1
88
36
192
–
(1)
–
(3)
–
(4)
2
–
–
–
2
4
–
(8)
(1)
(58)
(3)
(70)
1
59
5
138
35
238
OLD MUTUAL INSURE LIMITED
Annual Report 2019
89
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 6. Property and equipment (continued)
Reconciliation of property and equipment – Company – 2018
Opening
balance Additions Disposals
R million
R million
R million
Classified
as held
for sale
Revalua-
tions*
Other
changes,
move-
ments
Depreci-
ation
Impair-
ment
loss
Total
R million R million R million R million R million R million
Buildings
Furniture and
fixtures
Motor vehicles
IT equipment
159
4
14
68
88
1
3
94
245
186
*Revaluations
–
–
–
(10)
(10)
(243)
–
–
–
(243)
5
–
–
–
5
2
–
(5)
1
(2)
(9)
(3)
(2)
(42)
(56)
–
–
(5)
–
(5)
2
2
5
111
120
The Group received an offer to purchase shortly before the 2018 year end which was deemed to be market-related
and determined at arm’s-length. The offer price in the offer to purchase was determined to be the most appropriate
value of the land and buildings.
The valuation reflects the highest and best use of the property.
The property has been reclassified in 2018 to non-current assets held for sale and no further revaluations were
performed.
7.
Leases (Group as lessee)
The Group leases several assets, including buildings, office equipment and motor vehicles. The lease of Wanooka
Place makes up the majority of the right-of-use asset, which has a lease term of seven years.
All future cashflows to which the lessee is potentially exposed are reflected in the measurement of lease liabilities.
Details pertaining to leasing arrangements, where the Group is lessee are presented below:
The Group adopted IFRS 16 for the first time in the current financial period. Comparative figures have been
accounted for in accordance with IAS 17, the previous accounting standard on leases. The information presented in
this note for right-of- use assets period therefore only includes the current period.
Net carrying amounts of right-of-use assets
The carrying amounts of right-of-use assets are as follows:
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
449
4
25
478
–
–
–
446
4
25
475
–
–
–
–
Leasehold property
Office equipment
Motor vehicles
90
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) Additions to right-of-use assets
Leasehold property
Office equipment
Motor vehicles
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
494
6
35
535
–
–
–
–
489
6
35
530
–
–
–
–
Depreciation recognised on right-of-use assets
Depreciation recognised on each class of right-of-use assets, is presented below. It includes depreciation which has
been expensed in the total depreciation charge in profit or loss (note 32).
Leasehold property
Office equipment
Motor vehicles
Other disclosures
Interest expense on lease liabilities
Expenses on short term leases included in operating
expenses
Variable lease payments not included in the measurement
of lease liabilities included in operating expenses
Lease liabilities
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
45
2
10
57
23
5
44
–
–
–
–
–
–
–
43
2
10
55
23
5
44
–
–
–
–
–
–
Lease liabilities have been disclosed separately on the statement of financial position.
The maturity analysis of lease liabilities is as follows:
Within one year
Two to five years
More than five years
Lease liabilities
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
100
402
148
650
494
–
–
–
–
100
402
148
650
491
–
–
–
–
OLD MUTUAL INSURE LIMITED
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Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements
8. Deferred tax
The deferred tax asset and the deferred tax liability relate to income tax in the same jurisdiction, and the
accounting standards allow net settlement.
Deferred tax liability
Deferred tax liability
Deferred tax asset
Deferred tax asset
Total net deferred tax liability
Reconciliation of deferred tax asset/(liability)
At beginning of year
Decrease in post-retirement medical aid provision
Decrease in other provisions and impairments
Decrease in prepayments
Decrease in straight-lining of operating leases
Increase in urban development zone allowance
Increase in motor vehicle residual value
Increase/(decrease) in capital gains taxation
Increase/(decrease) in investments and securities
Increase in cashback, salvages and subrogation
Movement in leases
Increase in amortisation of software
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
(41)
(103)
41
–
(36)
(2)
37
(1)
–
–
–
1
15
3
(31)
14
–
67
(36)
(36)
(3)
(213)
(12)
(3)
27
1
110
3
65
–
25
(36)
8
8
46
(2)
(32)
–
–
–
–
1
(20)
3
(2)
14
8
–
46
46
50
(3)
(81)
(12)
(3)
27
1
(14)
(10)
65
–
26
46
92
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) 9.
Interests in subsidiaries including consolidated structured entities
The following table lists the entities which are controlled by the Group, either directly or indirectly
through subsidiaries:
Group
Name of company
Held by
Nature of business
% holding
2019
% holding
2018
Mutual and Federal Risk Financing
Limited
Old Mutual Insure
Limited
Cell captive insurer
Credit Guarantee Insurance
Corporation of Africa Limited
Cougar Investment Holding
Company Limited
Old Mutual Insure
Limited
Old Mutual Insure
Limited
Credit insurer
Investment holding
Elite Risk Acceptances Proprietary
Limited
Old Mutual Insure
Limited
Non-mandated
intermediary
Sintelum Proprietary Limited
Old Mutual Insure
Limited
Underwriting
management agency
Mutual and Federal Company of
Zimbabwe (Private) Limited
Old Mutual Insure
Limited
Investment holding
Old Mutual Holdings (Mauritius)
Limited
Old Mutual Insure
Limited
Investment holding
Old Mutual Reinsurance (Mauritius)
Limited
Old Mutual Holdings
(Mauritius) Limited
Reinsurer
Old Mutual Business Services
(Mauritius) Limited
Old Mutual Holdings
(Mauritius) Limited
Business services
Old Mutual Specialty Insurance
(Mauritius) Limited
Old Mutual Holdings
(Mauritius) Limited
Insurer
The Mutual and Federal Management
Incentive Trust
The Mutual and Federal Senior Black
Management Trust
The Mutual and Federal
Development Trust
Old Mutual Insure Employee
Incentive Trust
Old Mutual Insure Broad-based Black
Economic Empowerment Employee
Trust
Incentive trust
Incentive trust
Incentive trust
Incentive trust
100.00 %
100.00 %
75.00 %
75.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
Incentive trust
100.00 %
100.00 %
The following table lists the entities which are controlled directly by the company, and the carrying amounts of the
investments in the company’s separate financial statements:
OLD MUTUAL INSURE LIMITED
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Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements
9.
Interests in subsidiaries including consolidated structured entities (continued)
Company
Name of company
Held by
% holding
2019
% holding
2018
Carrying
amount
2019
Carrying
amount
2018
Mutual and Federal Risk
Financing Limited
Credit Guarantee Insurance
Corporation of Africa Limited
Cougar Investment Holding
Company Limited
Elite Risk Acceptances Proprietary
Limited
Sintelum Proprietary Limited
Mutual and Federal Company of
Zimbabwe (Private) Limited
Old Mutual Holdings (Mauritius)
Limited
100.00 %
100.00 %
75.00 %
75.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
180
963
77
6
92
86
22
1,426
178
1,016
169
2
22
137
24
1,548
Investment in Mutual and Federal Company of Zimbabwe (Private) Limited
The reporting and translation of the Zimbabwe operations has been significantly impacted by recent Monetary
Policy changes in Zimbabwe.
On 1 October 2018, the Reserve Bank of Zimbabwe (RBZ) instructed banks to separate bank accounts into FCA
Nostro (US Dollar balances (USD)) and FCA Real Time Gross Settlement (RTGS balances (RTGS)). This has resulted in
the need for the Group to reassess the functional currency of the Zimbabwe operations in accordance with IAS 21:
The Effects of Changes in Foreign Exchange Rates. It was determined that the functional currency changed to RTGS
Dollars with effect from 1 October 2018.
On 20 February 2019 the RBZ announced that the RTGS would be recognised as an official currency and that an
inter-bank foreign exchange market would be established to formalise trading in RTGS with other currencies. This
further confirmed the change in functional currency of the Zimbabwe operations.
Due to the lack of a relevant and credible, observable legal exchange rate at which to translate the operations from
RTGS into the Group’s presentation currency, the Group has calculated the exchange rate to be utilised for the
translation of its Zimbabwe operations whose functional currency now is the RTGS.
The Group applied the Old Mutual Limited (OML) Group rate. In deriving at the rate OML derived the rate by:
• Assessing the economic developments and RBZ Monetary Policy Announcements (MPA) that informed that the
RTGS Dollars had become the de-facto currency of Zimbabwe and was no longer at parity with the US Dollar
with effect from 1 October 2018.
• Assessing the factors around the availability of a relevant exchange rate that was legal and observable, that
would meet the criteria for use as a rate in terms of extracting dividends or net investments in an entity and
concluding that no such rate was available leading to the use of estimated exchange rate for translation of the
Zimbabwe operations with effect from 1 October 2018.
• Reviewing the directors’ calculation of the estimated rate and challenging the methodology and
judgements used.
94
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) • With assistance of a valuation specialist, assessing the merits of a number of possible approaches to calculating
the exchange rate and subsequently assessing the validity of the directors’ adopting those as inputs to
their calculation.
• Recalculating the directors’ sensitivity analysis on the significant assumptions to evaluate the extent of their
impact on the disclosed values.
• Assessing the appropriateness and adequacy of the Group’s disclosures in accordance with IFRS.
Based on the procedures described above, the methodology used by the OML directors to estimate the exchange
rate used in the translation of the Zimbabwe operations was found to be appropriate.
The table below summarises the exchange rates at which the results of Mutual and Federal Company of Zimbabwe
(Private) Limited have been translated into South African Rand:
Period
1 January 2019 to 31 December 2019
1 January 2018 to 30 September 2018
1 October 2018 to 31 December 2018
Functional
currency
RTGS
US Dollar
RTGS
Average
rate Closing rate
0.832
12.890
4.321
0.832
n/a
4.352
The average rate from 1 October 2018 to 31 December 2018 was calculated using the average US Dollar to Rand
exchange rate of R14.24 for the same period divided by the RTGS rate of 3.3:1 US Dollar.
The closing rate for 31 December 2018 was calculated using the average US Dollar to Rand exchange rate of
R14.35 for the same period divided by the RTGS rate of 3.3:1 US Dollar.
Please refer to note 43 Risk Management for the sensitivity analysis on the exchange rate.
The fair value of any financial assets or liabilities was based on the unadjusted quoted prices as the Group believes
the traded prices represent fair value in an active and orderly market. The Group has evidenced this through
reviewing the volume and value of trades conducted on the ZSE.
Subsidiaries with material non-controlling interests
The following information is provided for subsidiaries with non-controlling interests which are material to the
reporting company. The summarised financial information is provided prior to intercompany eliminations.
Summarised statement of financial position
Assets
Non-current assets
Current assets
Total assets
Liabilities
Non-current liabilities
Current liabilities
Total liabilities
Total net assets
CREDIT GUARANTEE
INSURANCE
CORPORATION OF AFRICA
LIMITED
2019
R million
2018
R million
2,060
772
2,832
1,474
249
1,723
1,109
1,850
966
2,816
1,449
333
1,782
1,034
OLD MUTUAL INSURE LIMITED
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Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements
9.
Interests in subsidiaries including consolidated structured entities (continued)
Summarised statement of profit or loss and other comprehensive income
CREDIT GUARANTEE
INSURANCE
CORPORATION OF AFRICA
LIMITED
2019
R million
2018
R million
896
(756)
140
(43)
97
(2)
95
24
829
(628)
201
(56)
145
(1)
144
36
CREDIT GUARANTEE
INSURANCE
CORPORATION OF AFRICA
LIMITED
2019
R million
2018
R million
(23)
(148)
(21)
(192)
5
198
(364)
(16)
(182)
4
%
ownership
interest
2019
%
ownership
interest
2018
Carrying
amount
2019
R million
Carrying
amount
2019
R million
45.00 %
45.00 %
41.00 %
41.00 %
13
66
79
13
91
104
Revenue
Other income and expenses
Profit before tax
Tax expense
Profit after tax
Other comprehensive income
Total comprehensive income
Profit allocated to non-controlling interest
Summarised statement of cash flows
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net decrease in cash and cash equivalents
Dividend paid to non-controlling interest
10. Investments in associates
The following table lists all of the associates in the Group:
Group
Name of company
Held by
Merx Underwriting Managers
Proprietary Limited
RM Insurance Holdings Limited
(incorporated in Zimbabwe)
Old Mutual Insure
Limited
Mutual and Federal
Company of Zimbabwe
(Private) Limited
96
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) Company
Name of company
Held by
Merx Underwriting Managers
Proprietary Limited
Material associates
The following associates are material to the Group:
%
ownership
interest
2019
%
ownership
interest
2018
Carrying
amount
2019
R million
Carrying
amount
2019
R million
45.00 %
45.00 %
13
13
Country
of incorpo-
ration
Method
% OWNERSHIP INTEREST
RM Insurance Holdings Limited
Zimbabwe
Equity
2019
41%
2018
41%
RM Insurance Holdings Limited is a member of the Old Mutual Group and is one of the most mature and largest
short-term insurance companies in Zimbabwe. It provides insurance solutions to the insuring public, commercial,
industrial and corporate entities.
Summarised financial information of material associates
Summarised Statement of Profit or Loss and Other Comprehensive Income
Revenue
Other income and expenses
Profit before tax
Tax expense
Profit from continuing operations
Total comprehensive income
Summarised Statement of Financial Position
Assets
Non-current
Current
Total assets
Liabilities
Non-current
Current
Total liabilities
Total net assets
RM INSURANCE HOLDINGS
LIMITED
2019
R million
2018
R million
59
32
91
(7)
84
84
139
(44)
95
(4)
91
91
RM INSURANCE HOLDINGS
LIMITED
2019
R million
2018
R million
121
124
245
111
6
117
128
231
65
296
65
13
78
218
The summarised information presented above reflects the financial statements of the associates after adjusting for
differences in accounting policies between the Group and the associate.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
97
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 11. Loans to share trusts
The Mutual and Federal
Management Incentive Trust
The Mutual and Federal
Development Trust
The Mutual and Federal
Management Incentive Trust
(Namibia)
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
–
–
7
7
–
–
7
7
63
14
7
84
63
14
7
84
The loans have no interest and no fixed repayment terms and are secured by the underlying ordinary Old Mutual
Limited shares held by each of the trusts.
12. Investments in employee share trusts
Interest in employee share trusts
The Mutual and Federal Management Incentive Trust, The Mutual and Federal Senior Black Management Trust,
Old Mutual Insure Employee Incentive Trust and Old Mutual Insure Broad-based Black Economic Empowerment
Employee Trust (the employee share trusts) were set up for the benefit of employees. Legally all shares are held by
the trusts. The Statement of Financial Positions of the employee share trusts are set out below:
Company
The Mutual and Federal Management
Incentive Trust
The Mutual and Federal Senior Black
Management Trust
The Mutual and Federal Development Trust
Old Mutual Insure Employee Incentive Trust
Old Mutual Insure Broad-based Black Economic Empowerment Trust
Carrying
amount
2019
R million
Carrying
amount
2018
R million
188
160
58
73
155
634
282
169
57
34
69
611
98
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued)
Summarised financial information of employee share trusts
2019
Summarised statement of financial position
Assets
The Mutual and Federal Management
Incentive Trust
The Mutual and Federal Senior Black
Management Trust
The Mutual and Federal Development Trust
Old Mutual Insure Employee Incentive Trust
Old Mutual Insure Broad-based Black
Economic Empowerment Trust
Investment
in Old
Mutual
Limited
shares*
Investment
in Quilter
Plc shares
Investment
in Nedbank
Limited
shares
Other
assets Total assets
83
64
41
71
152
411
79
3
21
–
–
103
56
3
15
–
–
74
40
93
7
3
3
146
258
163
84
74
155
734
Liabilities
The Mutual and Federal Management Incentive Trust
The Mutual and Federal Senior Black Management Trust
The Mutual and Federal Development Trust
Old Mutual Insure Employee Incentive Trust
Loan from
Old Mutual
Insure
Limited
Other
liabilities
Total
liabilities
(63)
–
(14)
–
(77)
(7)
(3)
(12)
(1)
(23)
(70)
(3)
(26)
(1)
(100)
* The closing market value per Old Mutual Limited share was R19.60, Nedbank Limited was R214.30 and Quilter Plc was R29.30.
2018
Summarised statement of financial position
Assets
The Mutual and Federal Management
Incentive Trust
The Mutual and Federal Senior Black
Management Trust
The Mutual and Federal Development Trust
Old Mutual Insure Employee Incentive Trust
Old Mutual Insure Broad-based Black
Economic Empowerment Trust
Investment
in Old
Mutual
Limited
shares*
R million
Investment
in Quilter
Plc shares
R million
Investment
in Nedbank
Limited
shares
R million
Other
assets Total assets
R million
R million
241
84
81
24
47
59
2
–
–
–
477
61
72
5
–
9
19
105
31
79
8
1
3
403
170
89
34
69
122
765
OLD MUTUAL INSURE LIMITED
Annual Report 2019
99
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements
12. Investments in employee share trusts (continued)
Liabilities
The Mutual and Federal Management Incentive Trust
The Mutual and Federal Senior Black Management Trust
The Mutual and Federal Development Trust
Loan from
Old Mutual
Insure
Limited
R million
Other
liabilities
R million
Total
liabilities
R million
(63)
–
(14)
(77)
(58)
(1)
(18)
(77)
(121)
(1)
(32)
(154)
* The closing market value per Old Mutual Limited share was R22.40, Nedbank Limited was R274.72 and Quilter Plc was R21.84.
Valuation techniques and inputs
The value of these employee trusts is calculated using net asset value, as the net asset value approximates fair
value. The listed ordinary Old Mutual Limited shares are the main asset in these trust. The fair value of the shares is
obtained from an active market.
13. Retirement benefits
Defined benefit plan
Defined benefit plan obligation
The Group has an obligation to staff employed before 15 March 1999 for post-retirement medical aid subsidies
in respect of retired and existing employees. Per this plan the Group has an obligation in respect of the
post-retirement medical aid cost of the following members:
• Current continuation members (i.e. members who retired from the service of the employer or whose service was
terminated by the employer on account of age, ill-health or other disability, and dependents of members who
have died in service or after retirement).
• Future continuation members (i.e. current in-service members who are eligible for an employer subsidy that are
employees of Old Mutual Insure Limited Group and joined prior to 15 March 1999).
This defined benefit plan exposes the Group to actuarial risks, such as longevity risk, currency risk, interest rate risk
and market (investment risk).
The obligation is calculated using the projected unit credit method. The valuation date is 31 December 2019.
Defined benefit plan asset
The defined benefit plan is administered by a single medical fund that is legally separated from the Group.
The Group has provided for this liability towards the retired members by purchasing a Group annuity policy from
Old Mutual Life Assurance Company (South Africa) Limited (OMLACSA), with the medical scheme being the
beneficiary of the policy. The annuity policy is effectively an insurance policy with the following characteristics:
• The annuity guarantees the present value of the liability using the consumer price index as the base for the
escalating benefits in respect of existing retirees only;
• The policy will take on the liability in respect of the in-service members employed before 15 March 1999 and
members of the designated fund, as and when they retire; and
• The company will take on the shortfall between the actual subsidy increases and the CPI escalation that is
declared each year; and to cater for the above shortfalls, additional premiums will be payable by the company in
the future.
100
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued)
Carrying value
Present value of the defined benefit obligation
Fair value of plan assets
Reconciliation of defined benefit obligation
Opening balance
Current service cost
Interest cost
Actuarial gain
Benefits paid
Reconciliation of plan assets
Opening balance
Interest return
Actuarial loss
Benefits paid
Contributions received
Asset allocation
Equity
Property
Bonds
Cash and Money Market
Foreign
Insurance policy
Alternative assets
Key assumptions used
Discount rate – in service members
Discount rate – continuation members
Medical inflation rate – in service members
Medical inflation rate – continuation members
Expected investment return
Retirement ages
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
(243)
221
(22)
(254)
223
(31)
(254)
(272)
(2)
(24)
18
19
(2)
(24)
27
17
(243)
(254)
223
21
(11)
(17)
5
221
9.85%
3.15%
3.48%
4.65%
6.38%
70.95%
1.54%
235
24
(19)
(17)
–
223
10.09%
3.22%
3.56%
4.71%
6.53%
70.31%
1.58%
(178)
160
(18)
(191)
(1)
(17)
16
15
(178)
160
14
(4)
(15)
5
160
(191)
160
(31)
(210)
(1)
(18)
23
15
(191)
170
18
(13)
(15)
–
160
–%
–%
–%
2.00%
–%
–%
–%
–%
2.00%
–%
98.00%
98.00%
–%
–%
100%
100%
100%
100%
10.00%
10.00%
10.00%
10.00%
8.40%
7.30%
6.30%
8.60%
9.30%
7.80%
7.30%
9.40%
62 – 65
62 – 65
8.40%
7.30%
6.30%
8.60%
62
9.30%
7.80%
7.30%
9.40%
62
Mortality rates of in service members are in accordance with SA 85 – 90 (Light) ultimate table and mortality
rates of continuation members are in accordance with PA90, adjusted for the company’s experience and
mortality improvements.
Sensitivity analysis
The impact on profit or loss for the Group when the discount rate is increased by 1% is R20,9 million , when the
discount rate is decreased by 1%, R24,7 million, when the medical inflation rate is increased by 1%, R25,57 million
and when the medical inflation rate is decreased by 1%, R22,1 million. A change in the retirement age to 60
would impact in the profit and loss by R10,42 million.
The impact on profit or loss for the company when the discount rate is increased by 1% is R14,5 million (2018:
R7 million), when the discount rate is decreased by 1%, R17 million (2018: R52 million), when the medical inflation
rate is increased by 1%, R18 million (2018: R51 million) and when the medical inflation rate is decreased by 1%,
R15,7 million (2018: R8 million). A change in the retirement age to 60 would impact in the profit and loss by
R4 million.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
101
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 14. Deferred acquisition cost and reinsurance commission revenue
Analysis of movements
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
Deferred acquisition cost
Balance at the beginning of the year
Acquisition cost deferred on inwards business
Change in the statement of comprehensive income
Other movements
Foreign exchange
231
2
10
1
(1)
200
–
31
–
–
Balance at the end of the year
243
231
Reinsurance commission revenue
Balance at the beginning of the year
Change in the statement of comprehensive income
Balance at the end of the year
186
10
196
139
47
186
158
1
14
–
1
174
114
11
125
123
–
35
–
–
158
63
51
114
The net deferred acquisition cost relates to annual contracts and will be released into the Statement of Profit or Loss
and Other Comprehensive Income within the next 12 months.
15. Investments and securities
Investments and securities held by the Group and company are as follows:
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
Amortised cost:
Grodidge Mahura Investments Proprietary Limited
3
3
–
–
The loan is interest free and has no repayment terms.
It was issued as part of the Enterprise Social Development
Programme of the trust.
Troy partnership
The loan is unsecured and bears interest at 13.5%.
Astute Financial
The loan is unsecured, interest free and with no repayment
terms.
30
–
30
3
30
–
30
3
102
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) Mandatorily at fair value through profit or loss:
Listed shares
1,144
1,114
466
468
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
The fair value of the listed ordinary shares is based on a
quoted market price in an active market of an identical
instrument. The Protected Equity Portfolio comprises two
components: a protective derivative overlay portfolio and
an underlying equity tracker portfolio that is intended to
be passively managed relative to the SWIX benchmark.
R500 million has been invested in an underlying tracker
portfolio and a protective derivative structure to limit
downside risk (put structure only).
Unlisted shares
159
137
43
8
The carrying value of the unlisted ordinary shares is based
on a valuation of their net assets and where appropriate,
an adjustment for systemic and non-systemic risk.
Unlisted empowerment private equity fund
90
67
90
67
The unlisted empowerment private equity fund represents
black economic empowerment development investment
policies with the Old Mutual Investment Group Proprietary
Limited.
Unlisted money market funds
5,135
4,951
2,554
2,940
The average interest on money market instruments earned
during the year was 8.45% (2018: 8.20%).
6,561
6,305
3,183
3,516
Unconsolidated structured entities
The Group has investments in collective schemes to diversify its pool of assets. These vehicles are financed
through the issue of units to investors. Some schemes are managed entities in the Old Mutual Limited Group,
which generate fees from managing the assets on behalf of third party investors. The carrying value of the interest
held by the Group in the unit trusts, which are included in the unlisted money market accounts, is R527 million
(2018: R421 million) which equates to 2.9% (2018: 2.7%) of the value of the total unit trust. These investments are
therefore not considered to be structured entities that would need to be included in the Group consolidation.
16. Amounts due to/from agents and reinsurers
Assets
Agents’ balances
Reinsurance balances
Liabilities
Agents’ balances
Reinsurance balances
GROUP
COMPANY
2019
2018
2019
2018
R million
R million
R million
R million
1,067
677
1,744
(299)
(804)
(1,103)
1,050
568
1,618
(113)
(401)
(514)
831
672
702
568
1,503
1,270
(285)
(599)
(884)
(100)
(255)
(355)
OLD MUTUAL INSURE LIMITED
Annual Report 2019
103
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 16. Amounts due to/from agents and reinsurers (continued)
Analysis of portfolio impairment allowance
Balance at the beginning of the year
Movement for the year
Balance at the end of the year
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
(27)
(18)
(45)
(8)
(19)
(27)
(21)
(12)
(33)
(5)
(16)
(21)
A part of the impairment relates to an outstanding debtor from Insure Group Managers (IGM). Due to liquidity
constraints within this company an additional R12 million of the debtor balance was impaired during the year, bringing
the total impairment value to R28 million for this debtor (2018: R16 million).
17. Subrogation and salvage recoveries
Balance at the beginning of the year
Change in subrogation and salvages recoveries
Subrogation and salvages received
Balance at the end of the year
18. Non-current asset held for sale
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
646
717
(794)
569
653
856
(863)
646
275
490
(543)
222
287
573
(585)
275
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
Property and equipment
257
243
257
243
On 21 November 2018, Old Mutual Insure Limited entered into a sale agreement (Agreement) for its head office
property, Erf 5230, Helen Joseph Street, as well as Section 1 in the sectional title scheme known as Palace Parkade
(to be established on Erf 5286 Johannesburg Township) to Bayete Capital Proprietary Limited (Bayete), a third party
purchaser for the purchase price of R259 million.
The agreement became unconditional at the end of March 2019.
Nedbank Limited (the financiers of Bayete) was not willing to issue separate guarantees for the building and the
parkade, and requested for registration to take place simultaneously, notwithstanding the provisions of the Agreement.
With the linking of the matters, the transfer could only proceed after the completion of Section 1 of the sectional title
scheme and the compliance with the relevant requirements to establish the scheme, which includes, obtaining a rates
clearance in respect of Erf 5286 Johannesburg Township.
There were delays with receiving a rates clearance certificate. This was received at the beginning of December 2019.
The transfer of Unit 1 of the parkade to Old Mutual Insure Limited was lodged on 17 January 2020. After the transfer to
Old Mutual Insure Limited, the transfer to Bayete can take place.
During November 2019, our attorneys were notified of a condition imposed by Nedbank Limited insofar as the
lease and/or an addendum to the lease on the Old Mutual to proceed with the lodgment Insure Limited building is
concerned. This condition remains outstanding and as such, the attorney acting for Nedbank Limited attending to the
registration of the mortgage bonds over the properties in favour of Nedbank Limited, is not as yet ready to proceed
with the lodgement and registration of the bond over the Old Mutual Insure Limited Building and the Section. These
registrations are payment conditions imposed by Nedbank Limited under the guarantee they issued in respect of the
purchase price.
The transfers of both properties are expected to take place before 31 July 2020.
104
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) 19. Trade and other receivables
Financial instruments:
Trade receivables
Trade receivables – related parties
Trade receivables at amortised cost
Accrued interest
Non-financial instruments:
VAT
Prepayments
Total trade and other receivables
20. Cash and cash equivalents
Cash and cash equivalents consist of:
Bank balances
Short-term deposits
21. Share capital
Authorised
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
403
1
404
48
40
67
559
364
17
381
116
45
62
604
173
8
181
44
–
49
274
171
26
197
89
2
34
322
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
1,083
1
1,084
1,385
1
1,386
282
1
283
342
1
343
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
350 000 000 Ordinary shares of 10 cents each
35
35
35
35
Issued
319 823 465 Ordinary shares of 10 cents each
Share premium
22. Revaluation reserve
Opening balance
Revaluation during the year
Transfer from/(to) retained earnings
32
1,765
1,797
32
1,765
1,797
32
1,765
1,797
32
1,765
1,797
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
90
–
–
90
60
5
25
90
90
–
–
90
86
5
(1)
90
OLD MUTUAL INSURE LIMITED
Annual Report 2019
105
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 23. General insurance liabilities
2019
2018
Gross Reinsurance
R million
R million
Net
R million
Gross Reinsurance
R million
R million
Net
R million
Group
Unearned premiums
1,612
873
739
1,515
800
715
Outstanding claims
(including incurred but not
reported (IBNR))
Company
Unearned premiums
Outstanding claims
(including IBNR)
4,027
5,639
1,034
2,607
3,641
1,239
2,112
505
916
1,421
2,788
3,527
4,604
6,119
1,774
2,574
2,830
3,545
529
955
463
492
1,691
2,220
2,874
3,829
1,090
1,553
1,784
2,276
Analysis of movements in outstanding claims (net of subrogation) including IBNR
2019
2018
Gross Reinsurance
R million
R million
Net
R million
Gross Reinsurance
R million
R million
Net
R million
4,604
9,144
1,774
2,924
2,830
6,220
4,624
8,308
1,693
3,344
2,931
4,964
(833)
(11)
(844)
(342)
(107)
(235)
(6,183)
(1,892)
(4,291)
(5,517)
(1,910)
(3,607)
(2,705)
(1,556)
(1,432)
(2,469)
(1,246)
(1,223)
4,027
1,239
2,788
4,604
1,774
2,830
2,874
6,300
(197)
(4,517)
(1,853)
1,090
935
(2)
(410)
(701)
1,784
5,365
(199)
(4,107)
(1,152)
2,910
5,411
(276)
(3,786)
(1,385)
1,027
1,001
(410)
2
(530)
1,883
4,410
134
(3,788)
(855)
2,607
916
1,691
2,874
1,090
1,784
Group
Balance at the beginning of
the year
Current year claims incurred
Change in previous years’
claims estimates
Current year claims paid net
of subrogation
Previous year claims paid net
of subrogation
Balance at the end of the
year
Company
Balance at the beginning of
the year
Current year claims incurred
Change in previous years’
claims estimates
Current year claims paid
Previous year claims paid
Balance at the end of the
year
106
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued)
Analysis of movements in unearned premiums
2019
2018
Gross Reinsurance
R million
R million
Net
R million
Gross Reinsurance
R million
R million
Net
R million
Group
Balance at the beginning of
the year
Change in unearned
premium provision
Balance at the end of the
year
Company
Balance at the beginning of
the year
Change in unearned
premium provision
Balance at the end of the
year
Assumptions
1,515
97
800
73
715
24
1,340
175
647
153
1,612
873
739
1,515
800
955
79
463
42
1,034
505
492
37
529
799
156
955
319
144
463
693
22
715
480
12
492
Actuarial methods are used to estimate the ultimate cost of claims and there are underlying assumptions
within these methods. These include the assumption that past experience is a reasonable guide for the future
development of claims. In some classes of business, where processes or systems change, adjustments are made in
order to estimate the ultimate claims. Judgement is applied where needed, but the methods are reviewed by the
Head of the Actuarial function for reasonability.
A sensitivity analysis has been performed on some of the material assumptions made in calculating the
components of the gross IBNR provision and subrogation asset based on the data as at the end of December 2019.
IBNR reserve sensitivity analysis
The analysis was conducted for the material insurance contract types including Motor and Property (Commercial
division segment only). The IBNR provision is derived by taking into account the way in which historical claims
develop to their final settled cost over time. The sensitivity analysis was performed to test the effect of using more
or fewer historical years to estimate the IBNR provision. These are set out in the table below.
For the Motor Commercial and Property Commercial contracts, the sensitivity analysis is performed on the
weighted averages (i.e. the number of historical periods to which the development pattern is based) used for the
incurred claims projection. For the Motor Personal contracts the sensitivity analysis is calculated on the weighted
averages used for the paid claims projection.
Gross best estimate IBNR reserve assumptions
2019
2018
Increase/
(Decrease)
in profit or
loss
R million
Increase/
(Decrease)
in profit or
loss
R million
Motor commercial gross of salvages and recoveries
Incurred claims projection - using the weighted average of the three most recent years
Incurred claims projection - using the weighted average of the four most recent years
Incurred claims projection - using the weighted average of the five most recent years
Motor personal gross of salvages and recoveries
Incurred claims projection - using the weighted average of the four (2018: three) most
recent years
Property commercial net of salvages and recoveries
Incurred claims projection – using the weighted average of the three most recent years
Incurred claims projection – using the weighted average of the five most recent years
(4)
(6)
(9)
(3)
5
(3)
(4)
(7)
(12)
(1)
–
(7)
OLD MUTUAL INSURE LIMITED
Annual Report 2019
107
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 23. General insurance liabilities (continued)
Sensitivity analysis for the salvage and recovery asset
The below table indicates the sensitivity analysis that has been performed on the significant assumptions made for
the most material classes of business contributing to the salvage and recovery asset.
Salvage and recovery asset assumptions
Motor commercial recovery asset
2019
2018
Increase/
(Decrease)
in profit or
loss
R million
Increase/
(Decrease)
in profit or
loss
R million
Decreased recovery ratio assumption to 5.00% from 5.60% for 2019 (2018: Increased to
6.6% from 5.6%)
Motor personal recovery asset
Increased recovery ratio assumption to 6.20% from 5.35% for 2019 (2018: Increased to
6.8% from 6.04%)
(3)
12
3
47
Recovery ratio represents the amount the company expects to recover from third parties expressed as a percentage
of the corresponding claims.
For the Motor Commercial and Motor Personal contracts, the recovery sensitivity calculation was performed on the
recovery ratio assumption for the 2019 year.
Analysis of cumulative claims
The following tables illustrate the development of gross and net Insurance cumulative claims for the past five
financial periods, including the impact of re-estimation of claims provisions at the end of each financial year.
The first table shows actual gross cumulative claims and the second shows actual net cumulative claims.
Reporting year
Group
At end of year
One year later
Two years later
Three years later
Four years later
Five years later
Cumulative payments
Estimated balance to
pay
ESTIMATE OF CUMULATIVE CLAIMS GROSS OF REINSURANCE
Total
R million
2019
R million
2018
R million
2017
R million
2016
R million
2015
R million
2014 and
prior
R million
40,690
32,408
23,649
14,777
6,557
8,695
–
–
–
–
–
8,723
8,768
–
–
–
–
8,786
8,855
8,873
–
–
–
73,525
(69,498)
8,695
(6,183)
8,768
(7,926)
8,873
(8,640)
8,464
8,300
8,232
8,292
–
–
8,292
(8,162)
6,022
6,485
6,544
6,485
6,557
–
–
–
–
–
–
32,340
6,557
32,340
(6,443)
(32,144)
4,027
2,512
842
233
130
114
196
108
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) Reporting year
Company
At end of year
One year later
Two years later
Three years later
Four years later
Five years later
Cumulative payments
Estimated balance to
pay
Reporting year
Group
At end of year
One year later
Two years later
Three years later
Four years later
Five years later
Cumulative payments
Estimated balance to
pay
Company
At end of year
One year later
Two years later
Three years later
Four years later
Five years later
Cumulative payments
Estimated balance to
pay
ESTIMATE OF CUMULATIVE CLAIMS GROSS OF REINSURANCE
Total
R million
2019
R million
2018
R million
2017
R million
2016
R million
2015
R million
2014 and
prior
R million
29,663
23,495
17,778
11,475
5,470
–
6,127
–
–
–
–
–
5,838
5,759
–
–
–
–
6,169
6,283
6,246
–
–
–
6,137
6,009
6,007
5,999
–
–
5,392
5,444
5,525
5,476
5,470
–
–
–
–
–
–
30,307
59,908
(57,301)
6,127
(4,517)
5,759
(5,178)
6,246
(6,069)
5,999
(5,925)
5,470
30,307
(5,408)
(30,204)
2,607
1,610
581
177
74
62
103
ESTIMATE OF CUMULATIVE CLAIMS NET OF REINSURANCE
Total
R million
2019
R million
2018
R million
2017
R million
2016
R million
2015
R million
2014 and
prior
R million
27,977
22,019
16,505
10,803
5,547
5,771
–
–
–
–
–
5,571
5,751
–
–
–
–
5,734
5,604
5,700
–
–
–
5,730
5,355
5,271
5,327
–
–
5,171
5,309
5,534
5,476
5,547
–
–
–
–
–
–
28,705
56,801
(54,013)
5,771
(4,291)
5,751
(4,939)
5,700
(5,568)
5,327
(5,221)
5,547
28,705
(5,453)
(28,541)
2,788
1,480
812
132
106
94
164
23,840
18,834
14,587
9,635
4,853
5,192
–
–
–
–
–
4,582
4,560
–
–
–
–
4,673
4,832
4,903
–
–
–
4,852
4,786
4,779
4,775
–
–
4,541
4,656
4,905
4,860
4,853
–
–
–
–
–
–
26,806
51,089
(49,398)
5,192
(4,107)
4,560
(4,274)
4,903
(4,788)
4,775
(4,709)
4,853
26,806
(4,803)
(26,717)
1,691
1,085
286
115
66
50
89
OLD MUTUAL INSURE LIMITED
Annual Report 2019
109
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 24. Debt instrument
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
Unsecured subordinated callable floating rate note
500
500
500
500
The JSE granted the company approval for the listing of its unsecured subordinated callable notes programme
during November 2017. The programme allows for the listing of R1 billion in notes. Following the approval being
obtained, the company issued notes to the value of R500 million to investors in November 2017. The notes are
10-year notes, not callable for the first five years, and are priced at JIBAR plus 209 bps.
The holders of the instruments are:
1. MMI Holdings Limited – 50%
2.
3.
4.
Standard Bank of South Africa in Trust – 27%
EDGE Financial Group – 10%
Other bond holders (hold less than 5% each) – 13%
25. Share-based payment liability
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
Employee share awards (Old Mutual Limited shares)
(91)
(68)
(80)
(54)
Overview of the employee incentive programmes
The Mutual and Federal Management Incentive Scheme and the Old Mutual Insure Employee Incentive Trust
The primary purpose of these schemes is to attract, reward and retain senior and middle management.
Restricted shares (RSP) are awarded to management for retention and attraction purposes.
• Bonus plan
40% of an employee's before tax bonus is invested in ordinary Old Mutual Limited shares. The RSP shares are
not subject to corporate performance targets (CPTs) and will vest immediately, subject to the condition that the
employee remains in the company's employment for a period of three years from grant date. Participants are
paid dividends in respect of the RSP share awards and are entitled to exercise the voting rights in respect of the
ordinary Old Mutual Limited shares. The expected employee attrition rate used in the calculation was 10%.
• Long-term incentive plan (LTIP)
A long-term incentive plan is awarded to key employees who are critical to the company achieving its strategic
and financial objectives over the next three years. The share awards are subject to employees meeting CPTs
and will be determined at the time of vesting based on multiples of the employees' total guaranteed pay.
The expected employee attrition rate used in the calculation was 49%.
110
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued)
The Mutual and Federal Senior Black Management Incentive Scheme and the Broad-based Black Economic
Empowerment Employee Scheme
These schemes operate for the benefit of selected senior black management of the company for retention and
attraction purposes.
• Bonus plan
The RSP shares are not subject to corporate performance targets (CPTs) and will vest immediately, subject to
the condition that the employee remains in the company's employment for a period of three years from grant
date. Participants are paid dividends in respect of the RSP share awards and are entitled to exercise the voting
rights in respect of the ordinary Old Mutual Limited shares. 40% of an employee's before tax bonus is invested in
ordinary Old Mutual Limited shares. The expected employee attrition rate used in the calculation was 15%.
• Retention plan
RSP share awards are not subject to CPTs and will vest immediately, subject to the resolutive condition that the
participant remains in the employment of the company for a period of time. Participants are paid dividends in
respect of RSP share awards and are entitled to exercise the voting rights in respect of the ordinary Old Mutual
Limited shares. Participants may only take delivery of the shares at the following intervals: four years (one-third),
five years (one-third) and six years (one-third).
All of the above are cash-settled plans, as the Group is not obliged to settle with Old Mutual Insure Limited equity
and therefore in terms of IFRS 2 would be considered cash settled.
Group and company
At 1 January 2018
Number of shares granted
Number of shares vested/settled
Number of shares forfeited due to resignations
At 31 December 2018
Number of shares granted
Number of shares vested/settled
Number of shares forfeited due to resignations
Total number of shares in issue at
31 December 2019
The Mutual
and Federal
Management
Incentive
Trust
The Mutual
and Federal
Senior Black
Management
Trust
Old Mutual
Insure
Employee
Incentive
Trust
Old Mutual
Insure Broad-
based Black
Economic
Empowerment
Employee
Trust
2,964,749
2,701,045
–
–
1,047,690
1,495,087
1,493,110
2,926,258
(1,136,440)
(309,678)
(531,689)
(468,312)
(1,008)
(5,376)
2,566,321
3,196,131
1,486,726
8,749
(784,944)
(247,915)
–
2,209,477
(470,441)
(377,330)
(78,988)
(241,965)
(1,344)
(51,425)
2,873,489
4,875,606
(16,488)
(508,478)
1,542,211
2,348,360
3,375,250
7,224,129
The fair value of the ordinary Old Mutual Limited shares at 31 December 2019 was R19.6 (2018: R22.40)
The share price at grant date was used to determine the fair value of the RSPs. Expected dividends were not
considered when the fair value of the RSPs were determined as the holders of the RSPs are entitled to dividends
throughout the vesting period of the shares. Dividends are received by the share trust and then paid directly to the
holders of the RSPs, the payment of dividends is offset against the dividend income.
26. Employee benefits
Leave accrual
Bonus accrual
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
71
89
160
60
153
213
63
78
141
51
150
201
OLD MUTUAL INSURE LIMITED
Annual Report 2019
111
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements
27. Amounts payable to cell owners
Retained income reserve
Preference shares
Cell captives reinsurance technical reserves
Reconciliation of amounts payable to cell owners
Balance at the beginning of the year
Capital contribution
Underwriting and investment income attributable to cell
owners
Dividend payments to cell owners
Balance at the end of the year
28. Trade and other payables
Financial instruments:
Trade payables
Amounts due to subsidiaries
Other payables
Non-financial instruments:
Amounts received in advance
VAT
29. Commissions received
Commissions received from reinsurers
Change in deferred reinsurance revenue liability
Prepaid expense adjustment – binder fee
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
708
91
320
1,119
878
13
265
(37)
1,119
497
78
303
878
761
4
220
(107)
878
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
34
–
295
96
7
432
68
–
474
–
1
543
31
–
162
36
7
236
65
90
204
–
–
359
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
902
(10)
–
892
858
(47)
(19)
792
387
(11)
–
376
287
(51)
–
236
112
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued)
30. Net claims incurred
Gross claims incurred
Subrogation and salvages recoveries
Reinsurers’ share of claims incurred
Gross claims incurred
Claims paid
Change in provision for outstanding claims
Claims administration expenses
Subrogation and salvage recoveries
Subrogation and salvage recoveries received
Change in provision for subrogation and salvage recoveries
Reinsurers' share of claims incurred
Claims paid
Change in provision for outstanding claims
31. Acquisition cost
Acquisition cost paid
Change in deferred acquisition cost
Prepaid expense adjustment – binder fee
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
10,056
(761)
9,295
(2,896)
9,687
(848)
8,839
(3,344)
7,237
(510)
6,727
(939)
6,512
(570)
5,942
(1,001)
6,399
5,495
5,788
4,941
9,682
(193)
567
10,056
(794)
33
(761)
8,849
322
516
9,687
(863)
15
(848)
(3,000)
104
(3,156)
(188)
6,913
(243)
567
7,237
(543)
33
(510)
(1,111)
172
5,756
240
516
6,512
(585)
15
(570)
(907)
(94)
(2,896)
(3,344)
(939)
(1,001)
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
(2,106)
(1,984)
(1,602)
(1,389)
10
–
31
21
14
–
35
3
(2,096)
(1,932)
(1,588)
(1,351)
OLD MUTUAL INSURE LIMITED
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113
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements
32. Operating profit (loss)
Expenses by nature
The total cost of sales, selling and distribution expenses, marketing expenses, general and administrative expenses,
research and development expenses, maintenance expenses and other operating expenses are analysed by nature
as follows. This excludes claims administration expenses disclosed under net claims incurred as per note 30:
Employee costs
Lease expenses
Depreciation, amortisation and impairment
Directors’ emoluments
Impact of restructuring
Foreign exchange loss
Repairs and maintenance of property and equipment
Marketing expenses
Professional fees
Call option
Third party outsource fees
Administration fees
Other expenses
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
1,209
49
163
11
–
10
7
172
93
15
332
32
168
1,144
1,045
87
116
14
70
25
4
116
84
–
259
6
78
18
158
11
–
–
6
177
92
15
317
32
113
936
51
109
14
70
1
3
116
65
–
256
6
188
2,261
2,003
1,984
1,815
114
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) 33. Investment income
Dividend income
Group entities:
Subsidiaries – Local
Equity instruments at fair value through profit or loss:
Listed investments – Local
Unlisted investments – Local
Total dividend income
Interest income
Investments in financial assets:
Bank and other cash
Investments at fair value
Other financial assets
Fair value gains and losses:
Subsidiaries
Investments and securities
Old Mutual Limited shares
Share trusts
Disposal of investments
Total interest income
Total investment income
34. Finance costs
Lease liabilities
Interest paid on debt instrument
Total finance costs
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
–
23
38
61
63
265
1
–
57
(53)
–
(7)
326
387
–
25
77
102
125
240
1
–
(13)
(8)
–
12
357
459
148
–
20
168
49
165
1
(121)
43
–
22
(1)
158
326
12
–
13
25
35
217
1
(309)
(37)
–
79
(1)
(15)
10
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
23
53
76
–
51
51
23
53
76
–
51
51
OLD MUTUAL INSURE LIMITED
Annual Report 2019
115
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 35. Taxation
Major components of the tax expense
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
Current
Local income tax – current period
126
306
Local income tax – recognised in current tax for prior
periods
Foreign income tax or withholding tax – current period
Deferred
Originating and reversing temporary differences
Arising from previously unrecognised tax loss/tax credit/
temporary difference
Arising from prior period adjustments
(2)
7
131
11
7
(54)
(36)
95
(108)
9
207
(88)
90
–
2
209
Reconciliation of the tax expense
Reconciliation between applicable tax rate and average effective tax
64
(8)
–
56
31
7
–
38
94
244
(107)
–
137
(83)
89
–
6
143
Applicable tax rate
Non-taxable income
Disallowed expenditure
Prior year adjustment
Withholding tax
Capital gains tax
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
28.00%
9.09%
1.67%
1.19%
(2.15)%
28.00%
(0.82)%
(1.93)%
(2.18)%
1.28%
28.00%
9.59%
2.78%
(0.46)%
(0.03)%
(15,08)%
(1.48)%
(1.36)%
28.00%
2.09%
14.50%
5.28%
0.12%
3.57%
22.72%
22.87%
38.52%
53.56%
116
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) 36. Cash (used in)/generated from operations
Profit before taxation
Adjustments for:
Depreciation and amortisation
Income from equity accounted investments
Dividends received (trading)
Interest income
Finance costs
Fair value (gains) losses
Net impairments and movements in credit loss allowances
Movements in retirement benefit assets and liabilities
Movements in net insurance contract provisions
Gains on foreign exchange
Changes in working capital:
Trade and other receivables
Employee benefits
Amounts due from agents and reinsurers
Trade and other payables
Share-based payment liability
Amounts payable to cell owners
Decrease in deposits with reinsurers
37. Tax (paid) refunded
Balance at beginning of the year
Current tax for the year recognised in profit or loss
Balance at end of the year
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
418
914
244
267
163
(49)
(61)
(329)
76
3
–
5
(56)
10
45
(53)
463
(111)
241
(557)
321
92
(96)
(102)
(366)
51
9
5
(6)
(61)
(25)
334
–
(258)
277
(22)
117
(40)
823
157
–
(168)
(215)
76
57
–
5
(8)
(1)
50
(60)
296
(123)
28
–
(446)
(164)
88
–
(25)
(253)
9
268
8
(9)
(57)
(1)
225
–
(93)
189
(28)
–
(46)
542
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
115
(131)
(10)
(26)
(31)
(198)
(115)
(344)
112
(56)
(15)
41
(23)
(137)
(112)
(272)
OLD MUTUAL INSURE LIMITED
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117
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements
38. Segmental information
The segmental results are reported on a basis consistent with the practice that the chief operating decision-maker
(executive committee) assesses performance of the underlying businesses and allocated resources. The Group has
identified its reportable segments based on a combination of products and services offered to customers and the
location of the markets served.
These reportable segments as well as the products and services from which each of them derives revenue are set
out below:
Reportable Segment
Products and services
Commercial
Personal
Risk financing
Specialty
CGIC Guarantee
Insurance for small- to medium-sized enterprises (SMEs)
Insurance for personal belongings, including home,
household contents and vehicles
Cell captive insurer
Insurance for specialist areas of corporate clients
Trade credit insurance
Segmental revenue and results
The segment information provided to the executive committee is presented below. The information presented
includes a reconciliation of the Group’s earnings per segment to net profit before tax.
2019
Gross
written
premium
R million
Revenue
Net
written
premium
R million
Net
earned
premium
R million
Separately disclosable items
Profit
before
taxation
R million
Net claims
incurred
R million
Net
acquisition
expenses
R million
Total
expenses
R million
Commercial
Personal
Risk financing
Specialty
CGIC guarantee
Central expenses
4,733
4,081
3,222
1,401
1,219
–
4,222
3,947
46
848
883
–
4,215
3,944
46
821
896
–
Total
14,656
9,946
9,922
Reconciling items
Investment returns and
share of profit from
associates
Finance cost excluding
IFRS 16 charge
Profit before taxation
(165)
99
10
51
51
(11)
35
436
(53)
418
(2,669)
(2,563)
(5)
(455)
(707)
–
(636)
(406)
–
(138)
(24)
–
(1,075)
(876)
(31)
(177)
(114)
(11)
(6,399)
(1,204)
(2,284)
118
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) 2018
Gross
written
premium
R million
Revenue
Net
written
premium
R million
Net
earned
premium
R million
Separately disclosable items
Profit
before
taxation
R million
Net claims
incurred
R million
Net
acquisition
expenses
R million
Total
expenses
R million
Commercial
Personal
Risk financing
Specialty
CGIC guarantee
Central expenses
4,261
3,677
2,840
1,275
1,165
–
3,891
3,637
42
662
838
–
3,882
3,638
39
660
829
–
102
380
(9)
(46)
102
(49)
(2,239)
(2,119)
(1)
(503)
(633)
–
(662)
(362)
–
(93)
(23)
–
(879)
(777)
(47)
(110)
(71)
(49)
Total
13,218
9,070
9,048
480
(5,495)
(1,140)
(1,933)
Reconciling items
Investment returns and
share of profit from
associates
Finance cost
Impact of restructuring
(included in
administration
expenses)
Profit before taxation
555
(51)
(70)
914
Investment income and expenditure attributable to equity holders are not allocated to the segments as this type of
activity is primarily driven by the central finance function which manages the cash position of the Group.
Whilst the company has subsidiaries and investments located in Zimbabwe, Swaziland and Mauritius, the results
of these foreign entities are not material to the Group. As the asset base represents approximately 1.48% in 2019
(2018: 1.76%) of the Group’s total assets, no further information is provided in these financial statements.
The chief operating decision-maker (Executive Committee) reviews the segment’s revenue and underwriting results
to assess the performance of a segment and make decisions about resources to be allocated to a segment.
The Group’s insurance activities are spread over various classes of general insurance.
Analysis of gross written premium by class of business
Gross written premium was derived from the following products.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
119
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements
38. Segmental information (continued)
Class of business
Property
Transportation
Motor
Accident and health
Guarantee
Liability
Engineering
Miscellaneous
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
5,657
574
5,913
147
1,219
250
627
269
4,516
590
5,352
177
1,215
197
670
501
4,279
211
5,002
80
–
222
622
244
3,771
201
4,474
71
3
165
631
195
Total gross written premium
14,656
13,218
10,660
9,511
39. Related parties
Relationships
Ultimate holding company
Old Mutual Limited
Holding company
Subsidiaries
Employee share trusts
Associates
Fellow subsidiaries
Fellow associate
Mutual and Federal Investments Proprietary Limited
Refer to note 9
Refer to note 12
Refer to note 10
Old Mutual Emerging Markets Proprietary Limited
Old Mutual Life Assurance Company (South Africa)
Limited
Old Mutual Investment Group Limited
Old Mutual Direct Holdings Limited
Old Mutual Short-term Insurance (Botswana) Limited
Old Mutual Short-term Insurance (Namibia) Limited
Nedbank Limited (2018) Post the managed separation
of Old Mutual Limited, Nedbank Limited is no
longer considered a related party and therefore no
2019 disclosures have been made.
120
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) Related party balances
Loan accounts – Owing (to) by related parties
Mutual and Federal Management Incentive Trust
Mutual and Federal Development Trust
Mutual and Federal Management Incentive Trust (Namibia)
Amounts included in trade receivable (trade payable)
regarding related parties
Old Mutual Direct Holdings Limited
Old Mutual Limited
Old Mutual Short-term Insurance (Botswana) Limited
Old Mutual Short-term Insurance (Namibia) Limited
Mutual and Federal Risk Financing Limited
Sintelum (Proprietary) Limited
Elite (Proprietary) Limited
Couger Investment Holdings (Proprietary) Limited
Credit Guarantee Insurance Corporation of Africa Limited
Bank balances
Nedbank Limited
Money market investments
Nedbank Limited
Post-retirement medical aid asset
Old Mutual Life Assurance Company (South Africa) Limited
Value of shares held
Mutual and Federal Management Incentive Trust
Mutual and Federal Senior Black Management Trust
Old Mutual Insure Employee Incentive Trust
Old Mutual Insure Broad-based Black Economic
Empowerment Trust
Mutual and Federal Development Trust
Related party transactions
Dividends paid to (created) from related parties
Credit Guarantee Insurance Corporation of Africa Limited
Mutual and federal Risk financing Limited
Cougar Investment Holding Company Limited
Interest paid to (received from) related parties
Nedbank Limited
Mutual and Federal Risk Financing Limited
Investment management fees paid
Nedbank Limited
Rent paid to (received from) related parties
Credit Guarantee Insurance Corporation of Africa Limited
Old Mutual Limited
Commission paid
Personal Financial Advice Limited
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
–
–
7
43
–
3
(2)
–
–
221
83
64
71
152
41
–
–
–
–
–
44
143
–
–
7
41
(56)
3
7
536
577
223
241
84
24
47
81
–
(102)
–
28
–
–
–
63
14
7
43
–
3
(2)
5
1
1
–
–
160
–
–
–
–
–
16
25
80
–
–
–
(35)
44
143
63
14
7
41
(56)
3
7
(87)
(3)
210
548
160
–
–
–
–
–
12
–
–
(61)
(8)
27
(35)
–
–
OLD MUTUAL INSURE LIMITED
Annual Report 2019
121
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 39. Related parties (continued)
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
Administration fees paid to (received from) related
parties
Old Mutual Emerging Markets Proprietary Limited
128
96
Mutual and Federal Risk Financing Limited
Reinsurance premium received
Mutual and Federal Risk Financing Limited
Credit Guarantee Insurance Corporation of Africa Limited
Reinsurance claims paid
Mutual and Federal Risk Financing Limited
Credit Guarantee Insurance Corporation of Africa Limited
Reinsurance commission received
Mutual and Federal Risk Financing Limited
Claims incurred
Nedbank Limited
Premium received
Nedbank Limited
Fees paid to the Troy consortium
–
–
–
–
–
–
–
–
–
–
–
–
–
–
88
(154)
128
(30)
(437)
(1)
276
3
(128)
–
–
96
(39)
(323)
(1)
38
3
(83)
88
(154)
The intra-Group balance with Old Mutual Direct Holdings Limited relates to prepayments made by the company
to the Troy consortium for the development of a direct insurance infrastructure within the wider Old Mutual Group.
The R43 million (2018: R41 million) receivable at year-end represents the prepayments made by the company as
well as associated interest which will be reimbursed by Old Mutual Direct Holdings.
40. Directors’ and prescribed officer’s emoluments
Directors’ and prescribed officer’s emoluments are paid by the company unless otherwise specified.
Executive
2019
Mr G Napier
Ms NB Manyoha
2018
Mr G Napier
Ms NB Manyoha
Basic
salary
R’000
Bonus
R ‘000
Pension
contribution
R’000
Other
R’000
Total
R’000
IFRS 2
charge on
Nedbank/
Quilter
share
R’000
IFRS 2 fair
value of
unvested
shares at
year end#
R’000
4,090
2,425
2,129
364
6,515
2,493
544
2,140
649
1,132
2,684
1,781
381
153
534
177
197
374
–
–
–
4,990
1,500
6,600
2,942
9,542
6,360
4,969
6,490
11,329
–
–
–
–
749
749
4,446
1,732
6,178
433
1,783
2,216
# Shares awarded for performance relating to the year are granted in the following year.
122
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) Securities issued
The following share movements took place relevant to the executive directors’ or individuals related to them
in the year under review. Shares awarded for performance relating to the year under review are granted in the
following year:
Issue date
Vesting date
Share
price R
Opening
number
of shares
Number
of shares
granted
Number
of vested
shares
Number
of
forfeited
shares
Closing
number
of shares
R Snyders
– previous
managing
executive
16 April 2015
16 April 2018
11 March 2016 11 March 2019
NB Manyoha
19 April 2018
19 April 2021
19 April 2018
19 April 2022
19 April 2018 19 April 2023
18 September
2018
18 September
2020
14 December
2018
18 September
2020
20 March 2019 20 March 2022
20 March 2019 20 March 2023
20 March 2019 20 March 2024
20 March 2019 20 March 2024
G Napier
20 March 2019 20 March 2020
20 March 2019 20 March 2021
20 March 2019 20 March 2022
20 March 2019 20 March 2023
20 March 2019 20 March 2024
19.60
19.60
19.60
19.60
19.60
19.60
19.60
19.60
19.60
19.60
19.60
19.60
19.60
19.60
19.60
19.60
20,782
49,877
29,349
8,063
8,063
336
128
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15,326
15,326
15,326
34,689
108,966
108,966
201,764
72,913
72,911
(20,782)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(24,939)
24,938
–
–
–
–
–
–
–
–
–
–
–
29,349
8,063
8,063
336
128
15,326
15,326
15,326
34,689
108,966
108,966
(6,517)
195,248
–
–
72,913
72,911
OLD MUTUAL INSURE LIMITED
Annual Report 2019
123
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 40. Directors’ and prescribed officer’s emoluments (continued)
Directors’
fees
R’000
Basic
salary
R’000
Bonus
R’000
Other
R’000
55
461
–
752
245
307
363
538
–
1,587
9,012
–
–
–
–
–
–
2,700
–
–
–
–
–
–
–
303
147
–
–
–
–
–
Total
R’000
55
5,051
9,159
752
245
307
363
538
2,721
10,599
2,700
450
16,470
IFRS 2
charge on
Nedbank/
Quilter
shares
R’000
IFRS 2 fair
value of
unvested
shares at
year end
R’000
–
–
–
–
–
–
–
–
–
–
19
–
–
–
–
–
–
19
Directors’
fees
R’000
–
–
431
288
672
553
258
638
Basic
salary
R’000
2,850
8,000
–
–
–
–
–
–
Bonus
R’000
Other
R’000
–
2,250
14,124
–
–
–
–
–
–
–
–
–
–
–
–
–
IFRS 2
charge on
Nedbank/
Quilter
shares
R’000
IFRS 2 fair
value of
unvested
shares at
year end
R’000
1,191
22,748
3,912
11,748
–
–
–
–
–
–
–
–
–
–
–
–
Total
R’000
5,100
22,748
431
288
–
553
258
638
2,840
10,850
14,124
2,250
30,016
23,939
15,660
Non-executive
2019
Mr SC Gilbert
Mr M Ilsley*
Mr P Moyo*
Mr G Palser
Mr P Rörich
Mr MA Schameck
Mr PGM Truyens
Mr TP Zondi
2018
Mr M Ilsley*
Mr P Moyo*
Mr M Mia
Mr G Palser
Mr Rörich
Mr PGM Truyens
Ms TP Zondi
Mr MJ Harper
* Paid by Group companies
124
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) Securities issued
P Moyo
M Ilsley
Issue date
Vesting date
6 September
2017
6 September
2020
6 September
2017
6 September
2021
6 September
2017
6 September
2022
19.60
724,639
19.60
181,159
19.60
181,160
19 April 2018 19 April 2021
19.60
344,966
18 September
2018
18 September
2019
18 September
2018
18 September
2020
14 December
2018
18 September
2019
14 December
2018
18 September
2020
6 September
2017
6 September
2020
12 November
2018
18 September
2019
18 September
2018
18 September
2020
14 December
2018
18 September
2020
19.60
227,140
19.60
336
19.60
86,180
19.60
128
19.60
78,261
19.60
95,138
19.60
19.60
336
128
1,919,570
Prescribed officers
2018
Mr JW Wilken
Mr JW Wilken*
* Paid by Group companies
Mr JW Wilken is no longer a prescribed officer
Share
price (R)
Opening
number
of shares
Number
of shares
granted
Number
of shares
vested
Number
of shares
forfeited
Closing
number
of shares
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(724,639)
(181,159)
(181,159)
(344,966)
(227,140)
(336)
(86,180)
(128)
–
–
–
–
–
–
–
–
–
–
–
–
78,261
95,138
336
128
– 1,745,707
173,863
Emoluments
R’000
1,312
2,562
3,874
Other
R’000
5,670
–
5,670
Total
R’000
6,982
2,562
9,544
OLD MUTUAL INSURE LIMITED
Annual Report 2019
125
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 41. Financial instruments and risk management
Categories of assets and liabilities
Categories of assets
Group – 2019
Manda-
torily
at fair
value
through
profit
and loss
Desig-
nated
fair
value
through
profit
and loss
Financial
assets at
amor-
tised
cost
Non-
financial
assets
at fair
value
Non-
financial
assets
at other
than fair
value
Non-
current
assets*
Notes R million R million R million R million R million R million R million R million
Current
assets*
Total
Goodwill
Intangible assets
Property and
equipment
Right of use asset
Deferred tax
Investments in
associates
Loans to share trusts
Loans receivable
Retirement benefit
asset
Deferred acquisition
costs
Reinsurers’ share of
general insurance
liabilities
Deposits with
cedants
Investments and
securities
Amounts due from
agents and reinsurers
Subrogation and
salvage recoveries
Non-current assets
held for sale
Current tax receivable
Trade and other
receivables
Cash and cash
equivalents
4
5
6
7
8
10
11
13
14
21
174
249
478
41
79
7
2
221
243
23
2,112
27
–
–
–
–
–
–
–
–
–
–
–
–
6,561
6,528
15
16
17
18
1,744
569
257
18
19
559
20
1,084
–
–
–
–
–
–
14,446
6,528
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
2
–
–
–
27
33
–
–
–
–
519
1,084
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
257
–
–
–
21
174
249
478
41
79
–
–
221
–
–
–
86
–
–
–
–
–
21
174
249
392
41
79
7
2
221
243
243
–
2,112
1,720
392
–
–
27
6,561
1,744
1,744
569
569
–
18
40
257
18
559
–
1,084
–
–
–
–
–
–
–
–
1,672
257
5,989
12,868
1,578
* Current assets and liabilities refer to amounts that are expected to be recovered or settled within 12 months from
the reporting date and non-current assets and liabilities refer to amounts that are expected to be recovered or
settled after 12 months from the reporting date.
126
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) Group – 2018
Manda-
torily
at fair
value
through
profit
and loss
Desig-
nated
fair
value
through
profit
and loss
Financial
assets at
amor-
tised
cost
Non-
financial
assets
at fair
value
Non-
financial
assets
at other
than fair
value
Non-
current
assets*
Notes R million R million R million R million R million R million R million R million
Current
assets*
Total
Goodwill
Intangible assets
Property and
equipment
Deferred tax
Investments in
associates
Loans to share trusts
Loans and advances
Retirement benefit
asset
Deferred acquisition
costs
Reinsurers’ share of
general insurance
liabilities
Deposits with
cedants
Investments and
securities
Amounts due from
agents and reinsurers
Subrogation and
salvage recoveries
Non-current assets
held for sale
Current tax receivable
Trade and other
receivables
Cash and cash
equivalents
4
5
6
8
10
11
13
14
21
162
129
67
104
7
1
223
231
23
2,574
27
–
–
–
–
–
–
–
–
–
–
–
15
16
17
18
19
20
6,305
6,269
1,618
646
243
122
604
1,386
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
1
–
–
–
27
36
–
–
–
–
604
1,386
–
–
–
–
–
–
–
–
–
–
–
–
–
–
243
–
–
–
21
162
129
67
104
–
–
223
231
–
–
–
–
–
–
–
–
–
21
162
129
67
104
7
1
223
231
2,574
2,096
478
–
–
27
6,305
1,618
1,618
646
646
–
122
–
–
243
122
604
1,386
–
–
–
–
–
–
–
–
14,470
6,269
2,061
243
5,897
13,047
1,423
* Current assets and liabilities refer to amounts that are expected to be recovered or settled within 12 months from
the reporting date and non-current assets and liabilities refer to amounts that are expected to be recovered or
settled after 12 months from the reporting date.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
127
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 41. Financial instruments and risk management (continued)
Company – 2019
Manda-
torily
at fair
value
through
profit
and loss
Desig-
nated
fair
value
through
profit
and loss
Financial
assets at
amor-
tised
cost
Non-
financial
assets
at fair
value
Non-
financial
assets
at other
than fair
value
Non-
current
assets*
Notes R million R million R million R million R million R million R million R million
Current
assets*
Total
Intangible assets
Property and
equipment
Right of use asset
Deferred tax
Investments in
subsidiaries
Investments in
associates
Loans to share trusts
Interest in employee
share trusts
Loans receivable
Retirement benefit
asset
Deferred acquisition
costs
Reinsurers’ share of
general insurance
liabilities
Investments and
securities
Amounts due from
agents and reinsurers
Subrogation and
salvage recoveries
Non-current assets
held for sale
Current tax receivable
Trade and other
receivables
Cash and cash
equivalents
5
6
7
9
10
11
12
13
14
174
238
475
8
–
–
–
–
1,426
1,426
13
84
634
2
160
174
–
–
634
–
–
–
–
23
1,421
15
16
17
18
19
20
3,183
3,153
1,503
222
257
15
274
283
–
–
–
–
–
–
10,546
5,213
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
84
–
2
–
–
–
30
–
–
–
–
274
283
673
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
257
–
–
–
174
238
475
8
–
13
–
–
–
160
–
–
86
–
–
–
–
–
–
–
174
238
389
8
1,426
13
84
634
2
160
174
174
–
1,421
1,106
315
–
3,183
1,503
1,503
222
222
–
15
–
–
–
15
274
283
–
–
–
257
–
–
–
257
4,403
6,846
3,700
* Current assets and liabilities refer to amounts that are expected to be recovered or settled within 12 months from
the reporting date and non-current assets and liabilities refer to amounts that are expected to be recovered or
settled after 12 months from the reporting date.
128
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) Company – 2018
Intangible assets
Property and
equipment
Deferred tax
Investments in
subsidiaries
Investments in
associates
Loans to share trusts
Investments in
employee share trusts
Loans receivable
Retirement benefit
asset
Deferred acquisition
costs
Reinsurers’ share of
general insurance
liabilities
Investments and
securities
Amounts due from
agents and reinsurers
Subrogation and
salvage recoveries
Non-current assets
held for
Current tax receivable
Trade and other
receivables
Cash and cash
equivalents
Financial
assets at
Non-
amor-
current
tised
assets*
cost
Notes R million R million R million R million R million R million R million R million
Non-
financial
assets
at fair
value
Current
assets*
Total
Non-
financial
assets
at other
than fair
value
Manda-
torily
at fair
value
through
profit
and loss
Desig-
nated
fair
value
through
profit
and loss
5
6
8
9
10
11
12
13
14
162
120
46
–
–
–
1,548
1,548
13
84
611
1
160
158
–
–
611
–
–
–
–
23
1,553
15
16
17
18
19
20
3,516
3,483
1,270
275
243
112
322
343
–
–
–
–
–
–
10,537
5,642
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
84
–
1
–
–
–
33
–
–
–
–
322
343
783
–
–
–
–
–
–
–
–
–
–
–
–
–
–
243
–
–
–
162
120
46
–
13
–
–
1
160
–
–
–
–
–
–
–
–
–
162
120
46
1,548
13
84
611
1
160
158
158
–
1,553
1,208
345
–
3,516
1,270
1,270
275
275
–
112
–
–
–
112
322
343
–
–
–
243
–
–
–
243
3,870
7,204
3,333
* Current assets and liabilities refer to amounts that are expected to be recovered or settled within 12 months from
the reporting date and non-current assets and liabilities refer to amounts that are expected to be recovered or
settled after 12 months from the reporting date.
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Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 41. Financial instruments and risk management (continued)
Categories of liabilities
Group – 2019
Desig-
nated
fair
value
through
profit or
loss
Total
Finan-
cial lia-
bilities
at am-
ortised
cost
Non-
financial
liabilities
at fair
value
Non-
financial
liabilities
at other
than fair
value
Current
liabilities*
Non-
current
liabilities*
Notes R million R million R million R million R million R million R million
General insurance liabilities
Lease liabilities
Debt instrument
Deferred reinsurance
commission revenue
Amounts due to agents and
reinsurers
Post-retirement medical
benefit liability
Share-based payment
liability
Employee benefits
Deferred tax
Deposits owing to reinsurers
Amounts payable to cell
owners
Current tax payable
Trade and other payables
23
7
24
14
16
13
25
26
8
27
28
5,639
494
500
196
1,103
243
91
160
41
239
1,119
8
432
10,265
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
500
–
–
–
–
–
–
239
1,119
–
425
2,283
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,639
494
–
196
5,068
100
–
196
1,103
1,103
243
91
160
41
–
–
8
7
–
–
160
–
239
1,119
8
432
571
394
500
–
–
243
91
–
41
–
–
–
–
7,982
8,425
1,840
* Current assets and liabilities refer to amounts that are expected to be recovered or settled within 12 months from
the reporting date and non-current assets and liabilities refer to amounts that are expected to be recovered or
settled after 12 months from the reporting date.
130
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Notes to the group and company Financial Statements (continued) Group – 2018
Non-
financial
liabilities
at other
than fair
value
Notes R million R million R million R million R million
Financial
liabilities
at am-
ortised
cost
Non-
financial
liabilities
at fair
value
Total
Desig-
nated
fair
value
through
profit or
loss
Current
liabilities*
R million
Non-
current
liabilities*
R million
General insurance liabilities
Debt instrument
Deferred reinsurance
commission revenue
Amounts due to agents and
reinsurers
Post-retirement medical
benefit liability
Share-based payment
liability
Employee benefits
Deferred tax
Deposits owing to reinsurers
Amounts payable to cell
owners
Current tax payable
Trade and other payables
23
24
14
16
13
25
26
8
27
28
6,119
500
186
514
254
68
213
103
796
878
7
543
10,181
–
–
–
–
–
–
–
–
–
–
–
–
–
–
500
–
–
–
–
–
–
796
878
–
543
2,717
–
–
–
–
–
–
–
–
–
–
–
–
–
6,119
4,982
–
186
514
254
68
213
103
–
–
7
–
–
186
514
–
–
213
–
796
878
7
543
1,137
500
–
–
254
68
–
103
–
–
–
–
7,464
8,119
2,062
* Current assets and liabilities refer to amounts that are expected to be recovered or settled within 12 months from
the reporting date and non-current assets and liabilities refer to amounts that are expected to be recovered or
settled after 12 months from the reporting date.
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Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 41. Financial instruments and risk management (continued)
Company – 2019
Desig-
nated
fair
value
through
profit or
loss
Finan-
cial lia-
bilities
at am-
ortised
cost
Non-
financial
liabilities
at fair
value
Non-
financial
liabilities
at other
than fair
value
Non-
current
liabilities*
Notes R million R million R million R million R million R million R million
Current
liabilities*
Total
General insurance liabilities
Lease liabilities
Debt instrument
Deferred reinsurance
commission revenue
Amounts due to agents and
reinsurers
Post-retirement medical
benefit liability
Share-based payment
liability
Employee benefits
Deposits owing to reinsurers
Trade and other payables
23
7
24
14
16
13
25
26
28
3,641
491
500
125
884
178
80
141
226
236
6,502
–
–
–
–
–
–
–
–
–
–
–
–
–
500
–
–
–
–
–
226
229
955
–
–
–
–
–
–
–
–
–
–
–
3,641
2,983
491
–
125
100
–
125
884
884
178
80
141
–
7
–
–
141
226
236
658
391
500
–
–
178
80
–
–
–
5,547
4,695
1,807
* Current assets and liabilities refer to amounts that are expected to be recovered or settled within 12 months from
the reporting date and non-current assets and liabilities refer to amounts that are expected to be recovered or
settled after 12 months from the reporting date.
132
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Notes to the group and company Financial Statements (continued) Company – 2018
Non-
financial
liabilities
at other
than fair
value
Notes R million R million R million R million R million
Financial
liabilities
at am-
ortised
cost
Non-
financial
liabilities
at fair
value
Total
Desig-
nated
fair
value
through
profit or
loss
Current
liabilities*
Non-
current
liabilities*
R million
R million
General insurance liabilities
Debt instrument
Deferred reinsurance
commission revenue
Amounts due to agents and
reinsurers
Post-retirement medical
benefit liability
Share-based payment
liability
Employee benefits
Deposits owing to reinsurers
Trade and other payables
23
24
14
16
13
25
26
28
3,829
500
114
355
191
54
201
672
359
6,275
–
–
–
–
–
–
–
–
–
–
–
500
–
–
–
–
–
672
359
3,829
–
–
–
–
–
–
–
–
–
–
114
355
191
54
201
–
–
2,981
–
114
355
–
–
201
672
359
848
500
–
–
191
54
–
–
–
1,531
3,829
915
4,682
792
* Current assets and liabilities refer to amounts that are expected to be recovered or settled within 12 months from
the reporting date and non-current assets and liabilities refer to amounts that are expected to be recovered or
settled after 12 months from the reporting date.
OLD MUTUAL INSURE LIMITED
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133
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 42. Risk management
Overview
General
The Board has overall responsibility for the Group’s systems of internal control and risk management. The executive
management is responsible for the management and implementation of the Group enterprise risk management
framework and governance frameworks.
To assist the Board in the execution of its fiduciary duties in regard to risk management, legal and compliance
accountabilities, the Group Risk and Compliance Committee has the following responsibilities:
• assisting the Board in setting risk strategy in liaison with management;
• assisting the Board in overseeing the Group’s compliance with applicable legal and regulatory requirements and
industry standards;
• providing independent and objective oversight of risk management also taking account of reports by
management and the Group Audit Committee to the Board on all categories of identified risks;
• recommending the risk policy and framework to the Board for approval; and
• ensuring the establishment of independent risk management, compliance and actuarial control functions and
reviewing their effectiveness.
The Board has delegated to the Group Audit Committee an oversight role of financial reporting, accounting, the
external auditor, appropriate internal controls and the internal auditors, and regulatory compliance, inter alia, to
ensure the integrity of reporting and financial controls. The internal control systems continue to be enhanced
and developed to safeguard the assets of the Group and to ensure timely and reliable monitoring and reporting.
The Group Audit Committee has the following responsibilities:
• ensure compliance with all statutory duties imposed in terms of the Companies Act and, where appropriate, the
recommendations of the King Code with regard to the auditors of the Group;
• oversee the preparation of the annual report that conveys adequate information about the operations of the
Group and its sustainability and financial reporting;
• review the expertise, resources and experience of the Group’s finance function, and disclose the results of the
review in the annual report;
• oversee internal audit and consider the effectiveness of internal audit at least annually and report to the Board
on the assessment from internal audit on the adequacy of the internal controls;
• oversee the financial reporting risks; internal financial controls and IT risks as it relates to financial reporting;
• deal with all aspects of the annual financial statements of the Group and ensure compliance with relevant
legislation and, where appropriate, the King Code;
• review the accounting policies of the Group on an annual basis; and
• ensure compliance with all statutory requirements in relation to the external auditors including to review the
quality and effectiveness of the audit process and assess whether the external auditors have performed the audit
as planned.
The risk identification process is used to build an aggregated view of all significant risks faced by the Group. The risk
appetite framework governs how the risks should be managed within the Group. It is within this risk appetite
framework that the Group has selected its asset allocation and reinsurance programme which are among the most
important determinants of risk and capital requirements within the Group.
134
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Notes to the group and company Financial Statements (continued) The following control functions within the Group are responsible for discharging the operations of risk management
and compliance:
Risk management
• direct and assist in the co-ordination and monitoring of risk management activities;
• maintain and update the risk methodology and risk management system for the Group. This includes the
identification, assessment, monitoring, mitigation and reporting of the key risks;
• monitor and report progress on corrective action plans for risks that require mitigating actions;
• drive risk management by promoting awareness of risk management to both management and staff;
• ensure effective risk management training programmes are established;
• assist management with the embedding of risk management in the day-to-day business activities of the
Group; and
• ensure that risk management is considered when setting strategic goals and objectives.
Compliance
• monitors and reports on compliance with regulatory requirements;
• monitors that systems and controls are in place to ensure that the Group’s exposure to compliance risk
is minimised;
• coordinates the Group’s relationship with its regulators;
• evaluates the impact of forthcoming legislative regulatory changes and provides advice on potential process and
control changes required and whether the proposed control will be adequate; and
• reports to the Group Risk and Compliance Committee on the status of compliance of the Group.
Actuarial control
The purpose of the actuarial control function is the following:
• review and report on the reliability and adequacy of the regulatory valuation and solvency results;
• review and report on the adequacy of the reinsurance and other risk transfer arrangements;
• review and report on the appropriateness of the risk policies relating to the actuarial scope of work, including
particularly the Underwriting Policy, the Reinsurance Policy; and the Asset Liability Management Policy;
• advise on actuarial matters relating to the Own Risk and Solvency Assessment (ORSA);
• advise regarding the long-term solvency of the companies in the Group, allowing for possible scenarios; and
• advise on the actuarial soundness of product development and design, including the terms and conditions of
insurance contracts and pricing and estimations of the capital required to underwrite the product.
Internal audit
The purpose of Group Internal Audit is to help the Board and executive management to protect the assets,
reputation and sustainability of the Group. This is done by:
• assessing whether all significant risks, both current and emerging, are identified and appropriately reported by
management and the risk function to the Board;
• assessing whether the risks identified are adequately controlled; and
• by challenging executive management to improve the effectiveness of governance, risk management and
internal controls.
Group Internal Audit is strategically well positioned to achieve its objectives. The Head of Audit is accountable to the
Chairman of the Audit Committee and has access to the Chairman of the Board. Further to this:
• the internal audit function has financial independence through the Old Mutual Limited Group Audit Committee
approving a budget to allow Group Internal Audit to meet the requirements of its mandate;
• internal audit is functionally independent from the activities it audits and from the day-to-day internal control
processes of the Group;
• internal audit can conduct assignments on its own initiative, with free and unfettered access to people and
information, in respect of any relevant department, establishment or function of the organisation, including the
activities of branches and subsidiaries and outsourced activities;
• internal audit meets with the Group Audit Committee at least once a year without management being present,
and has frequent interactions with the Chairman of the Audit Committee;
• functional independence of the head of internal audit and the internal audit function is further maintained by
not directly reporting into executive management. Internal audit does, however, have unrestricted access to
the Group executive committee as individuals and are present in key meetings and forums, to provide input
and feedback.
OLD MUTUAL INSURE LIMITED
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135
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 42. Risk management (continued)
Underwriting risk
The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the
amount of the resulting claim. By the very nature of an insurance contract, this risk is random and therefore difficult
to predict.
Types of insurance contracts
The types of insurance contracts that have a material effect on the amount, timing and uncertainty of future cash
flows arising from insurance contracts are set out below:
Types of insurance contracts:
Accident and personal accident
Crop
Engineering
Liability
Marine
Motor
Trade credit and guarantee
Property
Accident – Provides indemnity for loss of, or damage to, mainly movable property for losses caused by crime,
certain accidental damage, such as damage to goods in transit or accidental damage to glass. Included under the
accident classes are legal liabilities an insured may incur as a result of accidental damage to third-party property or
accidental death or injury to a third party caused by the insured.
Personal accident – Provides compensation arising out of the death, permanent or temporary total disability of the
insured, the family of the insured or possibly the employees of a business. Such death or disability is restricted to
certain accidents and does not provide the wider cover available from the life insurance industry.
Crop – Provides indemnity for crops, while still on the field, against hail, drought and excessive rainfall. The cover
ceases as soon as harvesting has taken place.
Engineering – Provides indemnity for loss sustained through the use of machinery and equipment or the erection of
buildings or structures. This type of contract includes contract works, removal of support, project delay, construction
plant, machinery breakdown, loss of profits, deterioration of stock, dismantling, transit and erection, works damage
and electronic equipment.
Liability – Provides cover for risks relating to the incurring of a liability other than relating to a risk covered more
specifically under another insurance contract.
Marine – Provides indemnity for both cargo and hull classes of business. Cargo covers physical loss of or damage to
cargo, with a project delay option. Hull covers loss or damage to pleasure craft or commercial vessels as a result of
accidents and also includes legal liability as a result of the accident.
Motor – Provides indemnity for loss of or damage to the insured motor vehicle. The cover is normally on an all
risks basis providing a wide scope of cover following an accident or theft of the vehicle, but the insured can select
restricted forms of cover, such as cover for fire and theft only. Legal liabilities arising out of the use or ownership of
the motor vehicle following an accident for damage to third-party property or death or injury to a third party are
also covered under this class of business.
Trade credit – This business is predominantly written through Credit Guarantee Insurance Corporation of Africa
Limited, a subsidiary company. This is an insurance product for business entities wishing to protect their accounts
receivable from loss due to credit risks such as protected default or insolvency.
Property – Provides indemnity for loss of, or damage to, immovable and movable property caused by perils, such as
fire, lightning, explosion, weather, water, earthquake and malicious damage. The fire classes also include business
interruption policies which insure the loss of profits incurred by a business as a result of loss or damage to the
insured property by these perils.
136
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Annual Report 2019
Notes to the group and company Financial Statements (continued) The return to shareholders under the above products arises from the total premiums charged to policyholders less
the amounts paid to cover claims and the expenses incurred by the Group. There is also scope for the Group to earn
investment income owing to the time delay between the receipt of premiums and the payment of claims.
Mutual and Federal Risk Financing Limited underwrites insurance policies that fall within the abovementioned
categories, through the use of cell structures.
Risk that arises from insurance contracts
Insurance risk and policies for mitigating insurance risk
The primary activity of the Group relates to the assumption of the risk of loss from events involving persons or
organisations. Such risks may relate to any of the abovementioned classes of business. As such, the Group is
exposed to the uncertainty surrounding the timing and severity of claims under insurance contracts.
The theory of probability is applied to the pricing and provisioning for a portfolio of insurance contracts.
The principal risk is that the frequency or severity of claims is greater than expected and that the Group does
not charge premiums appropriate for the risk accepted. Insurance events are, by their nature, uncertain, and
the actual number and size of events during any one year may vary from those estimated using established
statistical techniques.
The Group manages its insurance risk through the underwriting strategy, approval procedures for transactions that
involve new products or that exceed set limits, pricing guidelines, centralised management of reinsurance and
monitoring of emerging issues. The Group also employs staff experienced in claims handling and rigorously applies
standardised policies and procedures around claims assessment. These actions are described below:
Underwriting strategy
The Group’s underwriting strategy seeks diversity to ensure a balanced portfolio and is based on a large portfolio
of similar risks spread over a large geographical area. The underwriting strategy is set out in an annual business
plan and risk appetite that determines the classes of business to be written, the territories in which business
is to be written and the industry sectors to which the Group is prepared to accept exposure. Adherence to the
underwriting delegated authorities is managed through the underwriting portfolio management and quality
assurance processes.
Pricing of the Group’s insurance products is generally based upon historical claims frequencies and claims severity
averages, adjusted for inflation and modelled catastrophes trended forward to recognise anticipated changes in
claims patterns. While claims remain the Group’s principal cost, the Group also makes allowance in the pricing
procedures for acquisition expenses, administration expenses, the cost of reinsurance and for a profit loading that
adequately covers the cost of capital.
Underwriting limits are set to ensure that the underwriting policy is consistently applied. Underwriting performance
is monitored continuously and the pricing and underwriting parameters are revised accordingly. Risk factors
considered as part of the review would typically include factors such as past loss experiences, past insurance
history, type and value of the asset covered, security measures taken to protect the asset and major use of the
covered items.
Reinsurance strategy
Reinsurance risk is the risk that the reinsurance cover placed is inadequate and/or inefficient relative to the Group’s
risk management strategy and objectives. The Group reinsures a portion of most of the risks it underwrites in order
to control its exposures to losses and protect capital resources. The Group buys a combination of proportional
and non-proportional reinsurance treaties to reduce the overall volatility as well as the net exposure on any one
risk/event to within the stated annual risk appetite limits.
Concentrations of insurance risk and policies mitigating the concentrations
Within the insurance business, concentrations of risk may arise where a particular event or series of events could
impact heavily upon the Group’s resources. Business is mainly carried out in South Africa with the bulk of exposure
in Gauteng, followed by Cape Town. The Group has exposure to all major lines of insurance business, but the bulk of
exposure is to property and motor risk.
OLD MUTUAL INSURE LIMITED
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Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 42. Risk management (continued)
Exposure relating to catastrophe events
The Group sets out the total aggregate exposure that it is prepared to accept in certain territories to a range of
events, such as natural catastrophes. The aggregate position is reviewed annually. The Group uses a number of
modelling tools to monitor aggregation and to simulate catastrophe losses in order to measure the effectiveness of
the reinsurance programmes and the net exposure of the Group.
The Group considers that its most significant single loss would arise in the event of an earthquake in Gauteng.
However, exposure to multiple storms in a single year or a severe recession can give rise to a higher net retained
loss in severe years (1 in 200). The Group’s policies for mitigating catastrophe risk exposure include the use of both
proportional and excess-of-loss reinsurance. In the event of a major catastrophe such as an earthquake in Gauteng,
the net retained loss would represent 1.8% of capital (2018: 1.9%). The additional reinstatement premiums, variable
commissions, loss participation and inclusion of large individual losses within the catastrophe could increase this to
4.5% (2018: 3.4%) of the Group’s capital.
Measurement of insurance liabilities
The best estimate reserve represents the expected value of the insurance liabilities, essentially the mean in a range
of possible outcomes in the development of unreported claims and the future development of notified claims.
The explicit risk margins are added to the best estimate to reflect the uncertainty of the ultimate cost of claims.
The levels of the IBNR provisions and the risk margins are assessed annually by management against the Group’s
past claims experience and adjusted if the experience indicates that the methodology is no longer appropriate.
The methods applied by the Group use historical claims development information and therefore the underlying
bases assume that the historical claims development pattern will occur again in the future. There are reasons why
this may not be the case, which, insofar as they can be identified, have been allowed for by modifying the methods.
Such reasons include:
• changes in processes that affect the development/recording of claims paid and incurred;
• economic, legal, political and social trends;
• changes in mix of business; and
• random fluctuations, including the impact of large losses. There were no significant changes to these
methodologies from the prior year.
Claims development
The Group is liable for all insured events that occurred during the term of the contract, even if the loss is discovered
after the end of the contract term, subject to predetermined time scales dependent on the nature of the insurance
contract. The Group is therefore exposed to the risk that claims reserves will not be adequate to fund historic claims
(run-off risk). To manage run-off risk, the Group takes all the reasonable steps to ensure that it has appropriate
information regarding its claims exposures and adopts sound reserving practices. Further, there is capital specifically
allowed for the risk of inadequate reserves.
The majority of the Group’s insurance contracts are classified as ”short-tailed”, meaning that any claim is settled
within a year after the loss date. This contrasts with the ”long-tailed” classes where the claims cost takes longer to
materialise and settle. The Group’s long-tailed business is generally limited to liability, personal accident, third-party
motor liability and certain engineering classes. Please refer to note 23 for claims development information.
Other risks and policies mitigating these risks
The Group is exposed to the risk of false, invalid and exaggerated claims. Sophisticated software and fraud
detection measures are also in place to improve the Group’s ability to proactively detect fraudulent claims.
138
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) Capital risk management
The company targets a multiple of 1.3 times the solvency assessment and management’s (SAM) solvency
capital requirement.
The Group capital target is 1.2 times using the SAM group Deduction and Aggregation capital requirement. This is
expected to be replaced by a target of 1.3 times using the SAM Accounting Consolidation capital requirement if this
option is approved by the Prudential Authority (PA).
This implies that the Group holds a buffer over and above a 99.5% level of sufficiency.
The Group capital is allocated to subsidiaries and lines of business based on a combination of the risks associated
with each line of business and the SAM capital requirements for each line of business/subsidiary. Return on capital
targets are set at 18% – 20%. Investment allocations and reinsurance programmes are based on the Group’s risk
appetite, which recognizes the impact on the solvency position.
Operational risk
Operational risk is the risk of direct or indirect losses resulting from human factors and inadequate or failed internal
processes and systems. Operational risk is inherent in the Group’s operations. Major sources of operational risk can
include operational process reliability, information security, outsourcing of operations, dependence on key suppliers,
implementation of strategic and operational change, integration of acquisitions, fraud, human error such as not
placing of all the necessary facultative reinsurance correctly, client service quality, inadequacy of business continuity
arrangements, recruitment, training and retention of employees, and the social and environmental impact of
the Group.
The Group manages operational risk by a comprehensive system of internal controls. From a risk governance
perspective, the three lines of defence approach is used to identify the various levels of controls, oversight and
assurance, including consideration of role-player independence. The Group has developed a number of contingency
plans including Business Continuity Plans.
Regulatory compliance risk
Regulatory compliance risk is the risk that the Group is not able to meet the regulatory requirements, which may
impact the Group’s reputation and/or give rise to penalties or fines.
The Board of directors and management are actively monitoring the changes in the regulatory and compliance
business landscape. The possible implications for the business plans and governance structures going forward are
analysed regularly and the necessary changes are implemented. The Group seeks constructive engagement with
the various regulators and policymakers.
Market conduct risk is the risk that a firm’s behaviour may result in unfair treatment of its clients. Regulatory
requirements relating to conduct risk are continually being strengthened by conduct risk mitigation initiatives
such as the Retail Distribution Review and the Conduct of Financial Institutions Bill. The Old Mutual Limited Group
Market Conduct Framework, to which the Group adheres, is in the process of being implemented and covers these
regulated aspects.
Financial risk management
• Credit risk.
• Liquidity risk; and
• Market risk (currency risk, interest rate risk and price risk).
The Group is exposed to financial risk through its financial assets, financial liabilities, reinsurance assets and
insurance policy liabilities. The most important components of this financial risk are credit risk, liquidity risk and
market risk (including equity price risk, interest rate risk and foreign currency risk). Each of these financial risks is
described below, together with a summary of the ways in which the Group manages these risks.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to
meet its contractual obligations, where the Group is exposed to credit risk are:
• amounts due from insurance policyholders;
• amounts due from insurance contract intermediaries and third-party recoveries (refer to note 16);
• investments and cash and cash equivalents;
• reinsurers’ share of general insurance liabilities;
• amounts due from reinsurers and third parties in respect of claims already paid (refer to note 16); and
• loans to share trusts, other loans receivable and trade receivables.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
139
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 42. Risk management (continued)
Exposures to individual policyholders, groups of policyholders and third parties are monitored as part of the credit
control process.
Reputable financial institutions are used for investing and cash-handling purposes. In excess of 99% (2018: 99%) of
money market instruments and cash and cash equivalents are placed with institutions that have a national
long-term credit rating of at least A-.
Analysis of the credit quality and maximum exposure to credit risk of the financial assets
AAA
AA
A
lower Not rated
Total
BBB and
–
–
220
1,316
R million
Group
2019
Loans receivable
Reinsurers’ share of general insurance
liabilities
Loans to share trusts
Investments and securities
Long–term loans
Unlisted empowerment private
equity fund
Unlisted shares
Listed shares
–
–
–
–
–
–
–
Unlisted money market funds
1,796
3,252
Amounts due from agents and
reinsurers
Trade and other receivables
Cash and cash equivalents
–
–
–
1
–
1,085
–
11
–
–
–
–
–
–
104
–
–
2
565
7
33
90
159
1,144
14
1,015
443
1
2
2,112
7
33
90
159
1,144
5,135
1,744
443
1,086
R million
Group
2018
1,796
4,558
2,013
115
3,473
AAA
AA
A
lower Not rated
Total
BBB and
–
–
187
2,080
Loans receivables
Reinsurers’ share of general insurance
liabilities
Loans to share trusts
Investments and securities
Long-term loans
Unlisted empowerment private
equity fund
Unlisted shares
Listed shares
–
–
–
–
–
–
–
Unlisted money market funds
696
4,223
Amounts due from agents and
reinsurers
Trade and other receivables
Cash and cash equivalents
–
–
–
44
–
1,385
–
49
–
–
–
–
–
–
–
–
–
1
258
7
36
67
137
1,114
–
1,338
604
1
1
2,574
7
36
67
137
1,114
4,951
1,618
604
1,386
140
OLD MUTUAL INSURE LIMITED
Annual Report 2019
696
5,839
2,348
49
5,181
–
–
–
–
–
73
624
–
–
–
–
–
–
–
32
236
–
–
–
–
–
–
–
–
–
–
–
–
Notes to the group and company Financial Statements (continued) Unlisted money market funds
1,077
1,431
Amounts due from agents and
reinsurers
Trade and other receivables
Cash and cash equivalents
–
–
–
1
–
282
R million
Company
2019
Loans receivable
Reinsurers’ share of general insurance
liabilities
Loans to share trusts
Investments and securities
Long-term loans
Unlisted empowerment private
equity fund
Unlisted shares
Listed shares
R million
Company
2018
Loans receivable
Reinsurers’ share of general insurance
liabilities
Loans to share trusts
Investments and securities
Long-term loans
Unlisted empowerment private
equity fund
Unlisted shares
Listed shares
AAA
AA
A
lower Not rated
Total
BBB and
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,077
1,934
1,843
115
1,781
AAA
AA
A
lower Not rated
Total
BBB and
–
–
220
1,175
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
44
624
–
–
–
–
–
–
–
32
236
–
–
–
–
311
914
–
11
–
–
–
–
–
–
104
–
–
2
15
84
30
90
43
466
2
774
274
1
2
1,421
84
30
90
43
466
2,554
1,503
274
283
–
82
–
–
–
–
–
–
–
–
–
1
246
84
33
67
8
468
6
990
322
1
1
1,553
84
33
67
8
468
2,940
1,270
322
343
Unlisted money market funds
696
2,206
Amounts due from agents and
reinsurers
Trade and other receivables
Cash and cash equivalents
–
–
–
44
–
342
The assets analysed above are based on external credit ratings obtained from Fitch Ratings Inc and Moodys.
696
2,903
1,182
82
2,226
OLD MUTUAL INSURE LIMITED
Annual Report 2019
141
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 42. Risk management (continued)
The rating scales are based on long-term investment horizons under the following broad investment
grade definitions:
AAA
AA
A
BBB
The financial instrument is judged to be of the highest quality, with minimal credit risk and indicates
the best quality issuers that are reliable and stable. Included in the AAA rating is AAA- as well as
AAA+.
The financial instrument is judged to be of high quality and is subject to very low credit risk and
indicates quality issuers. Included in the AA rating is AA- as well as AA+.
The financial instrument is considered upper-medium grade and is subject to low credit risk although
certain economic situations can more readily affect the issuers’ financial soundness adversely than
those rated AAA or AA. Included in the A rating is A- as well as A+.
The financial instrument is subject to moderate credit risk and indicates medium-class issuers which
are currently satisfactory.
Not rated
This is where the exposure is not risk-rated in an active market, such as loans and advances listed and
unlisted ordinary shares.
Reinsurance credit risk
Under the terms of reinsurance agreements, reinsurers agree to reimburse the ceded amount in the event that a
gross claim is paid. Consequently, the Group is exposed to the credit risk of the reinsurer.
The Group risk appetite requires that all reinsurers have a local/international credit rating of A- or better. Maximum
exposure per reinsurer is also limited in accordance of the risk appetite.
The Group held deposits of R239 million (2018: R796 million) and the company held deposits of R226 million
(2018: R672 million) as security for reinsurers’ share of insurance contract provisions at the reporting date. Following
regulatory changes, the Group has released some deposits owing to reinsurers during the year. No new deposits
were received during the year.
Analysis of the credit quality and maximum exposure to credit risk of the financial assets of the net treaty included
in amounts due from/to agents and reinsurers:
AAA
AA
A
BBB and
lower
Not rated
Total
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(13)
(13)
(74)
86
25
98
(42)
137
(34)
(4)
112
74
378
–
–
–
–
–
–
–
–
8
8
–
–
–
–
–
–
–
–
54
54
(74)
86
25
98
(42)
137
(34)
(4)
112
123
427
R million
Group
2019
General Reinsurance
Africa Ltd
GIC Re South Africa Ltd
Hannover Reinsurance
Africa Ltd
Lloyd’s of London
Mitsui Sumitomo (Japan)
Munich Reinsurance Co of SA
Ltd
Partner Reinsurance
Company Ltd
Swiss Re Africa Limited
Trans Re London Limited
Other
142
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued) R million
Group
2018
General Reinsurance
Africa Ltd
GIC Re South Africa Ltd
Hannover Reinsurance
Africa Ltd
Lloyd’s of London
Mitsui Sumitomo (Japan)
Munich Reinsurance Co of SA
Ltd
Partner Reinsurance
Company Ltd
Swiss Re Africa Limited
Trans Re London Limited
Other
R million
Company
2019
General Reinsurance
Africa Ltd
GIC Re South Africa Ltd
Hannover Reinsurance
Africa Ltd
Lloyd’s of London
Mitsui Sumitomo (Japan)
Munich Reinsurance Co of SA
Partner Reinsurance
Company Ltd
Swiss Re Africa Limited
Trans Re London Limited
Other
AAA
AA
A
BBB and
lower
Not rated
Total
–
–
–
–
–
–
–
–
–
–
–
(7)
–
–
–
–
120
–
(21)
–
8
100
–
(2)
(1)
13
39
–
1
–
13
58
121
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
53
53
(7)
(2)
(1)
13
39
120
1
(21)
13
119
274
AAA
AA
A
BBB and
lower
Not rated
Total
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(74)
83
32
98
(43)
19
(33)
(20)
112
85
259
–
–
–
–
–
–
–
–
–
5
5
–
–
–
–
–
–
–
–
–
(9)
(9)
(74)
83
32
98
(43)
19
(33)
(20)
112
81
255
OLD MUTUAL INSURE LIMITED
Annual Report 2019
143
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements
42. Risk management (continued)
R million
Company
2018
General Reinsurance
Africa Ltd
GIC Re South Africa Ltd
Hanover Reinsurance
Africa Ltd
Lloyd’s of London
Mitsu Sumitomo (Japan)
Munich Reinsurance Co of SA
Partner Reinsurance
Company Ltd
Swiss Re Africa Limited
Trans Re London Limited
Other
Liquidity risk
AAA
AA
A
BBB and
lower
Not rated
Total
–
–
–
–
–
–
–
–
–
–
–
(7)
–
–
–
–
21
–
(40)
–
11
(15)
–
1
1
13
35
–
1
–
13
56
120
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(8)
(8)
(7)
1
1
13
35
21
1
(40)
13
59
97
Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments to
policyholders under policy contracts and in respect of financial liabilities.
The Group sets limits on the minimum proportions of maturing funds available to meet such calls and unexpected
levels of demand.
Maturity analysis of general insurance liabilities
Based on actuarial modelling of historical and future expected trends, the Group has estimated the probable cash
outflows associated with gross general insurance liabilities. The maturity profile of the related reinsurance assets
is expected to be similar to the profile of the liabilities. The Group acknowledges that the unearned premium
provision that will be recognised as earned premium in the future, will most likely not lead to claim cash outflows
equal to this provision.
The maturity profile of contractual cash flows of non-derivative financial liabilities, and financial assets held to
mitigate the risk, are presented in the following table. The cash flows are undiscounted contractual amounts.
Group – 2019
Less than
3 months
R million
3 months
to 1 year 1 to 5 years Over 5 years
R million
R million
R million
Total
R million
–
18
3,296
–
432
–
1,011
–
29
1,771
239
–
–
92
500
447
572
–
–
–
–
–
–
–
–
–
1,119
–
500
494
5,639
239
432
1,119
1,103
(4,757)
(2,131)
(1,519)
(1,119)
(9,526)
Debt instruments
Lease liabilities
General insurance liabilities
Deposits owing to reinsurers
Trade and other payables
Amounts payable to cell owners
Amounts due to agents and reinsurers
144
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued)
Group – 2018
Debt instrument
General insurance liabilities
Deposits owing to reinsurers
Trade and other payables
Amounts payable to cell owners
Amounts due to agents and reinsurers
Company – 2019
Debt instruments
Lease liabilities
General insurance liabilities
Deposits owing to reinsurers
Trade and other payables
Amounts due to agents and reinsurers
Company – 2018
Debt instrument
General insurance liabilities
Deposits owing to reinsurers
Trade and other payables
Amounts due to agents and reinsurers
Less than
3 months
R million
3 months
to 1 year 1 to 5 years
R million
R million
Total
R million
–
2,585
669
543
–
471
–
2,397
127
–
–
43
500
1,137
–
–
878
–
500
6,119
796
543
878
514
(4,421)
(2,634)
(2,769)
(9,824)
Less than
3 months
R million
3 months
to 1 year 1 to 5 years
R million
R million
Total
R million
–
17
1,719
–
236
831
–
28
1,264
226
–
53
500
446
658
–
–
–
500
491
3,641
226
236
884
(2,803)
(1,571)
(1,604)
(5,979)
Less than
3 months
R million
3 months
to 1 year 1 to 5 years
R million
R million
Total
R million
–
1,717
564
359
334
–
1,264
108
–
21
500
848
–
–
–
500
3,829
672
359
355
(2,974)
(1,393)
(1,348)
(5,715)
OLD MUTUAL INSURE LIMITED
Annual Report 2019
145
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements
42. Risk management (continued)
Fair value hierarchy carried at fair value
The fair value hierarchy of assets carried at fair value are as follows:
Group – 2019
Non-current asset held for sale
Investments at fair value
Unlisted shares
Unlisted empowerment private equity fund
Listed shares
Unlisted money market funds
Group – 2018
Non-current asset held for sale
Financial assets at fair value
Unlisted shares
Unlisted empowerment private equity fund
Listed shares
Unlisted money market funds
Level 1
R million
Level 2
R million
Level 3
R million
Total
R million
–
–
–
–
1,144
5,135
6,279
6,279
257
257
–
–
–
–
–
478
–
–
159
90
–
–
249
249
257
257
159
90
1,144
5,135
6,528
7,006
Level 1
R million
Level 2
R million
Level 3
R million
Total
R million
–
–
–
–
1,114
1,675
2,789
2,789
243
243
35
–
–
3,276
3,311
3,777
–
–
102
67
–
–
169
169
243
243
137
67
1,114
4,951
6,269
6,735
146
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued)
Company – 2019
Investment in subsidiaries
Investment in employee share trusts
Non-current asset held for sale
Investments at fair value
Unlisted shares
Unlisted empowerment private equity fund
Listed shares
Unlisted money market funds
Company – 2018
Investments in subsidiaries
Investments in employee share trusts
Non-current asset held for sale
Investments at fair value
Unlisted shares
Unlisted empowerment private equity fund
Listed shares
Unlisted money market funds
Level 1
R million
Level 2
R million
Level 3
R million
Total
R million
–
–
–
–
–
–
466
2,554
3,020
3,020
–
634
257
891
–
–
–
–
–
1,426
–
–
1,426
43
90
–
–
133
891
1,559
1,426
634
257
2,317
43
90
466
2,554
3,153
5,470
Level 1
R million
Level 2
R million
Level 3
R million
Total
R million
–
–
–
–
–
–
468
678
1,146
1,146
–
611
243
854
–
–
–
2,262
2,262
3,116
1,548
–
–
1,548
8
67
–
–
75
1,623
1,548
611
243
2,402
8
67
468
2,940
3,483
5,885
Level 1: Quoted market price in an active market for an identical instrument.
Level 2: Inputs other than quoted prices included in level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs which
reflect assumptions that market participants would use when pricing an asset or liability). Unobservable inputs are
developed using best available data.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
147
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements
42. Risk management (continued)
Movement analysis of level 3 instruments
The following table shows a reconciliation from the opening balances to the closing balances for fair value
measurements in level 3 of the fair value hierarchy:
Investments at fair value
Opening balance
Acquisition of investment
Revaluation of investments to fair value through profit or
loss
Revaluation of unlisted instruments
Investments in subsidiaries
Opening balance
Subsidiary fair value adjustment through profit or loss
Acquisition of subsidiary
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
202
35
–
42
279
–
–
–
–
105
–
10
87
202
–
–
–
–
108
35
–
–
143
76
–
–
32
108
1,548
(122)
–
1,836
(309)
21
1,426
1,548
Sensitivity analysis for investments at fair value
Material subsidiary companies are valued using the discounted cash flow method and net asset value is used as a
proxy for the valuation of less material subsidiaries.
A sensitivity analysis performed on the investment in subsidiaries indicates that an increase of 10% in the discount
rate will result in a maximum movement of 12% or R133 million impact on profit or loss (2018: 36% or R559 million)
in the calculated fair value.
If the market interest rate associated with the unlisted money market investments changes by 1% the impact on
fair value as well as the profit or loss would be R13 million for the Group and R3 million for the company.
The unlisted empowerment private equity fund consists of cash and unlisted ordinary shares. The unlisted ordinary
shares are shown at fair value which is calculated by reference to expected future cash flows, discounted by an
applicable risk-adjusted discount rate for similar equity securities. A 2.5% difference in earnings before interest, tax,
depreciation and amortisation (EBITDA) would impact the profit or loss by R1 million (2018: R3 million).
Further information relating to investments and securities is contained in note 15 of the financial statements.
Market risk
Market risk can be described as the risk of a change in the fair value or future cash flows of a financial instrument
brought about by changes in interest rates, equity prices and foreign exchange rates.
The objective of market risk management is to manage and control market risk exposures within acceptable
parameters, while optimising the return on assets.
Foreign currency risk
The Group is exposed to foreign currency risk for transactions that are denominated in foreign currencies, with
transactions in United States Dollar being the main currency impacting the Group. This exposure is limited to the
underwriting operations in foreign currencies, credit insurance, transactions with foreign reinsurers and equity
investments in foreign companies. The Group does not take on cover on foreign currency transactions and balances
as the net exposure is considered minimal.
148
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued)
Exposure in Rand
The net carrying amounts, in Rand, of the various exposures, are denominated in the following currencies.
The amounts have been presented in Rand by converting the foreign currency amounts at the closing rate at the
reporting date:
US Dollar exposure
Assets:
Investments and securities
Insurance related assets
Trade and other receivables
Cash and cash equivalents
Liabilities:
Trade and other payables
Other non financial liabilities
Net US Dollar exposure
RTGS exposure
Assets:
Trade and other receivables
Investments in associates
Investments and securities
RTGS exposure
Net exposure to foreign currency in Rand
Exposure in foreign currency amounts
GROUP
COMPANY
Notes
2019
R million
2018
R million
2019
R million
2018
R million
19
20
28
23
47
22
53
(1)
(67)
77
2
24
9
54
(1)
(39)
49
–
47
22
35
(67)
37
–
24
8
33
(39)
26
GROUP
COMPANY
Notes
2019
R million
2018
R million
2019
R million
2018
R million
19
–
66
20
86
163
9
90
37
136
185
–
–
–
–
–
–
–
–
37
26
The net carrying amounts, in foreign currency of the above exposure was as follows:
US Dollar exposure
Assets:
Investments and securities
Insurance related assets
Trade and other receivables
Cash and cash equivalents
Liabilities:
Insurance related liabilities
Net US Dollar exposure
GROUP
COMPANY
Notes
2019
R million
2018
R million
2019
R million
2018
R million
19
20
2
3
2
4
(5)
6
–
2
2
1
(3)
2
–
3
2
3
(5)
3
–
2
2
1
(3)
2
OLD MUTUAL INSURE LIMITED
Annual Report 2019
149
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements
42. Risk management (continued)
RTGS exposure
Assets:
Trade and other receivables
Investments in associates
Investments and securities
RTGS exposure
Exchange rates
GROUP
COMPANY
Notes
2019
R million
2018
R million
2019
R million
2018
R million
19
–
79
24
103
2
20
8
30
–
–
–
–
–
–
–
–
The following closing exchange rates were applied at reporting date:
Rand per unit of foreign currency
US Dollar
RTGS
Foreign currency sensitivity analysis
GROUP
COMPANY
2019
R million
2018
R million
2019
R million
2018
R million
14.000
0.832
13.250
4.350
14.000
0.832
13.250
4.350
The following information presents the sensitivity of the Group to an increase or decrease in the respective
currencies it is exposed to. The sensitivity rate is the rate used when reporting foreign currency risk internally to key
management personnel and represents management’s assessment of the reasonably possible change in foreign
exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated amounts and
adjusts their translation at the reporting date. No changes were made to the methods and assumptions used in the
preparation of the sensitivity analysis compared to the previous reporting period.
Group
An increase or decrease of 10% in the Dollar currency rate would result in a change of R1 million (2018: R26 million)
to the profit after tax and a resultant increase or decrease in retained earnings.
The RTGS rate is sensitive to a number of variables. An increase or decrease of 10% in the RTGS rate would result in
a change of R5,94 million to the profit after tax and a resultant increase or decrease in retained earnings.
For the 2018 financial year a decrease of the RTGS rate to 2.5:1 against the US Dollar would result in an increase in
profit or loss of R3 million and an increase of the rate to 5:1 against the US Dollar would result in a decrease in profit
or loss of R4 million.
Interest rate risk
Assets subject to interest rate fluctuations include cash instruments, including unlisted money market funds.
Interest rate sensitivity analysis
The following sensitivity analysis has been prepared using a sensitivity rate which is used when reporting interest
rate risk internally to key management personnel and represents management’s assessment of the reasonably
possible change in interest rates. All other variables remain constant. The sensitivity analysis includes only financial
instruments exposed to interest rate risk which were recognised at the reporting date. No changes were made
to the methods and assumptions used in the preparation of the sensitivity analysis compared to the previous
reporting period.
150
OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued)
Group
An increase or decrease of 1% in the interest rate on cash instruments would result in a change of R3,4 million
(2018: R3,7 million) to the profit after tax of the Group and a resultant increase or decrease in retained earnings.
Company
An increase or decrease of 1% in the interest rate on cash instruments would result in a change of R2 million (2018:
R2 million) to the profit after tax of the Company and a resultant increase or decrease in retained earnings.
Equity price risk
Equity price risk – unlisted equities
The Group has investments in unlisted equities that are exposed to market risk. These include strategic investments
in insurance-related undertakings and subsidiaries. The unlisted equities are selected by management after
consideration of the benefits and corresponding risk related to the investment.
Equity price risk – listed equities
The Group has investments in listed equities that are exposed to market risk. The exposure to listed equities
is protected from severe drops in equity markets by using hedging derivatives selected by management after
consideration of the benefits and corresponding risk related to the investment where this is possible. Please refer to
note 15 for more information on the protected equity portfolio.
Equity price risk sensitivity analysis
The following sensitivity analysis has been prepared using a sensitivity rate which is used when price risk internally
to key management personnel and represents management’s assessment of the reasonably possible change in
relevant prices. All other variables remain constant. The sensitivity analysis includes only investments held at the
reporting date. No changes were made to the methods and assumptions used in the preparation of the sensitivity
analysis compared to the previous reporting period.
Group
An increase or decrease of 10% in the equity prices relating to the protected equity portfolio would result in a
change of R39 million (2018: R50 million) to the profit after tax of the Group and a resultant increase or decrease in
retained earnings.
An increase or decrease of 20% in the equity prices relating to the protected equity portfolio would result in a
change of R78 million (2018: R100 million) to the profit after tax of the Group and a resultant increase or decrease in
retained earnings.
An increase or decrease of 10% in the equity prices relating to the Old Mutual Limited shares and other listed
shares would result in a change of R58 million (2018: R61 million) to the profit after tax of the Group and a resultant
increase or decrease in retained earnings.
An increase or decrease of 20% in the equity prices relating to the Old Mutual Limited shares and other listed shares
would result in a change of R117 million (2018: R122 million) to the profit after tax of the Group and a resultant
increase or decrease in retained earnings.
Company
An increase or decrease of 10% in the equity prices relating to the protected equity portfolio would result in a
change of R39 million (2018: R50 million) to the profit after tax of the company and a resultant increase or decrease
in retained earnings.
An increase or decrease of 20% in the equity prices relating to the protected equity portfolio would result in
a change of R78 million (2018: R100 million) to the profit after tax of the company and a resultant increase or
decrease in retained earnings.
OLD MUTUAL INSURE LIMITED
Annual Report 2019
151
Who we areWe cultivate valueOur value custodiansHow we protect valueOur value outcomesAnnual Financial statements 43. Contingencies, guarantees and options
Frontline Underwriting Managers (Pty) Ltd and Old Mutual Insure Limited have agreed that the company will have
an option to purchase the Call Option Shares in Frontline during the Call Option Period at the Share Purchase Price.
The call option consideration was expensed in the current period.
44. Going concern
The directors believe that the Group has adequate financial resources to continue in operation for the foreseeable
future and accordingly the Group and company financial statements have been prepared on a going-concern basis.
The directors have satisfied themselves that the Group is in a sound financial position. The directors are not aware
of any new material changes post year-end that may adversely impact the Group, The directors are also not aware
of any material non-compliance with statutory or regulatory requirements or of any pending changes to legislation
which may affect the Group.
45. Events after the reporting period
On 11 March 2020, COVID-19 was declared as a pandemic due to the rising rate and scale of infections observed.
Further on 23 March 2020 the President of South Africa announced a national lockdown for 21 days, expected to
last to 16 April 2020. The rapid spread of the virus has caused significant disruption in global equity markets and
the impact of lockdowns in several countries worldwide is expected to reduce GDP growth in 2020, both locally and
globally. These impacts associated with this pandemic could negatively impact the performance of the business in
2020 and we are in the process of assessing this impact.
There have been no other material events after 31 December 2019 up to the date of this report.
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OLD MUTUAL INSURE LIMITED
Annual Report 2019
Notes to the group and company Financial Statements (continued)