1. Foreign currency exchange rates

Certain transactions of the group occur in foreign currencies. The most material of these currencies, prior to the disposal of LCP, is the pound sterling. These transactions have been translated using the exchange rates below. Other less material foreign subsidiaries have been translated to rand in line with IAS 21 The Effects of Changes in Foreign Exchange Rates, using the weighted average rates for income statement items and the closing rates for items in the statement of financial position.

Rm		2017	2016
Weighted average rate	(rand:sterling)	19.0	20.8
Closing rate	(rand:sterling)	16.8	21.2
2. Fee and commission income
Brokerage fees and commission income		20	22
Fee income from consulting and administrative services		2 084	2 082
Fee income from investment management activities		1 790	1 736
Other income		39	35
		3 933	3 875
Direct expenses related to fees and commission income relate to sub-agent expenses, commissions paid and asset management fees		(1 062)	(1 020)

Fee income from investment management activities is based on financial assets held at fair value through profit or loss.

3. Net income from insurance operations

	Long-term insurance		Short-term insurance		Total
Rm	2017	2016	2017	2016	2017	2016
Gross earned premiums	443	395	1 875	1 728	2 318	2 123
Gross written premiums*	443	395	1 924	1 755	2 367	2 150
Less: Movement in     unearned premium     provision	–	–	(49)	(27)	(49)	(27)
Reinsurers’ share thereof	(306)	(271)	(1 093)	(987)	(1 399)	(1 258)
Net earned premiums	137	124	782	741	919	865
Net investment income from insurance operations	11	12	26	20	37	32
Net expenses of insurance contracts	(7)	(5)	(21)	(22)	(28)	(27)
Net premium and investment income	141	131	787	739	928	870
Gross claims and transfers to policyholders’ funds	(314)	(265)	(1 344)	(1 215)	(1 658)	(1 480)
Reinsurers’ share thereof	258	229	1 036	921	1 294	1 150
Net claims and transfers to policyholders’ funds	(56)	(36)	(308)	(294)	(364)	(330)
Net income from insurance operations	85	95	479	445	564	540

*	Gross written premium for the short-term insurance includes reinsurance commission of R291 million (2016: R282 million) for the year ended 31 March 2017.

Rm	2017	2016
4. Operating expenses
Operating expenses classified by nature are as follows:
Amortisation	(31)	(16)
Purchased and developed computer software (refer to note 14)	(31)	(16)
Intangible assets (refer to note 16)	–	–
Computer and IT costs	(177)	(137)
Depreciation (refer to note 13)	(70)	(71)
Leasehold improvements	(2)	(2)
Computer equipment	(59)	(61)
Furniture fittings, office equipment and other assets	(9)	(8)
External auditors’ remuneration	(32)	(27)
Audit service – fees for audit	(26)	(23)
Non-audit service	(6)	(4)
Insurance costs	(68)	(69)
Premises’ operating costs	(46)	(35)
Operating lease charges	(200)	(184)
Premises – actual charges	(230)	(214)
– accounting for contractual escalations	30	30
Staff costs*	(1 456)	(1 508)
Salaries, wages and other benefits	(1 419)	(1 475)
Share-based payments	(17)	(19)
Termination benefits	(13)	(7)
Retirement benefit contributions – defined contribution plans	(7)	(7)
Other operating expenses	(422)	(443)
Total operating expenses	(2 502)	(2 490)
* Staff costs include executive directors’ and non-executive directors’ remuneration. Refer    to note 44 for a detailed analysis.
Total operating expenses exclude non-trading and capital items which are disclosed in note 5.
5. Non-trading and capital items
Non-trading:
Professional indemnity insurance cell-captive result	30	(9)
Amortisation of intangible assets arising from business combination	(117)	(124)
Costs relating to strategic consulting engagement	(39)	–
Other non-trading items (refer to note 5.1)	(11)	(7)
	(137)	(140)
Amortisation of intangible assets arising from business combination
Purchased and developed computer software (refer to note 14)	(17)	(16)
Intangible assets (refer to note 16)	(100)	(108)
	(117)	(124)

5.1 During the year, African Rainbow Capital Proprietary Limited (ARC), a wholly-owned subsidiary of Ubuntu-Botho Investments Proprietary Limited, was introduced to the group as an empowerment shareholder with an issue of shares by a subsidiary of the group, Alexander Forbes Limited (AFL). The difference between the consideration paid by ARC for their 10% equity holding in AFL and the fair value resulted in a share-based payment expense of R5 million. In the determination of the fair value the market capitalisation of AFGH was used and adjusted for subsidiaries not owned by AFL. Other adjustment factors include a control premium, a minority discount and a marketability discount.

Other non-trading items include developed software written off.

Rm	2017	2016
6. Investment income*
Interest income	115	77
Investment and dividend income	33	21
Foreign exchange gains/(losses) on intergroup loans	8	(5)
	156	93
Multi-manager operations
Investment income linked to policyholder tax expense	22	70
Total investment income	178	163
Investment income is derived from the following categories of financial assets:
Loans receivable	115	77
Financial assets designated at fair value	63	86
	178	163
* Restated.
7. Finance costs
Finance costs derived from financial liabilities classified and carried at amortised costs:
Interest on borrowings	(66)	(57)
Other interest	(23)	(12)
	(89)	(69)
8. Income tax expense*
South African income tax
Current tax	(268)	(248)
Current year	(274)	(210)
Prior years	6	(38)
Deferred tax	33	39
Current year	26	32
Prior years	7	7
Foreign income tax
Current tax	(4)	(16)
Current year	(4)	(16)
Prior years	–	–
Foreign withholding tax	(5)	(6)
Income tax expense relating to corporate profits	(244)	(231)
Income tax expense on policyholder investment returns	(22)	(70)
Current tax – current year	(24)	(108)
Deferred – current year	2	38
Income tax expense	(266)	(301)
The standard South African income tax rate for companies is reconciled to the group’s actual tax rate as follows:
South African income tax rate for companies	28.0	28.0
Adjusted for the effects of:
Foreign withholding tax	0.6	0.7
Policyholder tax	2.5	7.6
Unutilised tax losses (net of prior-year assessment loss utilised)	0.1	3.2
Exempt income	(1.2)	(0.1)
Disallowed expenses
Legal fees	0.6	0.1
Donations	0.2	0.2
Goodwill	0.2	–
Fair value adjustment of treasury shares	0.1	(1.8)
Loss on disposal of investment in subsidiary	0.4	(4.6)
Sundry items	(0.1)	(0.2)
Foreign tax rates	(0.4)	0.3
Prior-year underprovision (net of prior-year overprovision)	(1.5)	(0.8)
Adjustment for capital gains included in taxable income	0.5	–
Effective tax rate per income statement	30.0	32.6
* Restated.
9. Profit attributable to non-controlling interest
Profit attributable to non-controlling interest	109	145

The profits attributable to non-controlling interest result mainly from a non-controlling interest in LCP (disposed of in the current year) and ARC. Other non-controlling interests relate to certain operations within the emerging markets business unit. Details of non-wholly-owned subsidiaries are provided in Note 48: Consolidated and unconsolidated entities.

10. Earnings per share

10.1 Basic earnings per share
Basic earnings per share is calculated by dividing the profit for the period attributable to equity holders by the weighted average number of ordinary shares in issue during the period.

10.2 Headline earnings per ordinary share
Headline earnings per share is calculated by excluding applicable non-trading and capital gains and losses from the profit attributable to ordinary shareholders and dividing the resultant headline earnings by the weighted average number of ordinary shares in issue during the period. Headline earnings are defined in Circular 2/2015 issued by the South African Institute of Chartered Accountants.

10.3 Diluted earnings per ordinary share
Diluted earnings per ordinary share is calculated by adjusting the profit attributable to equity holders for any changes in income or expense that would result from the conversion of dilutive potential ordinary shares and dividing the result by the weighted average number of ordinary shares increased by the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.

		2017	2016
10.4 Number of shares
Weighted average number of shares	(million)	1 341	1 334
Weighted average shares held by policyholders classified as treasury shares	(million)	(19)	(17)
Weighted average treasury shares	(million)	(42)	(35)
Weighted average number of shares in issue	(million)	1 280	1 282
Dilutive shares	(million)	7	10
Diluted weighted average number of shares	(million)	1 287	1 292
Actual number of shares in issue	(million)	1 341	1 341
Actual treasury shares	(million)	(59)	(61)
Actual number of shares	(million)	1 282	1 280
10.5 Calculation of basic and headline earnings from total operations
Profit attributable to equity holders	(Rm)	1 465	729
Adjusting items:
– Profit on disposal of subsidiary – discontinued operations	(Rm)	(796)	(1)
– Loss on disposal of subsidiary – continuing operations	(Rm)	–	3
– Impairment of goodwill and intangible assets	(Rm)	14	–
– Impairment of net assets of disposal groups held for sale	(Rm)	–	13
Headline earnings for the year	(Rm)	683	744
Earnings per share from total operations
Basic earnings per share	(cents)	114.5	56.9
Headline earnings per share	(cents)	53.4	58.1
Diluted basic earnings per share	(cents)	113.8	56.4
Diluted headline earnings per share	(cents)	53.1	57.6
10.6 Calculation of basic and headline earnings from continuing operations
Profit after tax from continuing operations	(Rm)	621	621
Less: Profit attributable to non-controlling interests	(Rm)	(23)	(15)
Profit attributable to equity holders	(Rm)	598	606
Adjusted for:
– Loss on disposal of subsidiary	(Rm)	–	3
– Developed software written off	(Rm)	6	–
Headline profit from continuing operations	(Rm)	604	609
Basic earnings per share from continuing operations	(cents)	46.7	47.3
Headline earnings per share from continuing operations	(cents)	47.2	47.6
Diluted earnings per share from continuing operations	(cents)	46.4	46.9
Diluted headline earnings per share from continuing operations	(cents)	47.0	47.1
10.7 Calculation of basic and headline earnings from discontinued operations
Profit after tax from discontinued operations	(Rm)	953	253
Less: Profit attributable to non-controlling interests	(Rm)	(86)	(130)
Profit from discontinued operations attributable to equity holders	(Rm)	867	123
Adjusted for:
– Profit on disposal of subsidiary	(Rm)	(796)	(1)
– Impairment of goodwill and intangible assets	(Rm)	8	–
– Impairment of assets held for sale	(Rm)	–	13
Headline earnings from discontinued operations	(Rm)	79	135
Basic earnings per share from discontinued operations	(cents)	67.8	9.6
Headline earnings per share from discontinued operations	(cents)	6.2	10.5
Diluted basic earnings per share from discontinued operations	(cents)	67.4	9.5
Diluted headline earnings per share from discontinued operations	(cents)	6.1	10.5

11. Financial assets held under multi-manager investment contracts

The policyholder assets held by the group’s multi-manager investment subsidiaries, AF Investments in South Africa and Namibia, are recognised on the statement of financial position in terms of IFRS. These assets are directly matched by linked obligations to policyholders.

11.1 Movement in multi-manager and unit trust investment contract assets

Rm	2017	2016
A reconciliation between financial assets held under multi-manager and unit trust investment contracts:
Opening balance	276 385	262 004
Movement during the year:*
Premium inflow	40 010	39 520
Withdrawals	(45 264)	(43 709)
Investment returns after tax	12 701	21 069
Policyholder fees charged/investment portfolio expenses	(2 325)	(2 825)
Consolidated funds**	–	364
Other	(9)	(38)
Closing balance	281 498	276 385
*   This amount is economically offset by a corresponding movement in financial      liabilities held under multimanager investment contracts (refer to note 24).
** These are funds that are consolidated when the group’s interest in the funds      increases above the 20% threshold.
11.2 Analysis of multi-manager and unit trust investment contract assets
An analysis of the aggregate financial assets of multi-manager and unit trust investment contracts is set out below:
Financial assets designated as fair value through profit or loss
Equity securities – listed	114 883	113 103
– unlisted	413	12
Preference shares – listed	437	515
Collective investment schemes***	71 746	70 515
Debt securities – listed	22 926	21 584
– government stock	13 736	14 656
Debentures – listed	3 363	3 613
– unlisted	3	–
Policy of insurance***	24 874	23 896
Derivative financial instruments	1	1
Money market	19 303	17 670
Cash and cash equivalents
Cash	9 813	10 820
Total financial assets held under multi-manager investment contracts	281 498	276 385

***	The assets underlying these investments similarly consist of largely listed equity securities, debt securities and money market investments.

Financial assets disclosure on maturity and currency is not provided as these multi-manager and unit trust investment contract assets are directly matched to linked obligations.

11.3 Reconciliation of assets held under multi-manager investment contracts

As a result of the group being listed, the investments by underlying asset managers in the Alexander Forbes Group Holdings’ listed shares are recognised as treasury shares and all fair value adjustments recognised on these treasury shares are reversed, while the corresponding fair value of the limited liability continues to be recognised in the income statement. The resultant loss for the year of R2 million (2016: profit of R59 million) has been disclosed separately on the face of the income statement. This treatment also affects the number of shares in issue, the impact of which is disclosed in note 10.

Below is a reconciliation of the assets held under multi-manager investment contracts with the linked liabilities under such contracts:

Rm	2017	2016
Total financial assets held under multi-manager investment contracts (per statement of financial position)	281 498	276 385
Reversal of adjustments made under IFRS:
Alexander Forbes shares held as policyholder assets and reclassified in the group statement of financial position as treasury shares	137	157
Financial effects of accounting for policyholder investments as treasury shares – prior year	(33)	26
– current year	2	(59)
Total financial assets held for policyholders under multi-manager investment contracts	281 604	276 509
12. Financial assets of insurance and cell-captive facilities
All financial assets relating to insurance contracts held by Investment Solutions in South Africa and relating to cell-captive contracts in Emerging Markets Namibia are included in the consolidated statement of financial position of the group. An analysis of the financial assets attributable to policyholders and cell shareholders’ interests in the cell-captive insurance companies is provided below. These financial assets are directly matched to linked obligations to the policyholders and cell shareholders of the cell-captive insurance companies. The promoter cells’ share (or shareholders’ interest) in the other financial assets of the cell-captive insurance companies are included in the relevant line items of the group statement of financial position.
Financial assets designated as ‘fair value through profit or loss’
Money market	172	104
Cash and cash equivalents
Cash	–	38
Reinsurance assets
Receivables	41	26
Reinsurers’ share of outstanding claims	2	2
Reinsurers’ share of unearned premium provision	102	80
Reinsurers’ share of IBNR provision	3	3
Total financial assets attributable to policyholders and cell shareholders’ interests in cell-captive insurance companies	320	253

Financial assets’ disclosure on maturity and currency is not provided as these cell-captive insurance facility assets are directly matched to linked obligations. Refer to note 25.

Rm	Leasehold improvements	Computer equipment	Furniture and fittings, office equipment and other assets	Total
13. Property and equipment
2017
Carrying value
Cost	31	279	94	404
Accumulated depreciation and accumulated impairment losses	(10)	(168)	(24)	(202)
Carrying value at 31 March 2017	21	111	70	202
Cost
Balance at 1 April 2016	147	320	180	647
Additions to enhance existing operations	7	28	13	48
Disposals	(98)	(58)	(76)	(232)
Transfer to disposal group held for sale	–	(2)	(8)	(10)
Foreign subsidiaries’ exchange differences	(25)	(9)	(15)	(49)
Balance at 31 March 2017	31	279	94	404
Accumulated depreciation and accumulated impairment losses
Balance at 1 April 2016	(47)	(158)	(87)	(292)
Depreciation charge for the year	(6)	(64)	(12)	(82)
Continuing operations	(2)	(59)	(9)	(70)
Discontinued operations	(4)	(5)	(3)	(12)
Disposals	32	47	58	137
Transfer to disposal group held for sale	–	–	6	6
Foreign subsidiaries’ exchange differences	11	7	11	29
Balance at 31 March 2017	(10)	(168)	(24)	(202)
2016
Carrying value
Cost	147	320	180	647
Accumulated depreciation and accumulated impairment losses	(47)	(158)	(87)	(292)
Carrying value at 31 March 2016	100	162	93	355
Cost
Balance at 1 April 2015	119	251	154	524
Additions to enhance existing operations	2	76	15	93
Disposals	–	(15)	(4)	(19)
Transfer to disposal group held for sale	3	–	(3)	–
Foreign subsidiaries’ exchange differences	23	8	18	49
Balance at 31 March 2016	147	320	180	647
Accumulated depreciation and accumulated impairment losses
Balance at 1 April 2015	(28)	(97)	(68)	(193)
Depreciation charge for the year	(10)	(68)	(12)	(90)
Continuing operations	(2)	(61)	(8)	(71)
Discontinued operations	(8)	(7)	(4)	(19)
Disposals	–	15	4	19
Foreign subsidiaries’ exchange differences	(9)	(8)	(11)	(28)
Balance at 31 March 2016	(47)	(158)	(87)	(292)

Furniture and fittings, office equipment and other assets include freehold land and buildings owned by the group, which have a carrying value of R10 million (2016: R11 million). A register of freehold land and buildings is available for inspection by authorised representatives at the registered office of the company.

Rm	2017	2016
Included in property and equipment are assets capitalised as part of a finance lease. The net book value of these assets is as follows:
Furniture and fittings	24	27
Cost	38	38
Accumulated depreciation	(14)	(11)
Computer equipment	20	26
Cost	45	45
Accumulated depreciation	(25)	(19)

Refer to note 30: Finance lease liabilities for more information on the lease arrangement.

14. Purchased and developed computer software

Rm	In use	In development	2017 Total	2016 Total
Carrying value
Cost	356	45	401	356
Accumulated amortisation and accumulated impairment losses	(238)	–	(238)	(217)
Balance at 31 March	118	45	163	139
Cost
Opening balance	323	33	356	268
Movement during the year:
Additions to enhance existing operations	63	21	84	90
Disposals	(28)	–	(28)	(5)
Transfer to assets held for sale	(6)	–	(6)	–
Transfer to in use	9	(9)	–	–
Foreign subsidiaries’ exchange differences	(5)	–	(5)	3
Closing balance	356	45	401	356
Accumulated amortisation and accumulated impairment losses
Opening balance	(217)	–	(217)	(184)
Movement during the year:
Amortisation for the year	(34)	–	(34)	(19)
Continuing operations	(31)	–	(31)	(16)
Discontinued operations	(3)	–	(3)	(3)
Amortisation charge arising from business combination	(17)	–	(17)	(16)
Transfer to assets held for sale	3	–	3	–
Accumulated amortisation on disposals	23	–	23	5
Foreign subsidiaries’ exchange differences	4	–	4	(3)
Closing balance	(238)	–	(238)	(217)

Rm	2017	2016
15. Goodwill
15.1 Carrying value	3 355	3 995
15.2 Reconciliation of movement in carrying value
Opening balance	3 995	3 899
Movement during the year:
Emerging markets – impairment	(8)	–
International Financial Services – disposal of subsidiary	(505)	–
– foreign currency exchange movement	(127)	96
Closing balance	3 355	3 995
15.3 Analysis of goodwill balances per cash-generating unit
SA Risk and Insurance Services
AF Insurance – Personal Services	445	445
SA Financial Services
Financial Services	1 126	1 126
AF Life	317	317
SA AF Investments	1 392	1 392
Emerging markets	75	83
International Financial Services
Lane Clark & Peacock	–	632
	3 355	3 995

During the year the group disposed of its LCP business in the UK. Goodwill ascribed to this cash-generating unit (CGU) was disposed of as part of the sale. In addition, the group classified operations in East Africa within the emerging markets business unit as held for sale. The carrying value of goodwill associated with this business of R8 million was impaired.

15.4 Impairment review of goodwill
Goodwill is allocated to CGUs in accordance with the group’s accounting policies. This represents the lowest level at which goodwill is monitored for internal management purposes and in all cases is at or below the company’s operating segment. The goodwill balances are subject to an annual impairment review as required by IAS 36.

Each CGU goodwill balance is tested for a recoverable amount as determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by the board of directors for the forthcoming year and forecasts for up to four years which are based on assumptions of the business, industry and economic growth. Cash flows beyond this period are extrapolated using terminal growth rates which do not exceed the expected long-term economic growth rate for the geographic segment. Key assumptions used in the impairment review are consistent with past experience and external sources of information.

Key assumptions used include:

	South Africa		Emerging markets
%	2017	2016	2017	2016
Discount rates	13.3	14.3	14.3	12.8
Terminal growth rate	5.2	5.2	5.2	6.1
Average growth rate in operating income net of direct expenses	6 – 15	6 – 13	15	14

Sensitivity analysis

A sensitivity analysis had been performed on each of the base case assumptions used for assessing the goodwill with other variables held constant. Consideration of sensitivities to key assumptions can evolve from one financial year to the next.

The board has considered the surplus of value in use and concluded that, in all cases, there are no reasonably possible changes in key assumptions that may give rise to the carrying amount of goodwill exceeding the value in use.

16. Intangible assets

Intangible assets comprise values attributed to contractual customer relationship lists and market-related trade name intangible assets. All intangible assets are non-current.

Rm	2017	2016
16.1 Carrying value
Cost	1 482	1 762
Accumulated amortisation and accumulated impairment losses	(1 020)	(1 081)
Balance at 31 March	462	681
16.2 Analysis of intangible assets
Customer lists	308	460
Trade names	154	221
	462	681
16.3 Reconciliation of movement in carrying value
Opening balance	681	764
Movement during the year:
Disposal	(94)	–
Amortisation charge arising from IFRS 3 Business Combinations (refer to note 5)	(100)	(108)
Continuing operations	(100)	(108)
Foreign subsidiaries’ exchange differences	(25)	25
Closing balance	462	681
17. Investment in associates
17.1 Equity-accounted carrying value
Cost	2	2
Share of cumulative post-acquisition reserves	11	6
	13	8
17.2 Reconciliation of movement in equity-accounted carrying value
Opening balance	8	9
Movement during the year:
Dividends received from associates	–	(5)
Share of profits of associates	4	4
Other	1	–
Closing balance	13	8
At 31 March 2017 the group had a financial interest in two associates, Alexander Forbes Insurance Brokers Kenya (Kenya Insurance Brokers), classified as a disposal group held for sale, and Alexander Forbes Financial Services Zambia (AF Zambia). Kenya Insurance Brokers operates as a short-term insurance broker and AF Zambia operates as a pension fund administrator. Both  exclusively operate in their country of incorporation. Refer to notes 22 and 48 for further detail.
18. Financial assets
18.1 Total financial assets
Non-current financial assets	98	92
Current financial assets	259	270
	357	362
18.2 Analysis of financial assets
Financial assets designated as fair value through profit or loss	260	267
Money market instruments	92	76
Collective investment schemes	129	153
Bonds	39	38
Financial assets classified as loans and receivables	97	95
Equity release housing loans	30	34
Other loans	67	61
	357	362
19. Insurance receivables
Insurance brokerage income receivable and other insurance balances	323	261
Reinsurance brokerage income receivables	109	55
Receivables from short-term insurance contracts	255	277
Premium debtors	7	7
Reinsurers’ share of unearned premium provision	28	25
Reinsurers’ share of outstanding claims provision	175	204
Reinsurers’ share of IBNR provision	45	41
Receivable from long-term insurance contracts	425	368
Premium debtors	47	51
Reinsurers’ share of policyholder liability (group life)	378	317
Other insurance-related receivables	20	25
	1 137	981
A reconciliation of the receivables from short-term and long-term insurance contracts with the payables from such contracts is provided in note 33 to these financial statements.
20. Trade and other receivables
Financial assets
Trade receivables	146	459
Other receivables	196	91
	342	550
Non-financial assets
Accrued and not billed balances	24	300
Prepayments	32	79
	398	929
Included in trade and other receivables are impairments of trade receivables of R4.6 million (2016: R5.1 million).
21. Cash and cash equivalents
21.1 Total cash and cash equivalents
Cash and bank balances	4 173	4 140
Short-term deposits	2 090	737
	6 263	4 877
21.2 Analysis of cash resources
Total cash and cash equivalents	6 263	4 877
Less: Restricted cash relating to policyholder balances, capital and regulatory requirements and other restrictions	(3 805)	(3 859)
Available cash resources	2 458	1 018
21.3 Cash and cash equivalents included in policyholder and cell-owner assets are as follows:
Multi-manager and unit trust investment contracts	9 813	10 820
Cell-captive insurance facilities	–	38
	9 813	10 858

22. Assets and liabilities of disposal group classified as held for sale and discontinued operations

As part of the group’s strategic refocusing of its operations certain entities have been discontinued and disposed of. The assets and liabilities of these entities are reclassified to assets and liabilities of disposal groups classified as held for sale at the date of discontinuance. The results of operations of the discontinued entity are reported separately in the income statement with the prior year also being restated to take this into effect.

22.1 Net profit of business units discontinued up to effective date of disposal
In December 2016 the group sold the majority of its international segment. Management received an offer for this segment in November 2016, following a strategic decision to place greater focus on the group’s core business, being retirement benefits and multi-manager investments.

The international segment was not previously classified as held for sale or as a discontinued operation. The comparative group income statement and statement of comprehensive income have been restated to show the discontinued operation separately from continuing operations.

In addition, the group committed to a plan to sell the Alexander Forbes Compensation Technologies (AFCT) business to BEE private investors and management early in 2015. In June 2016 the group finalised the sale of this business. The AFCT business was previously classified as a discontinued operation.

Rm	2017	2016
Fee and commission income	1 339	2 099
Operating income net of direct expenses	1 339	2 099
Operating expenses	(1 155)	(1 789)
Profit from operations before non-trading and capital items	184	310
Non-trading and capital items*	(8)	(18)
Operating income	176	292
Investment income	–	4
Finance costs	(1)	(1)
Profit before tax	175	295
Income tax expense	(18)	(43)
Profit for the year from discontinued operations	157	252
Profit on disposals	796	1
Total profit from discontinued operations	953	253

*

Non-trading and capital items relate to an impairment of R8 million on goodwill within East Africa (emerging markets). The prior year includes an impairment of R10 million relating to the present value of the proposed sale price of Alexander Forbes Compensation Technologies and an impairment of R8 million relating to the net assets of the LCP operation in Europe.

22.2 Disposal of subsidiaries, associates and businesses

The disposals of subsidiaries and associates in the year include the disposal of Alexander Forbes International operations (LCP), AFCT and Alexander Forbes Zimbabwe (emerging markets). Disposals in 2016 include Lane Clark & Peacock Belgium CVBA.

Rm	2017	2016
Carrying value of net assets sold	(292)	(4)
Intangible assets disposed of	(75)	–
Non-controlling interest	129	–
Goodwill disposed of	(505)	–
Foreign currency translation reserve of disposed entities	209	2
	(534)	(2)
Net proceeds on disposal	1 330	3
Profit on disposal of subsidiaries	796	1
Net proceeds on disposal	1 330	3
Less: Profit share receivable	(105)	–
Net consideration received in cash	1 225	3
Cash and cash equivalents disposed of	(342)	(5)
Net cash outflow	883	(2)
22.3 Assets and liabilities of disposal group classified as held for sale
At 31 March 2017 the operations within East Africa (emerging markets) have been classified as discontinued. The assets and liabilities of this operation are classified as assets and liabilities of disposal of groups classified as held for sale. Goodwill of R8 million was impaired in the current year.
The comparative March 2016 disclosure consists of the assets and liabilities of the operations classified as held for sale at that date, being Alexander Forbes Compensation Technologies.
The table below provides an analysis of the components of assets and liabilities of disposal groups classified as held for sale.
Long-term assets	5	3
Deferred tax asset	1	–
Trade and other receivables	47	8
Other current assets	2	107
Cash and cash equivalents	11	13
Total assets	66	131
Deferred tax liability	–	30
Provisions – non-current	–	6
Trade and other payables	11	7
Total liabilities	11	43
23. Equity holders’ funds
23.1 Total equity holders’ funds
Share capital at no par value (refer to note 23.2)	6 192	6 192
Treasury shares (refer to note 23.3)	(160)	(181)
Non-distributable reserves	(336)	157
Share-based payment reserve	53	36
Other reserves (refer to note 23.5)	(389)	121
Accumulated profit/(loss)	1 205	(267)
	6 901	5 901

	2017		2016
	Number of shares ’000	Share capital at no par value Rm	Number of shares ’000	Share capital at no par value Rm
23.2 Analysis of share capital
Authorised
Ordinary shares each	2 500 000	–	2 500 000	–
Non-convertible redeemable B preference shares	45 000	–	45 000	–
Issued
Ordinary shares	1 341 427	6 192	1 341 427	6 192
	1 341 427	6 192	1 341 427	6 192

Reconciliation of movement in ordinary shares

	2017		2016
	Number of shares ’000	Share capital Rm	Number of shares ’000	Share capital Rm
Opening balance	1 341 427	6 192	1 302 356	6 192
Shares issued to the Employee Share Option Plan (refer to note 23.3.1)	–	–	39 071	–
Closing balance	1 341 427	6 192	1 341 427	6 192

Rm	2017	2016
23.3 Treasury shares
Opening balance	(181)	(166)
Movement during the year:
Purchase/(disposal) of treasury shares in policyholder assets	21	(15)
Closing balance	(160)	(181)

23.3.1 BEE Employee Share Option Plan (ESOP)

In order to address certain broad-based black economic empowerment imperatives the group has established a BEE Employee Share Option Plan for the benefit of its qualifying employees, and particularly qualifying black female employees. The establishment of the ESOP is intended to help entrench a culture of share ownership amongst the employees within the group. It is believed that employee share ownership will incentivise employees to align their interests with those of the group’s shareholders, and to attract and retain talented employees and managers.

The Isilulu Trust (trust) was set up as the vehicle through which the ESOP will operate. Alexander Forbes issued 39 070 700 ordinary shares to the trust at one cent per share and rank pari passu with other ordinary shares, with the exception of dividend rights for these shares.

There are two types of beneficiaries, Pool A beneficiaries and Pool B beneficiaries. Pool A beneficiaries are black women and are entitled to 70% of the trust income available for distribution. Pool B beneficiaries are all beneficiaries not in pool A and are entitled to 30% of the trust income available for distribution.

The shares are entitled to 30% of the dividends distributed to ordinary shareholders. The trust is restricted from disposing of or encumbering these shares during the term of the trust. Dividends distributed by the trust are treated as employee benefits. Dividend income earned by the trust and subsequently distributed to qualifying employees was R3.9 million (2016: R2.7 million) during the current financial year.

The trust is restricted from disposing or encumbering the shares held. AFGH has a call option in terms of which the shares may be repurchased under specific criteria relating to change in control, change in BEE rating and various other provisions. The repurchase price will be calculated in terms of a repurchase formula specifically defined in the agreements. The group does not currently anticipate executing the repurchase for the next 10 years.

Rm	2017	2016
23.4 Share-based payment reserve
Opening balance	36	17
Expensed to income statement	17	19
Closing balance	53	36

The group has two types of awards of shares to its employees: the forfeitable share plan and the conditional share incentive scheme. These schemes are discussed below under notes 23.4.1 and 23.4.2.

23.4.1 Forfeitable shares issued to staff at the listing

Under this scheme shares are awarded to employees which will vest at a future date if the employee remains employed. The employee participates in the benefits of the share during the vesting period. Shares are forfeited if the employee ceases to be an employee of the group. To hedge exposure to the shares issued under this scheme the group acquired 3 200 000 shares at R7.50 per share. The group has no legal or constructive obligation to repurchase or settle the award in cash. The shares are held on behalf of the employees by a trust which was set up specifically for this purpose. The trust is consolidated and the shares are reflected as treasury shares. The employees are entitled to dividend distributions during the vesting period. The table below reflects the forfeitable shares issued. In each case the vesting period for the shares is three years.

	Number of employees	Shares per employee	Total shares issued
2014 tranche	3 050	1 000	3 050 000
2015 tranche	3 194	200	638 800
2016 tranche	2 954	200	590 800

Movement in the number of shares allocated is as follows:

’000	2017	2016
At 1 April	2 956	2 766
Granted	591	639
Forfeited	(514)	(449)
31 March	3 033	2 956

Shares granted and outstanding at the end of the year have the following vesting dates:

		Total shares granted
’000	Vesting date	2017	2016
2014 tranche	24 July 2017	2 035	2 384
2015 tranche	31 July 2018	468	572
2016 tranche	24 July 2019	530	–
		3 033	2 956

The grant date fair value of the shares is determined based on the market price at the date of issue which was R7.50 per share for the 2014 tranche, R8.89 per share for the 2015 tranche and R7.47 for the 2016 tranche.

23.4.2 Conditional share incentive scheme

Under this scheme executives, senior managers and other key employees of the group (‘participants’) are granted performance-related awards, i.e. conditional rights to receive shares. In addition, these awards are subject to a vesting period determined by the remuneration committee. The performance condition is aligned to the financial year of the group. Further, each participant will not have any shareholder or voting rights prior to the vesting date. Employees are not required to pay for the shares granted under this scheme.

The shares granted under this scheme are subject to the group achieving its target growth in headline earnings per share (HEPS) over the period. The cumulative HEPS over the performance period is equal to the sum of the base year HEPS grown by the consumer price index (CPI) and real gross domestic product (GDP) per annum over the performance period.

Movement in the number of shares outstanding is as follows:

’000	2017	2016
At 1 April	29 620	15 031
Granted	20 131	17 204
Forfeited	(9 227)	(2 615)
31 March	40 524	29 620

Shares granted and outstanding at the end of the year have the following vesting dates:

		Total shares granted
’000	Vesting date	2017	2016
2014 tranche	24 July 2017	10 800	13 576
2015 tranche	4 August 2018	12 803	16 044
2016 tranche	24 July 2019	16 921	–
		40 524	29 620

The grant date fair value of the shares is determined based on the market price at the date of issue less the net present value of expected dividends over the vesting period. The grant date fair value of the shares allocated is R6.70 per share for the 2014 tranche, R8.12 per share for the 2015 tranche and R6.21 for the 2016 tranche.

Rm	2017	2016
23.5 Other reserves
Foreign currency translation reserve	61	571
Redemption reserve*	(449)	(449)
Other reserves	(1)	(1)
	(389)	121

*

The group redeemed the B preference shares, previously carried at R211 610, at their fair value of R178 million. The B preference shares were classified as equity instruments of the group, therefore the difference between the redemption proceeds and the original carrying value of the B preference shares has been recorded within equity (redemption reserve). The balance of the reserve arose on redemption of preference shares relating to the private equity transaction.

Rm	2017	2016
24. Financial liabilities held under multi-manager investment contracts
24.1 Movement of liabilities under multi-manager and unit trust investment contracts
Opening balance	276 509	262 172
Movement during the year:*
Premium inflows	40 010	39 520
Withdrawals	(45 264)	(43 709)
Investment return net of taxation	9 965	21 010
Policyholder fees charged/investment portfolio expenses	(2 337)	(2 825)
Consolidated funds**	–	364
Other	2 721	(23)
Closing balance	281 604	276 509
*   This amount is economically offset by a corresponding movement in ‘Financial assets held under      multi-manager investment contracts' (refer to note 11).
** These are funds that are consolidated when the group’s interest in the funds increase above the 20%      threshold.
24.2 Discounted maturity analysis of liabilities under multi-manager and unit trust investment contracts
Open ended	281 604	276 509
	281 604	276 509
These policyholder liabilities arise from multi-manager and unit trust investment contracts issued by the group’s multi-manager investment subsidiaries in South Africa and Namibia. The policyholder liabilities are directly matched to the linked policyholder assets.
These are financial liabilities designated as fair value through profit or loss.
Financial liabilities linked to investment contracts	281 604	276 509
	281 604	276 509
25. Liabilities of insurance and cell-captive facilities
Under IFRS all insurance-related financial liabilities of AF Investments in South Africa and cell-captive-related financial liabilities in Emerging Markets Namibia are included in the consolidated statement of financial position of the group. An analysis of the policyholders’ and cell owners’ interests in the financial liabilities of these cell-captive insurance companies is provided below. The promoter cell (or shareholder’s) interest in the other financial liabilities of the cell-captive insurance companies is included in the relevant line item in the group statement of financial position.
Short-term insurance technical liabilities	310	219
Gross unearned premium provision	293	213
Gross outstanding claims provision	14	2
Gross IBNR provision	3	4
Long-term insurance technical liabilities
Policyholder liability	(1)	–
Insurance liabilities of cell-captive insurance facilities	309	219
Other liabilities attributable to policyholders and cell owners	11	34
Cell owners’ interest*	20	29
(Receivables)/payables*	(7)	5
Taxation (receivable)/payable	(2)	–
	320	253
* These are designated as financial liabilities at fair value through profit or loss. These liabilities are directly matched to linked financial assets. Refer to note 12.

Rm	2017	2016
26. Borrowings
26.1 Analysis of borrowings
Revolving credit facility (refer to note 26.4)	719	701
Other	6	4
	725	705

Rm	Revolving credit facility	Other	2017 Total	2016 Total
26.2 Reconciliation of movement in borrowings
Opening balance	701	4	705	1 000
Movements for the year:
Interest accrued	66	2	68	57
Interest paid	(65)	–	(65)	(53)
Borrowings repaid	(83)	–	(83)	(383)
Borrowings raised	100	–	100	84
Closing balance	719	6	725	705

Rm	2017	2016
26.3 Discounted maturity analysis of borrowings
Due within one year	725	705

26.4 Revolving credit facility
The credit facility bears interest at JIBAR plus 1.25% per annum compounded quarterly. The interest is payable quarterly while the capital is repayable annually together with any unpaid interest on 31 March 2017. The facility is renewable annually for a 12-month period. Renewal is subject to an annual credit review by the lender and the financing needs of the group.

If Alexander Forbes Limited (AFL) fails to pay any principal amount or interest amount payable by it on its due date, interest will accrue on the loan and any accrued and unpaid interest from the due date up to the date of actual payment at a rate which is equal to the interest rate (JIBAR plus 1.25%) which would otherwise be applicable plus 2%, for so long as such payment remains outstanding and has not been remedied after any applicable grace period (if any).

The credit facility agreement is for R1 billion and may be drawn or repaid at any time, in whole or in part, which would include the capital plus any accrued and unpaid interest to the repayment date.

The credit facility is subject to certain mandatory repayment events. For instance, the loan would be repaid if AFL or any other member of the group disposes of any of its assets or business (whether pursuant to a single transaction or a series of transactions) which, when aggregated with all other assets disposed of by members of the group since the signature date, directly or indirectly contribute more than 30% of the consolidated EBITDA or assets of the group for the 12-month period up to and as at the date of disposal.

In addition, all amounts outstanding on the credit facility, together with accrued and unpaid interest, will become immediately due and payable in the event of a sale of all or substantially all of the assets or business of the group or if a change of control occurs. AFL must repay the credit facility if the lender becomes aware that it is unlawful in any applicable jurisdiction for such lender to perform its obligations under a term finance document.

26.5 Financial covenants
Due to the nature of the revolving credit facility there are no financial covenants included in the agreement.

Rm	2017	2016
27. Employee benefits
27.1 Total employee benefits
Defined benefit pension fund obligation – South Africa (refer to note 27.2)	–	–
Post-retirement medical benefit obligation – South Africa (refer to note 27.3)	108	116
Provision for leave pay (refer to note 27.4)	52	50
	160	166
Substantially all employees are covered by defined contribution retirement fund arrangements in the major territories in which the group operates. The group also has a defined benefit pension fund as disclosed below (which is closed to new entrants). Provisions for pension obligations are established for benefits payable in the form of retirement, disability and surviving dependant pensions. The defined contribution and defined benefit pension funds in South Africa are both governed by the Pension Funds Act.
27.2 Defined benefit pension fund obligation – South Africa
The closed defined benefit pension fund provides a pension of 2% of final pensionable salary for each year of pensionable service plus 0.5% of final pensionable salary for each year of pensionable service in excess of 25 years. The fund was closed to new members on 31 December 1992.
The pension fund is funded with the assets of the fund being held independently of the group’s assets in a separate trustee-administered fund.
The fund is valued by a statutory actuary on a tri-annual basis, with a full actuarial assessment being completed on 31 March 2017. The actuary is of the opinion that the fund is in a sound financial position. For accounting reporting the projected unit credit method is used to value the liability.
The membership of the fund as at the last actuarial valuation at 31 March 2017 comprised six active members and 70 pensioners.
A portion of fund assets are managed by our subsidiary, AF Investments, and the total value is R196 million (2016: R200 million). Another portion of the fund assets is invested with a financial institution with a credit rating of Baa2 per Moody’s. These assets are secured by South African government bonds. As such Alexander Forbes pension fund will be entitled to the proceeds of the bonds should the financial institution default.
Present value of benefit obligation	(147)	(155)
Fair market value of the plan assets	206	212
	59	57
Impact of asset ceiling	(59)	(57)
Total	–	–

Reconciliation of movements

Rm	Present value of obligation	Fair value of plan assets	Total	Impact of asset ceiling	Total
* Remeasurement specifically due to change in economic assumptions.
At 31 March 2015	(155)	210	55	(55)	–
Current service costs	(1)	–	(1)	–	(1)
Interest expense	(12)	16	4	–	4
Remeasurements	2*	(4)	(2)	–	(2)
Contributions	–	2	2	–	2
Past service costs	(1)	–	(1)	–	(1)
Payment from plans
Benefits paid	12	(12)	–	–	–
Adjustment to the asset ceiling	–	–	–	(2)	(2)
At 31 March 2016	(155)	212	57	(57)	–
Current service costs	(2)	–	(2)	–	(2)
Interest expense	(14)	19	5	–	5
Remeasurements	9	(11)	(2)	–	(2)
Contributions	–	1	1	–	1
Past service costs	–	–	–	–	–
Payment from plans	–	–	–	–	–
Benefits paid	15	(15)	–	–	–
Adjustment to the asset ceiling	–	–	–	(2)	(2)
At 31 March 2017	(147)	206	59	(59)	–

%	2017	2016	2015
The principal actuarial assumptions applied are as follows:
Discount rate	9.2	9.4	8.0
Inflation rate	6.3	7.1	5.8
Salary increase rate	7.3	8.1	6.8
Pension increase allowance	6.3	7.1	5.8

The sensitivity of the defined benefit obligation to changes in the principal actuarial assumptions above are as follows:

Rm	Change in assumption	Increase in obligation	Decrease in obligation
Discount rate	1.0%	(8.8)	10.6
Inflation rate	1.0%	10.7	(9.1)

The mortality rates are assumed as follows:
Pre-retirement: SA85-90 (Light) table
Post-retirement: PA(90) ultimate table rated down two years plus 1% improvement per annum from 28 February 2004

The components of plan assets are as follows:

%	2017	2016
Cash	3.92	8.30
Equity
Listed equities	16.63	14.09
Unlisted equities	6.53	7.70
Bonds	53.04	49.99
Property	3.71	3.06
International
Equity	11.09	12.08
Bonds	0.10	1.00
Cash	2.38	2.00
Property	0.33	0.18
Other	0.58	0.20
Other	1.69	1.40
	100.00	100.00

27.3 Post-retirement medical benefit obligation – South Africa
In South Africa certain employees, who joined the group before 1 March 1997, are entitled to a post-retirement medical aid subsidy. At 31 March 2017 this applies to a total of 275 people (2016: 345) and comprises 35 active employees (2016: 89) and 240 pensioners (2016: 256). Employees who joined the group after 1 March 1997 are not eligible for post-retirement medical aid subsidies.

Certain employees employed before 1 March 2009 are eligible for a death-in-service subsidy. If a member eligible for a death-in-service subsidy dies in service, their dependants are eligible to receive a 50% subsidy of medical scheme contributions subject to the fixed rand amount as for the post-retirement subsidy.

The obligation is valued every year by actuaries using the projected unit credit method. The date of the last actuarial valuation was 31 March 2017. The post-retirement medical obligation is partly funded through a cell-captive insurance arrangement. The assets of the insurance cell totalled R60 million at 31 March 2017 (2016: R62 million).

The cell-captive insurance policy is consolidated in the group’s results and the related asset which backs this post-employment liability is reflected in cash and cash equivalents.

The post-retirement medical aid subsidy paid to pensioners is subject to a maximum rand amount. This rand amount increases with inflation (CPI) each year. In order to compensate for the rand amount increase of the subsidy being different to medical aid inflation, the group established a hardship fund in 2004 to provide assistance to specifically identified pensioners in financial need.

Rm		2017	2016
The latest actuarial valuation reflected the following:
Medical benefit obligation		98	105
Hardship fund liability		10	11
Recognised liability in the statement of financial position		108	116
A reconciliation of the movement in the post-retirement medical benefit obligation in South Africa is as follows:
Opening balance		105	107
Current service costs		2	1
Interest expense		13	8
Remeasurements		(13)	(3)
Benefits paid		(9)	(8)
Closing balance		98	105
The principal actuarial assumptions applied are as follows:
Discount rate	(%)	9.9	10.3
Inflation (CPIX) rate	(%)	7.0	7.9
Retirement age	(years)	60/65	60/65

Mortality rates are assumed as follows:

Pre-retirement: SA85-90 (Light) ultimate table
Post-retirement: PA(90) ultimate table rated down two years plus 1% improvement per annum (from a base year of 2006)

The sensitivity of the defined benefit obligation to changes in the principal actuarial assumptions above is as follows:

Rm	Change in assumption	Increase in obligation	Decrease in obligation
Discount rate	1.0%	10.8	(9.0)
Inflation (CPIX) rate	1.0%	10.8	(9.1)

Rm	2017	2016
27.4 Provision for leave pay
Opening balance	50	60
Movement during the year:
Increase in provision	19	7
Decrease in provision	(17)	(18)
Foreign subsidiaries’ exchange differences	–	1
Closing balance	52	50

The group’s policy is that leave days are forfeited at the end of the next annual leave cycle, unless a carry-forward of leave days is specifically authorised or provided for in an employment agreement. The timing of the use of the leave pay provision depends on employees’ leave plans and resignations from employment during the year.

Rm	2017	2016
28. Deferred taxation*
28.1 Net deferred tax liability balance
Deferred tax assets (refer to note 28.3)	148	157
Deferred tax liabilities (refer to note 28.4)	(199)	(262)
	(51)	(105)
28.2 Reconciliation of movement in the net deferred tax liability balance
Opening balance	(105)	(174)
Movement during the year:
Credit per income statement	35	78
Charge to income statement relating to operations discontinued in the current year	1	(2)
Transfer to asset groups held for sale	(1)	–
Disposal as a result of the sale of a business	17	–
Foreign subsidiaries’ exchange differences	2	(7)
Closing balance	(51)	(105)
28.3 Analysis of deferred tax assets
Retirement benefit obligations	16	11
Deferred income	2	1
Calculated tax losses	11	1
Provisions	50	63
Operating lease liability	50	43
Other items	19	38
Total deferred tax assets	148	157
28.4 Analysis of deferred tax liabilities
Deferred tax on policyholder assets	(64)	(73)
Accelerated tax allowances, provisions and other items	(5)	(4)
Deferred tax recognised in terms of IFRS 3 Business Combination**	(130)	(185)
Total deferred tax liabilities	(199)	(262)

*	Restated.
**	This amount represents the deferred tax balance raised on intangible assets recognised at the time of the private equity transaction.

Rm	2017	2016
29. Provisions
Proposed client settlements (refer to note 29.2)	97	100
Provisions for errors and omissions claims (refer to note 29.3)	194	249
Other	–	3
Total	291	352

29.1 Analysis and reconciliation of movement in provisions

Rm	Proposed client settlements	Provisions for errors and omissions claims	Other	Total
Balance at 31 March 2015	98	208	11	317
Movement during the year:
Net increase in provision	5	26	–	31
Payments made	(3)	(23)	(12)	(38)
Foreign subsidiaries’ exchange differences	–	38	4	42
Balance at 31 March 2016	100	249	3	352
Movement during the year:
Net increase/(decrease) in provision	2	(4)	(1)	(3)
Payments made	(5)	–	–	(5)
Disposal of subsidiary	–	–	(2)	(2)
Foreign subsidiaries’ exchange differences	–	(51)	–	(51)
Balance at 31 March 2017	97	194	–	291

The provision for proposed client settlements is current in nature while all other provisions are considered to be non-current.

Uncertainties affecting the timing and amount of the settlement of provisions are discussed in the relevant note below.

29.2 Provision for client settlements and other legal claims

The group voluntarily appointed independent legal advisers to conduct a full review of past and current business practices across all of the South African operations in 2006. The results of the review were fully disclosed and published on the group’s website. Following this review the provision for proposed client settlements for historical business practices, including the practice referred to as ‘bulking’ (refer to note 36.2 for further details on ‘bulking’), was made. Interest accrues on this provision at the prime lending rate less 4% up to the date of settlement payments.

To date the group has made substantial progress in relation to the client settlement process, with the vast majority of all retirement funds that received offers having accepted the settlement offer.

29.3 Provision for errors and omissions claims

In the conduct of its ordinary course of business, the group is exposed to various actual and potential claims, lawsuits and other proceedings relating to alleged errors and omissions, or non-compliance with laws and regulations.

The group’s errors and omissions risk is insured in the London market (the market policy), with a limit of R2 billion for every claim or loss in the annual aggregate in excess of the aggregate deductible of R90 million. The market policy covers all subsidiary and associate companies.

Upon exhaustion of the aggregate deductible of R90 million a deductible of R1.2 million for each claim or loss will apply, but the ZAR equivalent of £30 000 for every claimant in respect of investment and investment-related business activities regulated by the Financial Services Authority in the UK.

The aggregate deductible of R90 million is insured with a third-party cell-captive insurer, Mannequin Insurance PCC Limited (the Mannequin policy). The limit of the Mannequin policy is equal to the limit of the aggregate deductible of the market policy, i.e. R90 million. The Mannequin policy imposes a deductible of R1.5 million per claim for Africa operations or £100 000 for operations outside Africa.

From 1 April 2014 the Mannequin policy also covers associates and non-wholly-owned operations (NWOS). Except for Namibia operations (which have access to a R2 billion limit), associates and NWOS have a limit of R125 million per claim and in the aggregate. In the event of the exhaustion of the aggregate excess of R90 million, the market policy will drop down to cover associates and NWOS to the full limit of R125 million respectively less any amount paid for claims in respect of associates and NWOS. The Mannequin policy imposes a deductible of R375 000 per claim in respect of associates and NWOS.

The group has an equity investment in a cell in Mannequin Insurance PCC Limited, which entitles the group to the underwriting profits earned by this insurance cell. The group is required to maintain the insurance cell and ensure it is adequately capitalised. Additional capital is required to be paid in the event that underwriting losses are incurred by the insurance cell.

The assets, liabilities, income statement and cash flow effects attributable to the group’s investment in the Mannequin insurance cell are included in the consolidated financial statements of the group. The effect is to eliminate the premium payments to the cell-captive insurer on consolidation and to recognise the assets, liabilities, cash flows and net operating results of the insurance cell in the consolidated financial statements of the group. The insurance premiums charged to the various group operations continue to be allocated to the relevant businesses in determining the trading results of operations reflected in the segmental profit analysis.

Critical assumptions and judgements
Twice a year a committee of senior group managers conducts a detailed review of all outstanding claims. The merit of each claim is assessed and each claim is scored based on the probability (on a scale of 1 (unlikely) to 10 (extremely likely)) of being realised and the estimated cost to the group. A provision is raised for the product of the probability and the estimated cost. Judgement is exercised when assessing probability and potential cost based on past experience and any industry developments. Legal advice is sought where necessary and all calculations are submitted to the group insurance underwriters for their comment and review. Where the probability of a claim is assessed at 5 or more, an accrual is made for any excess payable.

In the prior year we referred to a specific matter which was and is still being reviewed by a foreign regulator in respect of a legacy subsidiary business that has been sold. Whilst this review is ongoing the skilled person appointed by the regulator has issued a draft report indicating further investigation and work is justified and is currently being undertaken. The claim, should any arise, will be as a result of warrantees provided on the original sale of the business. Management has assessed and concluded that it is still too early to determine (i) the likelihood and magnitude of any liability that may arise and (ii) in the event a liability does arise, if it will impact the group. The group is adequately insured for possible claims as a result of such errors and omissions. In addition, management has obtained confirmation from the insurance underwriters indicating that should a liability arise, the event will be covered subject to the terms and conditions of the policy.

29.4 Other provisions

Other provisions include the following:

• Provision for clawback of commissions received by the group. This provision is based on historical client lapse experience. However, it may not be representative of future client lapse experience, which will affect the quantum of commission required to be repaid to insurers.
• Provision for contractual obligations in relation to premises leases entered into in the United Kingdom, which require the relevant buildings to be refurbished at the end of the lease term. The nature of the actual expenditure and quantum thereof will only be determined at the end of the lease term.
• Provision for onerous premises leases. This provision is based on management’s best estimate but conditions may change regarding the likelihood, timing and commercial terms of sublease arrangements in respect of unoccupied office space.

Rm	Future minimum lease payments	Interest	Present value of minimum lease payments at 31 March 2017	Present value of minimum lease payments at 31 March 2016
30. Finance lease liability
Not later than one year	9	–	9	8
Later than one year but not later than five years	43	4	39	36
Later than five years	34	7	27	36
	86	11	75	80

In 2010 the group entered into a lease agreement for a head office building which took effect on 1 October 2012. The lease is for a period of twelve years. This head office building comes fully furnished with items of furniture and fixtures, including IT equipment. The items of furniture, fixtures and equipment will be used for the majority of their economic lives and consequently have been classified as finance-leased assets. The minimum lease payments were therefore split between (i) land and building (operating lease component) and (ii) furniture and fixtures including IT equipment (finance lease component) based on their relative fair values.

Rm	2017	2016
31. Operating lease liability
Premises lease deferral	182	266
The operating lease liability relates to the premises lease deferral which is the accelerated recognition of lease costs resulting from straight-lining of lease expenses (with no recognition of time value of money) in terms of IAS 17. The significant lease to which this deferral relates is 115 West Street, Sandton (starting from October 2012). The escalation is 7.5% per annum.
32. Deferred income
Commission income on insurance and investment products	5	34
The deferred income is recorded in Financial Services and relates to income deferred to cover future servicing costs, together with a reasonable margin thereon.
33. Insurance payables
33.1 Total insurance payables
Payables from insurance contracts
Insurance payables from broking activities	15	27
Claims float held for insurance operations	35	38
Policyholder liability under long-term insurance contracts (group life)	399	331
Payables from insurance-related activities
Reinsurance creditors	489	428
Reinsurance commission	3	–
Payables from short-term insurance contracts	325	358
Gross unearned premium provision	43	42
Gross outstanding claims provision	220	259
Gross IBNR provision	62	57
Payables from umbrella retirement fund activities*	1 694	1 696
	2 960	2 878

*	A substantial portion of the payables from umbrella fund activities results from a timing difference between the receipt of funds from new clients at year-end and the investment of these funds with the group’s multi-manager investment subsidiary subsequent to year-end.

33.2 Policyholder liability under long-term insurance contracts

The policyholder liability arises from group life business written by a long-term insurance subsidiary of the group. The net liability position comprises:

Rm	2017	2016
Gross policyholder liability (refer to note 33.1 above)	399	331
Less: Reinsurance assets relating to the policyholder liability (refer to note 19)	(378)	(317)
Net liability to policyholders	21	14
A reconciliation of the movement in the net policyholder liability is as follows:
Opening balance	14	19
Movement during the year:
Net increase/(decrease) in claims experience	7	(5)
Closing balance	21	14

Critical assumptions and judgements
The actuarial value of policyholder assets and liabilities arising from long-term insurance contracts is determined using the financial soundness valuation method as described in SAP 104 of the Actuarial Society of South Africa.

Assumptions need to be made in respect of inputs to the model. The following process is followed to determine the valuation assumptions:

• Management exercises judgement in deciding on best estimates for assumptions.
• Prescribed margins are then applied, as required by the Long-term Insurance Act in South Africa and Board Notice 72 issued in terms of the Act.
• Discretionary margins may be applied, as required by the valuation methodology or if the statutory actuary considers such margins necessary, to cover the risks inherent in the contracts.

Best estimate assumptions as to mortality and morbidity, expenses, investment income and tax are used which may vary at each reporting date. Reliance is placed on historical information and statistical models. A margin for adverse deviations is included in the assumptions. Improvements in estimates have a positive impact on the value of the liabilities and related assets, while deteriorations in estimates have a negative impact.

The process for determining assumptions used are as follows:

• IBNR multiple
  The multiples of monthly premium used to determine IBNR liabilities are compared annually with actual reporting lags for claims in the respective product lines.
• Mortality and morbidity
  For group life insurance contracts, the rate of recovery from disability is derived from industry experience studies adjusted, where appropriate, for the group’s own experience. For individual life insurance contracts, demographic assumptions are set with reference to reinsurer rates and industry experience.
• Expenses
  Expense assumptions are based on an expense analysis, using a functional cost approach. This analysis allocates expenses between policy and overhead expenses and within policy expenses, between new business, maintenance and claims.
• Investment income
  Estimates are made as to future investment income and are tested against market conditions as at the valuation date, taking into account the terms of the liabilities. Inflation assumptions are tested against market conditions and, with regard to consistency, are tested against interest rate assumptions.
• Tax
  Allowance is made for future taxation and taxation relief.

Margins for adverse deviations are included in the assumptions as set out below:

%	Compulsory margin	Discretionary margin
Assumption
Mortality	7.5	7.5
Morbidity	10.0	10.0
Withdrawal	25.0	25.0
Expenses	10.0	10.0
Investment return	25 basis points

Also refer to note 45.5: Long-term insurance.

Rm	2017	2016
33.3 Net payables from short-term insurance contracts
The net payables from short-term insurance contracts arise from short-term insurance business written by the short-term insurance subsidiaries of the group. The net payables position comprises:
Payables from short-term insurance contracts (refer to note 33.1)	325	358
Less: Receivables from short-term insurance contracts (refer to note 19)	(255)	(277)
Net payables from short-term insurance contracts	70	81
A reconciliation of the movement in the net payables is as follows:
Opening balance	81	74
Movement during the year:
Net claims incurred	(11)	7
Closing balance	70	81
Critical assumptions and judgements
Outstanding claims provisions include notified claims as well as incurred but not yet reported claims (IBNR). Each notified claim is assessed on a 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. Case estimates are regularly reviewed and updated if necessary. The chain ladder technique has been used to calculate the provision for IBNR. This methodology is based on the analysis of statistics including the pattern of notification of claims in respect of different underwriting periods.
34. Trade and other payables
Financial liabilities
Trade payables	275	584
Accrued expenses	174	148
Other payables	197	257
	646	989
Non-financial liabilities
Employee-based accruals	135	529
	781	1 518

35. Commitments

35.1 Operating lease commitments

The future minimum lease payments under non-cancellable operating leases are as follows:

Rm	Premises	Furniture and fittings, office equipment and other assets	2017 Total	2016 Total
Due within one year	185	2	187	235
Due between one to five years	765	1	766	1 167
Due after five years	558	–	558	1 063
	1 508	3	1 511	2 465

Rm	2017	2016
35.2 Capital commitments
Commitments in respect of capital expenditure approved by directors:
Not contracted for	1	10
	1	10

These commitments relate largely to software purchases and development costs and the funds to meet these commitments will be provided from internal cash resources generated by operations.

Subsequent to year-end the group announced a significant contractual agreement relating to system and process development. Refer to note 50: Events after reporting period for more information.

36. Contingencies

36.1 Overview

In the conduct of its ordinary course of business the group is exposed to various actual and potential claims, lawsuits and other proceedings relating to alleged errors and omissions, or non-compliance with laws and regulations. The directors are satisfied, based on present information and the assessed probability of claims eventuating, that the group has adequate insurance programmes and provisions in place to meet such claims. However, like all businesses of this type, the risk exists that significant adverse developments in past claims, or a significant increase in the frequency or severity of future claims for errors and omissions, could have a material effect on the group’s reported results.

The structure of the group’s professional indemnity insurance programme is explained in note 29.3 to these financial statements.

36.2 Client settlements arising from historical business practices

‘Bulking’ is the term used to describe the practice of aggregating, on a notional basis, the total value of administered bank current accounts in order to negotiate better interest rates with the banks on behalf of clients. In response to identifying that there was inadequate disclosure to clients of fees historically received in respect of such bulking arrangements implemented by a subsidiary, it made settlement offers to such affected clients. In addition, as part of the commitment to meet the highest standards of governance and integrity Alexander Forbes appointed independent legal advisers and auditors to conduct a full review of the past and current business practices across all of the South African operations of the group during 2006. As a result of the bulking matter and the comprehensive business practice review the group made provision for amounts in respect of proposed client settlements relating to bulking and issues identified during the wider business practice review. Interest accrues on these settlement amounts up to the date of payment. As of the date of these financial statements most clients and past clients have accepted these settlement offers and the necessary payments have been made. The group continues to make progress with settlement payments to remaining clients which now mainly consist of closed and liquidated funds.

Rm	2017	2016
37. Cash generated from operations
Profit before taxation from continuing operations	887	922
Items disclosed separately:
Net interest expense	(89)	(93)
Non-cash items:
Depreciation of property and equipment	70	71
Amortisation of intangible assets and software	148	140
Included in operating expenses	31	16
Included in non-trading and capital items	117	124
Movement in operating lease liability	20	28
Relating to South African operations	26	16
Relating to UK operations	(6)	12
Net movement in provisions	(19)	42
Non-cash movement in provisions	(5)	68
Payments made out of provisions	(14)	(26)
Reported loss arising from accounting for policyholder investments in treasury shares	2	(59)
Movement in working capital (refer to note 40)	26	(18)
Foreign exchange movements on intercompany loans	17	8
Share-based payments	17	19
Movement in other non-cash items	12	(4)
	1 091	1 056
38. Interest received
Investment income per income statement	178	163
Less non-cash investment income from financial assets	(16)	(14)
Exclude policyholder-related interest	(22)	(70)
Interest received	140	79
39. Interest paid
Finance costs per income statement	(89)	(69)
Non-cash finance costs	5	7
Finance costs paid	(84)	(62)
40. Movement in working capital
Movement in working capital balances
Trade and other receivables	96	(44)
Trade and other payables	(70)	26
	26	(18)
41. Operating cash flows relating to insurance and policyholder balances
Insurance receivables	(156)	(161)
Insurance payables	83	340
Movement in policyholder working capital balances	(221)	192
Investment income relating to policyholder tax expense	22	70
	(272)	441
42. Cash flows from policyholder investment contracts
Premium inflows	40 010	39 673
Investments made net of disinvestments	4 248	9 686
Movement in cell-captive insurance facilities	–	38
Investment withdrawals	(45 265)	(43 709)
	(1 007)	5 688
43. Taxation paid
Taxation payable at the beginning of the year	(35)	(119)
Prepaid tax at the beginning of the year	4	3
Charge in income statement	(278)	(272)
Policyholder tax charge in income statement	(22)	(108)
Charge to income statement for operations discontinued and disposed of in the year included in discontinued operations	–	(3)
Adjusted for:
Reclassification of disposal groups held for sale	–	–
Foreign currency translation reserve	3	1
Prepaid taxation at the end of the year	(53)	(4)
Taxation payable at the end of the year	3	35
Tax paid	(378)	(467)

44. Related party disclosure

List of related party relationships
44.1 Major shareholders
The equity holders of the company are detailed in Annexure A.

Mercer Africa Limited, a subsidiary of the US-listed Marsh & McLennan Companies Inc., holds a 33% interest in the company.

44.2 Material non-controlling interest
During the year under review African Rainbow Capital (ARC) acquired 10% of the African operations from the group.

44.3 Subsidiaries, joint ventures and associates
Details of subsidiaries, joint ventures and associates, which are considered material to the group and in respect of which the group has a continuing interest, are provided in note 48: Consolidated and unconsolidated entities to these financial statements.

44.4 Post-employment benefit plans
Details of retirement benefit plans are provided in note 27: Employee benefits.

44.5 Directors
Details of the directors of the company are provided in the directors’ report.

44.6 Prescribed officers
The group has defined the group chief executive, the group chief financial officer and the managing directors of the major operating segments as prescribed officers of the group as defined by the Companies Act of South Africa.

44.7 Key management personnel
Key management personnel are defined as the prescribed officers and the board of directors of Alexander Forbes Group Holdings Limited, including members of the group executive committee.

Summary of related party transactions
44.8 Transactions with shareholders
In 2012 the group disposed of a significant portion of its risk services business to MMC. Certain transactions are still maintained between the group and risk services (now a subsidiary of MMC). The transactions during the current year included rental costs from shared office space in certain offices in South Africa and the group’s insurance broking. These transactions are at arm’s length and there are no significant balances outstanding at year-end relating to these transactions.

44.9 Transactions with subsidiaries and joint ventures
Details of dividends and fees received from subsidiary companies, where applicable, are provided in the company financial statements. The company has loans to and from its subsidiary companies, details of which are provided in the company financial statements. All transactions and balances with subsidiaries are eliminated on consolidation in line with the group’s accounting policies.

There have been no material transactions with joint ventures during the year.

44.10 Transactions with associates
There were no material transactions with associates and no dividends (2016: R5 million) were received from Alexander Forbes Insurance Brokers Kenya Limited during the year.

44.11 Transactions with post-employment benefit plans
Contributions to retirement benefit plans amounted to R2 million (2016: R2 million) to the defined benefit fund and R8 million (2016: R8 million) to the post-retirement medical obligation plan, as detailed in note 27 ‘Employee benefits’. There are no amounts outstanding at year-end. Assets of the retirement benefit plans are invested through Investment Solutions Limited; these assets amount to R196 million (2016: R200 million).

The retirement benefit plans of the group are compulsory funds and as such key management are participants in the fund. At 31 March 2017 the investments held through the retirement benefit plans by key management are R32 million (2016: R34 million).

44.12 Transactions with directors
The remuneration of executive directors is determined and approved by the remuneration committee. The remuneration of non-executive directors, in the form of fees, is proposed by the remuneration committee and approved by shareholders at each annual general meeting.

The remuneration committee consists of non-executive directors. As a committee of the board, the committee determines, agrees and develops the general policy on executive directors’ and senior management’s remuneration. The objective is to ensure that such remuneration is fair, responsible and appropriate and that the conditions of employment and remuneration scales are market-related and at levels sufficient to attract, retain and motivate individuals of quality, taking account of the fact that the group is an international business. The remuneration committee is also mandated to determine the criteria necessary to measure the performance of the executive directors in discharging their responsibilities.

There are no management, consulting, technical or other fees, nor any commission, paid to directors other than what is disclosed below.

Executive directors’ and chairman’s remuneration paid to current office holders during the current and prior years are detailed below. The bonus for the 2017 year reflects the amount accrued and approved by the remuneration committee for the year ended 31 March 2017 and paid in June 2017.

R’000	Salary	Bonus	Benefit and allowances	Retirement fund contributions	Total
* Prescribed officers.
1 Mr AA Darfoor assumed the role of group chief executive from 1 September 2016.
2 Mr DM Viljoen and Mr D Msibi stepped down from their roles on 30 April 2017.
3 Mr P Edwards resigned as managing director on 31 March 2017.
4 Ms S Reddy was a prescribed officer for eight months during the prior year.
Executive directors and prescribed officers
2017
AA Darfoor (group chief executive)1	3 589	3 930	1 068	28	8 615
DM Viljoen (group chief financial officer)2	3 949	–	97	637	4 683
D Msibi* (managing director)2	2 534	–	58	408	3 000
P Edwards* (managing director)3	2 711	–	406	369	3 486
S Reddy* (chief executive officer: retail clients)	2 672	2 541	106	329	5 648
S Price* (group chief operating officer)	2 316	2 247	54	298	4 915
V Naicker* (group chief risk officer)	2 549	2 345	52	267	5 213
Total for the year	20 320	11 063	1 841	2 336	35 560
2016
E Chr Kieswetter (group chief executive)	5 153	–	166	540	5 859
DM Viljoen (group chief financial officer)	3 608	5 200	121	583	9 512
D Msibi* (managing director)	2 503	2 000	69	403	4 975
P Edwards* (managing director)	2 581	2 700	99	462	5 842
S Reddy* (chief executive officer: retail clients)4	1 781	2 100	19	219	4 119
Total for the year	15 626	12 000	474	2 207	30 307

		Salary	Bonus	Benefit and allowances	Retirement fund contributions	Total
* Prescribed officer.
2017
G Stobart* (managing director)	(£’000)	220	315	157	–	692
Total for the year	(R’000)	4 180	5 985	2 983	–	13 148
2016
G Stobart* (managing director)	(£’000)	255	210	8	49	522
Total for the year	(R’000)	5 304	4 452	159	1 015	10 930

Long-term incentive share plan (LTIP)
The long-term incentive share plan is administered by the remuneration committee and is available to executive directors and senior management and key employees of the company. The aim of the LTIP is to provide direct alignment between the participants and the shareholders. The share awards under the plan are subject to achieving performance and vesting conditions stipulated by the remuneration committee.

In line with the requirements of the King III report the company will make regular annual rewards of shares based on company performance and affordability. These awards are set by reference to individual salaries, grade and performance as well as the company’s retention requirements and market benchmarks.

The rules of the LTIP allow for settlement through the purchase of shares on the open market, the use of treasury shares or the issue of new shares. The maximum number of new shares permitted to be allocated under the plan at any time is 64 000 000 shares (i.e. a total potential dilution of shares in issue over the entire lifespan of the scheme of 5%) and the maximum number of shares that can be allocated to any individual is 13 000 000.

The following conditional shares have been allocated to key management. The conditional share awards vest after a predetermined period based on performance conditions set for each allocation. The following conditions apply to each tranche below:

2014 tranche
These shares vest on 24 July 2017. Thirty per cent of the shares vest if the company achieves a three-year compound growth rate in normalised headline earnings per share (HEPS) of nominal GDP (i.e. GDP plus inflation) and 100% of the shares will vest if the growth rate is nominal GDP plus 10% (ten percentage points). A pro rata proportion of shares will vest based on any growth rate between these two points. At a compound growth rate in HEPS below nominal GDP all conditional shares are forfeited.

2015 tranche
These shares vest on 4 August 2018. Thirty per cent of the shares vest if the company achieves a three-year compound growth rate in normalised headline earnings per share (HEPS) of nominal GDP (i.e. GDP plus inflation) and 100% of the shares will vest if the growth rate is nominal GDP plus 8% (eight percentage points). A pro rata proportion of shares will vest based on any growth rate between these two points. At a compound growth rate in HEPS below nominal GDP all conditional shares are forfeited.

2016 tranche
These shares vest on 24 July 2019. Thirty per cent of the shares vest if the group achieves a three-year compound growth rate in normalised headline earnings per share (HEPS) of nominal GDP (i.e. GDP plus inflation) and 100% of the shares will vest if the growth rate is nominal GDP plus 8% (eight percentage points). A pro rata proportion of shares will vest based on any growth rate between these two points. At a compound growth rate in HEPS below nominal GDP all conditional shares are forfeited.

’000	2016 tranche	2015 tranche	2014 tranche
Number of ordinary shares**
AA Darfoor (group chief executive)	1 350	–	–
S Reddy* (chief executive officer: retail clients)	475	472	–
S Price* (group chief operating officer)	450	450	250
V Naicker* (group chief risk officer)	450	304	300
	2 725	1 226	550

*	Prescribed officers.
**	Mr DM Viljoen, Mr D Msibi and Mr P Edwards stepped down from their roles and have forfeited all current and past tranche allocations.

’000	2017	2016
* Prescribed officers.
Total shares held by key management
DM Viljoen (group chief financial officer)	2 272	2 272
D Msibi* (managing director)	255	255
P Edwards* (managing director)	–	288
G Stobart* (managing director)	950	1 524
RM Kgosana (independent non-executive director)	20	20
	3 497	4 359

There have been no changes in shareholding by key management from 31 March 2017 to the date of approval of the financial statements.

Other transactions with key management
Members of key management have personal investments in AF Investments amounting to R30 million (2016: R27 million). Certain members also insure their personal assets through Alexander Forbes Insurance. These transactions are all concluded at market rates on an arm’s length basis.

Non-executive directors’ fees and remuneration
Non-executive directors are paid by other companies in the Alexander Forbes group and independent non-executive directors are paid fees by the company and other companies within the Alexander Forbes group.

R’000	2017	2016
Independent non-executive directors
M Collier	2 000	1 463
D Konar	2 536	2 138
RM Kgosana	1 100	718
H Meyer	788	776
T Memela-Kambula	900	380
MS Moloko* (chairman)	4 271	1 893
B Petersen (resigned in the 2016 financial year)	–	385
Total for the year	11 595	7 753

*	Mr Moloko was retained as the executive chairman for an interim period during the current and previous financial year. An additional fee was approved by the remuneration committee for this executive role which was terminated on 1 September 2016.

Directors’ fees consist of a combination of standard fees plus additional fees for committee or subcommittee membership over and above the standard working programme.

45. Insurance risk

45.1 Overview

The group issues contracts that transfer insurance risk or financial risk or both. Insurance contracts are those that transfer significant insurance risk, being the possibility of having to pay benefits on the occurrence of an insured event that are at least 10% more than the benefits payable if the insured event did not occur. Such insurance contracts are issued by the group’s insurance subsidiary companies, namely Alexander Forbes Insurance and Alexander Forbes Life, as detailed below. These insurance companies are authorised and regulated by the Financial Services Board (FSB) in South Africa and Namibia, the Financial Services Authority (FSA) in Gibraltar and the FSA in the United Kingdom.

The group also issues contracts which are classified as investment contracts. These contracts transfer financial risk with no significant insurance risk. Financial risk is defined as the risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of process or rates or credit index or other variable. The group’s multi-manager investment subsidiaries operate under long-term insurance licences and they too are authorised and regulated by the FSB in South Africa and Namibia and the FSA in the United Kingdom. These licences are issued in order for the multi-manager to issue only linked investment policies and thus these businesses do not assume any insurance risk. For accounting purposes the contracts issued to policyholders are classified as investment contracts. The assets arising from these investment contracts are directly matched by linked obligations to the policyholders and the assets and linked obligations are separately reflected in the group statement of financial position as ‘Financial assets held under multi-manager investment contracts’ and ‘Financial liabilities held under multi-manager investment contracts’ respectively.

The remaining two insurance subsidiaries, namely Alexander Forbes Insurance and Alexander Forbes Life, transact conventional short-term and long-term insurance business under limited risk-taking mandates.

The names of the insurance subsidiaries and the nature of their respective insurance operations are detailed below.

Name of subsidiary company (and country of incorporation)	Nature of insurance operations
Alexander Forbes Insurance Company Namibia Limited (Namibia)	Personal lines short-term insurance, cell-captive and contingency short-term insurance as well as motor-related short-term insurance products.
Alexander Forbes Insurance Company Limited (South Africa) and Alexander Forbes Life Limited (South Africa)	Cell-captive short-term insurance, personal lines short-term insurance as well as long-term insurance

Rm	2017	2016
45.2 Insurance contract liabilities of insurance subsidiaries included in the statement of financial position (by nature of liability)
Net unearned premium provision from short-term insurance contracts	15	17
Gross unearned premium provision	43	42
Less: Reinsurers’ share of unearned premium provision	(28)	(25)
Net outstanding claims provision from short-term insurance contracts	45	56
Gross outstanding claims provision	220	259
Less: Reinsurers’ share of outstanding claims provision	(175)	(203)
Net IBNR provision from short-term insurance contracts	17	16
Gross IBNR provision	62	57
Less: Reinsurers’ share of IBNR provision	(45)	(41)
Policyholder liability under long-term insurance contracts (group life)	21	14
Gross policyholder liability	399	331
Less: Reinsurers’ share of policyholder liability	(378)	(317)
Net liabilities under insurance contracts	98	103

45.3 General management of insurance risk
In addition to the management of insurance risk by each subsidiary (as detailed in the sections below) the group has the following insurance risk management controls:

Risk committees
The risk committee comprises four members, a non-executive chairman with risk management expertise, and three executive directors. The committee is constituted to assist and support the board with regard to its risk management responsibilities, together with the other board subcommittees including the audit, investment and remuneration committees. The committee deals with specialised risks related to insurance business being conducted by the company. Individuals with specialised industry and product knowledge are invited to the committee and are also being co-opted on an ongoing basis. Furthermore, the committee is specifically responsible for the following: governance, enterprise-wide risk, compliance, information technology, reinsurance market security, protection of personal information and treating customers fairly.

Audit committees
There are audit committees for each business division within the group. These audit committees report to the group audit committee and to the operational boards of directors. The relevant business audit committee deals with the insurance subsidiary that reports into that business operation. These committees serve to satisfy the group and operational boards of directors that adequate internal and financial controls are in place and that material risks are managed appropriately. More specifically, these committees are responsible for reviewing the financial statements and accounting policies, the effectiveness of the management information and systems of internal control, compliance with statutory and regulatory requirements, interim and final reports, the effectiveness of the internal audit function, external audit plans and findings on their respective reports. These committees report directly to the relevant board of directors and comprise three non-executive directors, including a chairman. The committee meetings are attended by the external and internal auditors and are held at least quarterly.

Statutory actuaries
The statutory actuaries of the long-term insurance subsidiaries report annually on the capital adequacy and the financial soundness at the year-end date and for the foreseeable future. All new premium rates or premium rates where changes are required are reviewed by the statutory actuaries and dividends are approved prior to payment to ensure that the insurance subsidiaries remain financially sound thereafter.

Capital adequacy requirements
A minimum level of solvency is required to be held within each insurance subsidiary to meet the regulatory capital adequacy requirements (CAR). For the long-term insurance subsidiaries the CAR is calculated to determine whether the excess of assets over liabilities is sufficient to provide for the possibility of actual future experience departing from the assumptions made in calculating the policyholder liabilities and against fluctuations in the value of assets. CAR statutory returns are submitted to the Registrar of Long-Term Insurance on a quarterly basis and valuations are performed by the statutory actuary on an annual basis.

Rm	2017	2016
Long-term insurance
Alexander Forbes Life Limited
Capital adequacy requirement	229	218
Times cover	1.67	1.67

Capital adequacy risk is the risk that there are insufficient capital reserves to provide for variations in actual future experience that is worse than assumed in the financial soundness valuation. The insurance subsidiary must maintain shareholders’ funds that will be sufficient to meet obligations in the event of substantial deviations from the main assumptions that could affect the subsidiary’s business adversely.

A solvency capital requirement has been established in accordance with the Act and the requirements of Board Notice 169 of 2011.

Rm	2017	2016
Short-term insurance
Alexander Forbes Insurance
Solvency capital requirement	121	113
Net assets	229	186

Concentration risk
The group is not exposed to any significant concentration risk as the insurance contracts issued by the group’s insurance subsidiaries are adequately spread across the major classes of insurance risks. In addition, each insurance subsidiary company is cognisant of concentration risk for their individual entity and each insurance product and takes steps to mitigate this risk, including purchasing reinsurance protection.

Reinsurance
Reinsurance is used to manage the level of underwriting risk accepted by the group. Reinsurance vetting procedures are in place and reinsurance programmes are assessed on a regular basis to ensure appropriateness of the cover obtained, including the individual cessions and accumulations per reinsurer. The financial condition of reinsurers (identified by their credit rating) is considered when placing reinsurance cover and evaluated on an ongoing basis. The individual insurance subsidiaries limit the level of reinsurance credit risk accepted by placing limits on their exposures to a single counterparty. The individual insurance subsidiaries hold catastrophe reinsurance to mitigate the risk of a single event causing multiple accumulation of claims. The group has a risk committee which evaluates, approves and monitors both insurance and reinsurance markets that the group operates in and reports back to the relevant operational boards with recommendations.

Enterprise-wide risk management
The group has implemented an enterprise-wide risk management programme aimed at entrenching risk management into the day-to-day business activities whereby the insurance subsidiary understands the risk events that may prevent it from achieving its objective; has identified the risk mitigating controls in place and has assessed their efficiency; and has formulated a plan wherever additional action is required.

Terms and conditions of insurance contracts
Personal lines insurance is provided to the general public in their individual capacities. The duration of this insurance is typically monthly, but in some cases annually. The classes of risk underwritten by AF Insurance include property, casualty, personal accident and motor.

Risks that arise from insurance contracts
This business activity is to accept the risk of loss from insured events and charge a premium commensurate to this risk. As such, the subsidiary is exposed to uncertainty surrounding the timing, severity and frequency of claims under insurance contracts. As insurance events are random, actual experience may vary from what was predicted using established statistical techniques.

The majority of the subsidiary’s insurance contracts are ‘short-tail’, meaning that any claim is settled within one year after the loss date. The subsidiary’s ‘long-tail’ exposures are limited to personal accident, third-party motor and public liability. Claims in respect of long-tail business comprised less than 10% of the incurred claims over the past financial year and are not considered to be a major risk to the group.

Except as stated below there is no significant concentration of risk as the subsidiary’s risks are adequately spread geographically, as well as across the major classes of insurance risk.

Exposure to catastrophe risk is estimated by analysing the motor and property book to identify areas of concentration. The subsidiary’s concentration exposure for its personal lines book is considered to be in the Johannesburg area and the event has been identified as a possible earthquake or a severe hailstorm. This assessment is done annually at renewal of the catastrophe programme and reinsurance protection is purchased on a non-proportional basis accordingly, thereby limiting the exposure to the subsidiary. The current gross exposure is R4 million (2016: R4 million). Current net exposure is R1 million (2016: R1 million).

Mitigation of insurance risks
Insurance risk is managed by centralised control of pricing, underwriting limits and rules, reinsurance and continual monitoring of experience in order to mitigate emerging risks. Acceptance criteria are formulated by underwriting but implementation thereof is monitored by technical underwriters within the sales teams.

Exposures to individual policyholders and groups of policyholders are monitored as part of the credit control process. The subsidiary is also protected by guarantees provided by the intermediary guarantee facility for the non-payment of premiums collected by intermediaries as provided for in the Short-Term Insurance Act in South Africa. In addition, most intermediaries are fellow subsidiaries and are not considered to be a credit risk.

45.4 Personal lines short-term insurance
The personal accident line of business is protected by an excess of loss reinsurance treaty where the gross exposure is capped at R2 million up to a limit of R16 million.

The personal accident insurance book is a high-volume low-risk portfolio and is protected on a stop loss basis whereby reinsurance protection is purchased to protect the subsidiary in the event of adverse claims experience. The business is written on a monthly basis.

45.5 Long-term insurance
Terms and conditions of insurance contracts
The insurance contracts consist of annually renewable group life and individual life mortality and morbidity contracts. Group business consists of insurance for retirement funds and other group schemes and covers the contingencies of death and disability. Individual life business covers death and disability. There are no surrender values or investment components inherent in any of these policies.

Risks that arise from insurance contracts
These contracts insure events associated with human life (for example, death or disability) which is repriced on an annual basis. The group insurance business is subject to mortality and morbidity risk. The risk is that future claims will exceed expectations, which could result from epidemics such as AIDS and Avian Flu, as well as unexpected changes in lifestyles and living patterns. Since the term of a group policy is typically one year and upfront costs are limited, the risk of non-recoupment of expenses as a result of withdrawals is limited.

An individual insurance product was launched during the 2006 financial year. A level premium version of the individual life product was introduced during the 2015 financial year. As at 31 March 2017 it remains a relatively immaterial part of the overall life insurance exposure. The product is subject to mortality, morbidity, withdrawal and expense risk.

There is exposure to concentration risk on the group insurance business as there is not yet a wide spread of group schemes and a single event could result in multiple claims. Catastrophe reinsurance is in place to mitigate this risk. There is no significant concentration risk on the individual insurance business owing to the current low level of business transacted.

As at 31 March 2017 the group had exposure with the supporting actuarial reserves of approximately R56 million (2016: R46 million) in group insurance business. The individual life business has no exposure and reflects a negative actuarial reserves asset of R37 million (2016: R32 million).

Mitigation of insurance risk
In respect of group insurance business free cover limits are set on a per-scheme basis and are formula-driven, taking into account the number of lives and average sums assured. Sums assured in excess of the free cover limit are medically tested. Policy terms and conditions allow for an annual review of premium rates to manage premiums in line with emerging claims experience. The annual premium reviews take all pertinent information from one year to the next into account.

In respect of individual insurance business the major risks are mortality, morbidity, withdrawal and expense. Premiums on this business line are differentiated by age, gender and smoker status. Stringent socio-economic qualification criteria apply. Future premium rates are also not guaranteed and may be adjusted if mortality and morbidity experience worsens. Market pressures and delays in implementing changes could, however, counter this mitigating effect. Withdrawal risk is mitigated to some extent by commission clawback clauses in contracts with intermediaries. Expense risk is mitigated through detailed analysis of costs in determining the expense assumptions in the valuation, as well as ongoing expense management.

The insurance risks are also managed through reinsurance arrangements. The appropriate reinsurance structures are assessed by conducting scenario analyses which project outcomes under different reinsurance structures. The retention limits are then set in accordance with risk appetite. The group insurance business has proportional reinsurance for 85% of the book. There is also non-proportional reinsurance providing protection on a per-risk and catastrophe basis, capping the net exposure in the event of a single large loss or loss occurrence constituting a catastrophe.

Sensitivity analysis
The most critical assumption underlying the liabilities relating to group insurance is the rate of recovery from illness or disability associated with claims in payment. The sensitivity to a recovery rate 20% lower than assumed is less than R54 million (2016: R43 million). The sensitivity to assumptions on negative liabilities comprising mortality, withdrawal and renewal risks arising from the individual insurance contracts is currently insignificant.

46. Financial risk

Introduction
The group’s activities expose it to various financial risks arising from its financial assets and liabilities. Financial risks comprise credit risk, liquidity risk and market risk. These risks are defined below.

Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation, thereby causing the group to incur a financial loss.

Liquidity risk
Liquidity risk is the risk that the group will not be able to meet commitments associated with a financial instrument.

Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate, principally as a result of changes in market conditions. These market conditions include interest rates, foreign currency exchange rates and other price conditions.

Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate owing to changes in market interest rates.

Currency risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate in rand owing to changes in foreign exchange rates.

Other price risk
Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in the market prices (other than those arising from interest rate risk and currency risk).

The financial risks relating to the group’s activities are best analysed according to the various operations of the group. These are:

(i)	multi-manager investment operations through the AF Investments subsidiary companies;
(ii)	cell-captive insurance facilities through the subsidiary companies, AF Investments in South Africa and Emerging Markets Namibia; and
(iii)	general operations including the insurance broking and consulting operations; employee benefit consulting, administration and management operations; and insurance operations conducted by the group’s short-term personal lines insurer, Alexander Forbes Insurance, and the group’s long-term group life insurer, Alexander Forbes Life.

The nature of financial assets and liabilities of each operation is described below.

Nature of financial assets and liabilities

(i)

Multi-manager investment operations The financial assets held under multi-manager investment operations are policyholders’ assets directly matched by linked obligations to policyholders. Both the assets and the liabilities are classified at fair value through profit or loss and are carried at fair value. No assets held under multi-manager investment operations have been pledged as collateral.

(ii)

Cell-captive insurance facilities The financial assets of cell-captive insurance facilities are assets attributable to cell owners in the group’s cell-captive insurance companies and are directly matched by linked obligations to cell owners. Both the assets and the liabilities are classified at fair value through profit or loss designated as such upon initial recognition and are carried at fair value. No assets of cell-captive insurance facilities have been pledged as collateral. Subsequent to disposing of the Guardrisk group of companies the group’s cell-captive insurance facilities have reduced significantly and the group considers the exposure to credit, liquidity and market risks arising from these operations are now minimal.

(iii)

General operations The financial assets and liabilities arising from general operations result from the insurance broking and consulting operations; employee benefit consulting, administration and management operations; and insurance operations conducted by the group’s short-term personal lines insurer, Alexander Forbes Insurance, and the group’s long-term group life insurer, Alexander Forbes Life.

The following table reflects the financial assets and financial liabilities of the group including their respective IAS 39 classification:

Financial assets and liabilities of the group

Rm	2017	2016
Assets
Financial assets held under multi-manager investment contracts
Fair value through profit or loss – designated	271 685	265 565
Loans and receivables	9 813	10 820
Financial assets of insurance and cell-captive facilities
Fair value through profit or loss – designated	172	104
Balances relating to insurance contracts – carried at fair value	148	111
Cash and cash equivalents	–	38
General operations
Financial assets
Fair value through profit or loss – designated	260	267
Loans and receivables	97	95
Insurance receivables
Balances relating to insurance contracts – carried as loans and receivables	1 137	981
Trade and other receivables
Loans and receivables	342	550
Cash and cash equivalents	6 263	4 877
Total financial assets	289 917	283 408
Liabilities
Financial liabilities held under multi-manager investment contracts
Fair value through profit or loss – designated	281 604	276 509
Liabilities of insurance and cell-captive facilities
Balances relating to insurance contracts – carried at fair value	320	253
General operations
Borrowings
Financial liabilities held at amortised cost	725	705
Insurance payables
Financial liabilities held at amortised cost	2 960	2 878
Trade and other payables
Financial liabilities held at amortised cost	646	989
Total financial liabilities	286 255	281 334

For financial assets and financial liabilities not measured at fair value, the carrying values approximate the fair value owing to the short-term nature of the instrument.

46.1 Credit risk
46.1.1 Objectives, policies and process to manage credit risk

(i)

Multi-manager investment operations All asset managers are governed by strict investment mandates, specifically set out by the group to meet the investment objectives of the respective policyholder portfolios and, where appropriate, specific minimum investment grading ratings. In addition, investment mandates are subject to restrictions imposed by Regulation 28 to the Pension Funds Act, 24 of 1956.

(ii)

General operations The financial assets designated as fair value through profit or loss are actively managed by multiple investment managers and placed with high credit-rated financial institutions. The group has established an investment strategy committee which reviews all investments on the basis of total asset security and minimised credit risk to the group. Industry specialists as well as the group’s panel of investment managers are invited to the quarterly meetings.

Trade and other receivables Trade and other receivables are managed through ongoing review and impaired if objective evidence is established that the group will not collect all amounts due according to the original terms of the receivable. The group has policies in place to ensure that services are provided to customers with an appropriate credit history.

Cash and cash equivalents The group has policies that limit the amount of credit exposure to any one financial institution including the requirements by the Short-term and Long-term Insurance Act for minimum levels of asset spreading that are applicable to the insurance subsidiary companies. The financial institutions used in the current and prior financial year had ratings of between Aa2 and Baa2, as determined by external credit ratings agency Moody’s.

There have been no significant changes in the way in which credit risk is managed since the prior year.

46.1.2 Exposure to credit risk

(i)	Multi-manager investment operations There is no direct significant credit risk to the group on these assets as they are directly matched to policyholders’ liabilities. Therefore any credit risk in respect of policyholder assets is carried by the policyholder and not the group.

Analysis of financial assets held under multi-manager investment contracts

	Financial assets
Institution where held	Rm	%
* Ratings per Moody’s credit ratings agency.
2017
Between Aaa and A3*	2 048	0.73
Between Baa1 and B3*	59 799	21.29
Remainder includes equity securities and other assets which do not expose the group to credit risk		77.98
		100.00
2016
Between Aaa and A3*	540	0.21
Between Baa1 and B3*	52 274	20.12
Remainder includes equity securities and other assets which do not expose the group to credit risk		79.67
		100.00

(ii)

General operations Financial assets These assets are carried at fair value with the carrying amount at each reporting date representing the group’s maximum exposure to credit risk in relation to these assets. No financial assets designated as fair value through profit or loss have been pledged as collateral. These financial assets are held with reputable institutions with high credit quality.

Financial assets mainly comprise preference shares, premium finance receivables, discounted debtors, loan notes and equity housing loans.

Analysis of financial assets

Rm	2017	2016
Financial assets designated at fair value through profit or loss
Money market instruments	92	76
Collective investment schemes	129	153
Bonds/debt securities	39	38
Financial assets classified as loans and receivables
Equity housing loans	30	34
Other loans	67	61
	357	362

Trade and other receivables
The carrying amounts of these receivables reflected on the statement of financial position approximate their fair value at reporting date and represent the group’s maximum exposure to credit risk in relation to these assets. At reporting date the group did not consider there to be a significant concentration of credit risk to trade and other receivables which had not been adequately provided for.

Top 20 clients
The group’s top 20 clients’ overall revenue represent approximately 3% (2016: 2%) of operating income net of direct expenses and the total of this amount is aged within three months. No single client contributes more than 0.4% (2016: 0.4%) of the group’s operating income net of direct expenses.

Maximum exposure and age analysis of financial assets (including past due but not impaired)

Rm	Current 0 – 30 days	Past due 30 – 60 days	Past due 60 – 90 days	Past due 90+ days	Total
2017
Insurance receivables	1 031	45	21	40	1 137
Trade receivables	111	12	2	21	146
Other receivables	71	–	–	125	196
	1 213	57	23	186	1 479
2016
Insurance receivables	594	16	15	356	981
Trade receivables	309	88	22	40	459
Other receivables	63	4	4	20	91
	966	108	41	416	1 531

Trade receivables are reflected net of an impairment of R4.6 million (2016: R5.1 million). The majority of the trade receivables fall within 90 days.

Cash and cash equivalents
Cash and cash equivalent balances and transactions are limited to high credit quality institutions. At reporting date the group did not consider there to be a significant concentration of credit risk to cash and cash equivalent balances.

The financial institutions used in the current and prior financial year had ratings of between Aaa and Baa2, as determined by external credit rating agency Moody’s.

During the current year there have been no changes to the fair values of the financial assets of general operations presented above due to changes in the credit risk associated with these assets. Subsequent to year-end certain credit rating agencies downgraded South Africa’s foreign currency rating to sub-investment grade (refer to note 50: Events after reporting period for further information).

(i)

Multi-manager investment operations The multi-manager investment operations are conducted through long-term insurance subsidiary companies that issue insurance contracts to policyholders. These long-term insurance companies are registered financial institutions and are required to hold minimum solvency capital to, inter alia, reduce policyholder exposure to the group’s liquidity risk. The regulator of insurance companies in South Africa, the FSB, regularly reviews compliance with these minimum capital requirements. Management monitors compliance with these minimum capital requirements.

In addition, liquidity risk arising from unexpected lapses and withdrawals is limited through policy terms and conditions that restrict claims to the value and timing at which the assets are realised. The maturity analysis of these policyholders’ liabilities is detailed in the note to these financial statements called ‘Financial liabilities held under multi-manager investment contracts’ and these liabilities are mostly open-ended as per note 24.2.

(ii)

General operations Liquidity risk management implies maintaining sufficient cash and ensuring the availability of funding through an adequate amount of cash resources and credit facilities. Monitoring of budgeted and projected cash flows supports the fact that the group will generate sufficient cash flows from operations to limit the impact of liquidity risk. The group has prescribed authority mandates and borrowing limits.

The group sets limits on the minimum proportion of maturing funds available to meet claims arising from long-term insurance contracts and unexpected levels of demands. Similarly the majority of the assets held to match short-term insurance contracts are in money market instruments which are highly liquid. Net cash flows are monitored closely to ensure claim payments under long-term and short-term insurance contracts can be made when requested. Long-term and short-term insurance subsidiaries are registered financial institutions and are required to hold minimum capital and reduce policyholder exposure to the group’s liquidity risk. The regulatory authority in South Africa regularly reviews compliance with these minimum capital requirements. Management monitors compliance with these minimum capital requirements. Assets linked to investments are realisable at short notice.

The group is highly cash generative; a significant portion of revenue is collected within seven days of the month in which the revenue is recognised. This collection is inherent in the insurance premiums and pension fund administrative revenue process. As a result the group is well positioned to engage in shorter-term funding matched to the cash flows in order to ensure maximum efficiency in its funding rates.

46.2.2 Exposure to liquidity risk

(i)	Multi-manager investment operations Liquidity risk arises from unexpected lapses and withdrawals by policyholders. The group is able in such cases to transfer ownership of the underlying assets within the policy to the policyholder in order to extinguish its liability.

(ii)

General operations A revolving credit facility of R1 billion is in place and is renewable annually with a notice period of three months. The interest rate is JIBAR plus 1.25%, payable quarterly. The group’s ability to generate cash, and the positive credit ratings of the company, positions the group well to negotiate annually for the best available terms.

Liquidity analysis of assets and liabilities

	Contractual cash flows (undiscounted)
Rm	0 – 1 year	1 – 3 years	3 – 5 years	>5 years	Undated/ Linked	Total
* Although these financial liabilities are payable on demand they can be settled in cash or by delivery of the underlying assets.
2017
Assets
Financial assets held under multi-manager investment contracts	–	–	–	–	281 498	281 498
Financial assets of insurance and cell-captive facilities	–	–	–	–	320	320
Financial assets	290	9	15	2	41	357
Insurance receivables	264	–	–	–	873	1 137
Trade and other receivables	316	15	2	–	9	342
Cash and cash equivalents	6 263	–	–	–	–	6 263
Total financial assets	7 133	24	17	2	282 741	289 917
Liabilities
Financial liabilities held under multi-manager investment contract*	–	–	–	–	281 604	281 604
Financial liabilities of insurance and cell-captive facilities*	–	–	–	–	320	320
Borrowings	725	–	–	–	–	725
Insurance payables	–	–	–	–	2 960	2 960
Trade and other payables	645	1	–	–	–	646
Total financial liabilities	1 370	1	–	–	284 884	286 255
2016
Assets
Financial assets held under multi-manager investment contracts	–	–	–	–	276 385	276 385
Financial assets of insurance and cell-captive facilities	–	–	–	–	253	253
Financial assets	267	–	–	5	90	362
Insurance receivables	664	–	–	–	317	981
Trade and other receivables	540	10	–	–	–	550
Cash and cash equivalents	4 877	–	–	–	–	4 877
Total financial assets	6 348	10	–	5	277 045	283 408
Liabilities
Financial liabilities held under multi-manager investment contract*	–	–	–	–	276 509	276 509
Financial liabilities of insurance and cell-captive facilities*	–	–	–	–	253	253
Borrowings	705	–	–	–	–	705
Insurance payables	852	–	–	–	2 026	2 878
Trade and other payables	940	–	–	–	49	989
Total financial liabilities	2 497	–	–	–	278 837	281 334

46.3 Market risk
46.3.1 Objectives, policies and processes to manage market risk

(i)

Multi-manager investment operations The group has established an investment committee which, in conjunction with the board of directors of the multi-manager investment subsidiary companies, is responsible for setting investment strategies for the various investment portfolios and monitoring compliance therewith.

AF Investments employs a multi-manager investment approach, focusing on reducing risk through optimal and multiple layer diversifications. The structure of investment portfolios is based on the contracts entered into and the risk profile selected by the client. Within these parameters investments are managed with the aim of delivering superior returns, while limiting risk to acceptable levels, within the framework of statutory requirements. Although AF Investments does not make use of derivatives directly, the underlying managers may do so within strict mandate controls, to achieve a particular portfolio’s investment objective in the most effective manner or to smooth or protect portfolio returns.

(ii)

General operations The group does not hedge against the interest rate exposure of fee income derived by it and the board has accepted that changes in interest rates can result in volatility in the group’s earnings. An increase or decrease in interest rates impacts the value of debt securities included in assets from multi-manager investment contracts.

A revolving credit facility of R1 billion is in place and is subject to interest at JIBAR plus 1.25%, payable quarterly.

Currency risk
The group does not hedge against this currency exposure to earnings and the board has accepted that changes in exchange rates can result in volatility in the group’s earnings when reported in rand.

The group does not hedge against the currency exposure to US dollar policy-linked commission and fee income earned by insurance broking activities and the board has accepted that changes in exchange rates can result in volatility in the group’s earnings when reported in rand. Changes in currency will impact profit before tax as a result of commission and fee earnings linked to US dollar policies.

Other price risk
The group monitors the risk associated with the fee income attributable to the equity assets under management in the multi-manager investment operations. The exposure to equity markets is monitored and specific advice is taken on the economic outlook with regard to this fee income. The group does consider various derivative instruments to protect this income stream.

There have been no significant changes in the way in which market risk is managed since the prior year.

46.3.2 Exposure to market risk

(i)

Multi-manager investment operations Policyholders’ liabilities are linked to investments in equity securities, preference shares, debt securities, collective investment schemes, mutual funds, cash and other assets. These are valued at ruling market values and are therefore susceptible to daily market fluctuations.

There is no direct significant market risk, either by interest rate, currency or other price risk, to the group on financial assets held in respect of multi-manager investment contracts as the effect of any changes in these market risks is directly attributable to policyholder assets and policyholder assets are directly matched by policyholder liabilities. There are assets held within the policyholder assets which are exposed to currency risk arising from various currency exposures primarily with respect to sterling, euro and the US dollar, but these are matched by policyholder liabilities.

Fee income earned by the group on assets from multi-manager investment operations is based on assets which are exposed to fluctuations in interest rates, foreign currencies and equity prices. The group does not hedge against the interest rate and currency exposures and the board has accepted that changes in interest and exchange rates can result in volatility in the group’s earnings.

(ii)

General operations Interest rate risk The group’s income and operating cash flows are substantially independent of changes in market interest rates, except for interest costs on provisions for client settlements which are sensitive to short-term interest rates. This impact is offset by the effect of short-term interest rate movements on interest earned on cash balances. The interest rate on borrowings is linked to JIBAR. A 1% increase/decrease in JIBAR results in a pre-tax interest charge/saving of R7.7 million (2016: R7.7 million).

As detailed above, fee income derived by the group on assets from multi-manager investment contracts will be impacted by any changes in value of such assets arising from fluctuations in interest rates.

In addition, a portion of fee income earned in the retail business in the Financial Services operations in South Africa is impacted by changes in interest rates as this income is linked to assets managed by this business.

A revolving credit facility is in place with interest at JIBAR plus 1.25%.

Currency risk
The group operates primarily in South Africa and has certain operations in other African countries. Approximately 7% (2016: 6%) of the group’s trading results from operations is derived from its operations in Africa outside South Africa.

Fee income derived by the group on assets from multi-manager investment operations will also be impacted by any changes in value of such assets arising from fluctuations in foreign currency exchange rates.

In addition, a portion of fee income earned in the retail business in the Financial Services operations in South Africa is impacted by changes in foreign currencies as this income is linked to assets managed by this business.

Concentration risk
The group is not exposed to any significant concentration risk.

Other price risk
As detailed above, fee income derived by the group on assets from multi-manager investment operations will be impacted by any changes in the value of such assets arising from fluctuations in equity markets.

In addition, a portion of fee income earned in the retail business in the Financial Services operations in South Africa is impacted by changes in equity markets as this income is linked to assets managed by this business.

There have been no significant changes in market risk exposures since the prior year.

46.4 Fair value hierarchy

A number of the group’s accounting policies and disclosures for financial assets and liabilities require the determination of fair value. Fair value measurement is influenced by current market conditions and is subject to the financial risks noted above.

46.4.1 Valuation methods and assumptions for valuation techniques
The group classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

• Level 1: Quoted prices in active markets for identical assets or liabilities.
• Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
• Level 3: Inputs for valuation that are not based on observable market data (that is, inputs are unobservable).

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

The determination of what constitutes ‘observable’ also requires significant judgement. The group considers observable data to be market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

Level 1
Fair value measurements classified as Level 1 include exchange-traded prices of fixed maturities, equity securities and derivative contracts.

Level 2
Level 2 financial assets primarily include government and agency securities and certain corporate debt securities, such as private fixed maturities. As market quotes generally are not readily available or accessible for these securities, their fair value measures are determined using relevant information generated by market transactions involving comparable securities. They are often based on model pricing techniques that effectively discount prospective cash flows to present value using appropriate sector-adjusted credit spreads commensurate with the security’s duration, also taking into consideration issuer-specific credit quality and liquidity. These valuation methodologies have been studied and evaluated by the group and the resulting prices determined to be representative of exit values.

Observable inputs generally used to measure the fair value of securities classified as Level 2 include benchmark yields, reported secondary trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data. Additional observable inputs are used when available, and as may be appropriate.

Derivatives
As disclosed in Note 11.2, the net fair value of derivative positions is approximately R1 million at 31 March 2017 (2016: R1 million). All of these derivative contracts are traded in the over-the-counter (OTC) derivative market and are classified in Levels 1 and 2. The fair values of derivative assets and liabilities traded in the OTC market are determined using quantitative models that require use of the contractual terms of the derivative instruments and multiple market inputs, including interest rates, prices and indices to generate continuous yield or pricing curves and volatility factors, which are then applied to value the positions. The predominance of market inputs is actively quoted and can be validated through external sources or reliably interpolated if less observable.

The credit risk of the counterparty and of the group is considered in determining the fair values of all OTC derivative asset and liability positions, respectively, after taking into account the effects of master netting agreements and collateral arrangements. In each reporting period the group values its derivative positions using the standard swap curve and evaluates whether to adjust the embedded credit spread to reflect change in counterparty or its own credit standing.

Level 3
Level 3 investments primarily include listed and unlisted equity securities and collective investment schemes whose traded prices are not considered liquid enough to justify Level 2 observation. Determinations to classify fair value measures within Level 3 of the valuation hierarchy are generally based on the significance of the unobservable factors to the overall fair value measurement. The group applies various due-diligence procedures, as considered appropriate, to validate these non-binding broker quotes for reasonableness, based on its understanding of the markets, including use of internally developed assumptions about inputs a market participant would use to price the security.

The group issues a significant number of investment contracts that are designated at fair value through profit or loss. These investment contracts are not quoted in active markets and their fair values are determined by using valuation techniques. Such techniques (for example, valuation models) are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are validated before they are used and calibrated to ensure that outputs reflect actual experience and comparable market prices. A variety of factors are considered in the group’s valuation techniques, including time value, credit risk (both own and counterparty), embedded derivatives (such as unit-linking features), volatility factors (including contract holder behaviour), servicing costs and activity in similar instruments. Since significant inputs are based on unobservable inputs, these investment contract liabilities are classified as Level 3 instruments in the fair value hierarchy.

At 31 March 2017 investments classified at Level 3 comprise approximately 1% (2016: 1%) of total financial assets.

The following table presents significant inputs to show the sensitivity of Level 3 measurements and assumptions used to determine the fair value of the financial assets:

Instrument	Valuation technique	Significant inputs
Suspended listed equities	Exchange trade price	Last exchange traded price
Community property company assets	Discounted cash flow model	Capitalisation rates and discount rates
Infrastructure and development assets	Equity Distribution discount model, cost, mark to market, price earnings multiple and liquidation value	Equity Interest rates and exchange traded prices
	Debt Discounted cash flow model	Debt Interest rates fixed and floating

The group’s overall profit or loss is not sensitive to the inputs of the models applied to derive fair value.

46.4.2 Financial assets and liabilities at fair value

Financial assets measured at fair value according to the fair value hierarchy

		Fair value levels
Rm		Level 1	Level 2	Level 3	Total fair value
2017
Financial assets held under multi-manager investment contracts
Equity securities – listed		112 582	2 301	–	114 883
– unlisted		–	24	389	413
Preference shares – listed		437	–	–	437
Collective investment schemes		68 832	2 914	–	71 746
Debt securities – listed		31	22 895	–	22 926
– government stock		358	13 378	–	13 736
Debentures – listed		3 363	–	–	3 363
– unlisted		–	3	–	3
Policy of insurance			22 492	2 382	24 874
Derivative financial instruments		–	1	–	1
Money market instruments – listed		–	19 303	–	19 303
		185 603	83 311	2 771	271 685
Financial assets of cell-captive insurance facilities
Money market instruments – listed		172	–	–	172
Balances relating to insurance contracts		–	148	–	148
		172	148	–	320
General operations
Financial assets:
Bonds		–	39	–	39
Money market instruments		–	92	–	92
Collective investment schemes		–	129	–	129
		–	260	–	260
Total financial assets measured at fair value		185 775	83 719	2 771	272 265
Expressed as a percentage	(%)	68	31	1	100
Cash held under multi-manager investment contracts		–	9 813	–	9 813
		–	9 813	–	9 813

Group financial assets measured at fair value according to the fair value hierarchy

		Fair value levels
Rm		Level 1	Level 2	Level 3	Total fair value
2016
Financial assets held under multi-manager investment contracts
Equity securities – listed		111 009	2 094	–	113 103
– unlisted		–	–	12	12
Preference shares – listed		515	–	–	515
Collective investment schemes		69 035	1 478	2	70 515
Debt securities – listed		297	21 287	–	21 584
– government stock		–	14 656	–	14 656
Debentures – listed		3 613	–	–	3 613
Policy of insurance		–	22 339	1 557	23 896
Derivative financial instruments		1	–	–	1
Money market instruments – listed		13	17 635	22	17 670
		184 483	79 489	1 593	265 565
Financial assets of cell-captive insurance facilities
Money market instruments – listed		104	–	–	104
Balances relating to insurance contracts		–	111	–	111
		104	111	–	215
General operations
Financial assets:
Bonds		–	38	–	38
Money market instruments		–	76	–	76
Collective investment schemes		–	153	–	153
		–	267	–	267
Total financial assets measured at fair value		184 587	79 867	1 593	266 047
Expressed as a percentage	(%)	69	30	1	100
Cash held under multi-manager investment contracts		–	10 820	–	10 820
Cash held under cell-captive insurance contracts		–	38	–	38
		–	10 858	–	10 858

Financial liabilities measured at fair value according to the fair value hierarchy

	Fair value levels
Rm	Level 1	Level 2	Level 3	Total fair value
2017
Financial liabilities measured at fair value
Financial liabilities held under multi-manager investment contracts	–	281 604	–	281 604
Financial assets of insurance and cell-captive facilities	–	320	–	320
Total financial liabilities measured at fair value	–	281 924	–	281 924
2016
Financial liabilities measured at fair value
Financial liabilities held under multi-manager investment contracts	–	276 509	–	276 509
Financial liabilities of insurance and cell-captive facilities	–	253	–	253
Total financial liabilities measured at fair value	–	276 762	–	276 762

46.4.3 Changes in Level 3 instruments

Summary of changes in group Level 3 instruments

Rm	Financial assets under multi-manager assets	Financial assets of cell insurance facilities	Total
Financial assets
Opening balance at 1 April 2016	1 593	–	1 593
Total gains and losses recognised in profit or loss	303	–	303
Transfer from loans and receivables	338	–	336
Purchases	770	–	770
Sales	(233)	–	(233)
Closing balance at 31 March 2017	2 771	–	2 771
Opening balance at 1 April 2015	1 516	176	1 692
Total gains and losses recognised in profit or loss	152	–	152
Transfer from loans and receivables	(16)	–	(16)
Purchases	28	–	28
Sales	(87)	(176)	(263)
Closing balance at 31 March 2016	1 593	–	1 593
Financial liabilities
Opening balance at 1 April 2016	–	–	–
Disposals	–	–	–
Closing balance at 31 March 2017	–	–	–
Opening balance at 1 April 2015	–	176	176
Disposals	–	(176)	(176)
Closing balance at 31 March 2016	–	–	–

The financial assets and liabilities of multi-manager investment contracts are linked and all movements in these assets will be met with a converse movement in the liabilities associated. Similarly the cell-owner insurance assets and liabilities are also linked.

47. Operational, legal and capital risk

47.1 Operational risk
Operational risk is the risk of loss owing to factors such as inadequate systems, management failure, inadequate internal controls, fraud or human error. The group mitigates these risks through a risk management framework, systems of internal controls, internal audit and compliance functions, and other measures such as backup procedures, contingency planning and insurance.

47.2 Legal and regulatory risk
The group is exposed to various actual and potential claims, lawsuits and other proceedings relating to alleged errors and omissions, or non-compliance with laws and regulations, in the conduct of its ordinary course of business. The directors are satisfied, based on present information and the assessed probability of claims eventually, that the group has adequate insurance programmes and provisions in place to meet such claims. However, like all businesses of our type, the risk exists that significant adverse developments in past claims, or a significant increase in the frequency of severity of future claims for errors and omissions, could have a material effect on the group’s reported results. Details of the structure of the group’s errors and omissions insurance programme are provided in the relevant note to these financial statements.

47.3 Capital
The group’s objectives when managing capital are:

• to comply with capital requirements required for insurers as determined by legislation; and
• to safeguard the group’s ability to continue as a going concern so that it can provide returns for its shareholders and benefits for other stakeholders.

Regulated insurance and investment subsidiary companies
The capital adequacy requirement (CAR) is calculated to determine whether the excess of assets over liabilities is sufficient to provide for the possibility of severely adverse future experience. The calculation is as required by the Long-term Insurance Act, 1998, in South Africa and calculated in terms of the guidance notes issued by the Actuarial Society of South Africa (ASSA). The CAR is determined with reference to the guidance issued by ASSA but is subject to a minimum of R10 million or 13 weeks’ operating expenses in terms of directive 140.A.i(LT) of the Financial Services Board or 0.3% of gross policyholder liabilities. The subsidiary companies are required to hold sufficient equity and reserves to meet its CAR and can only distribute accumulated profits in excess of CAR.

For AF Investments all liabilities are directly related to asset values and no mortality or similar risks are assumed. The only risk to be considered is operational risk. The CAR held at reporting date was R554 million (2016: R544 million), representing an excess of assets over liabilities of 1.7 times (2016: 1.6 times).

The CAR held by Alexander Forbes Life at reporting date was R229 million (2016: R218 million), representing an excess of assets over liabilities of 1.67 times (2016: 1.67 times).

For statutory purposes, the share capital of cell-captive insurance subsidiary companies consists of ordinary shares and A and L shares.

The cell-captive insurance subsidiary companies submit quarterly and annual returns to the South African Financial Services Board in terms of the Short-term Insurance Act, 53 of 1998 of South Africa (the Act). The companies are required at all times to maintain a statutory surplus asset ratio as defined in the Act. The returns submitted to the Regulator showed that the companies have met the minimum capital requirements throughout the year.

All short-term insurance companies in South Africa are required in terms of the provisions of the Act to maintain a contingency reserve for adverse claims developments. This reserve is calculated at a minimum of 10% of net written premium as defined in the legislation. This reserve is maintained by the applicable subsidiary companies in the group and no distribution can be made from these reserves without the prior approval of the Registrar of Short-term Insurance. Details on the value of this reserve held within the group at year-end are shown in the applicable note to these financial statements.

The implementation by the Financial Services Board of consolidated supervision, although postponed from the original implementation date, is expected to become effective mid-2018. The current capital structure of the group has been significantly restructured to ensure that it best meets the long-term regulatory and operational requirements of the group.

General operations
When maintaining capital, the group’s objectives are to maintain a sufficient level of capital without compromising the ability to operate effectively. This is achieved by using available cash balances to fund working capital requirements and returning capital to shareholders and lenders as and when excess cash is generated. When required, the group makes use of intergroup loans from its direct or indirect holding company as a source of funds.

48. Consolidated and unconsolidated entities

48.1 Consolidated entities
Material subsidiaries and associates in which the group has a financial interest.

			Economic interest
Entity	Nature of business	Year-end date	2017 %	2016 %
1. Holding companies above the operational Alexander Forbes Limited Group
Alexander Forbes Acquisition Proprietary Limited	Holding company	31 March	100	100
Alexander Forbes International Limited	Ultimate holding company for international group	31 March	100	100
Alexander Forbes Financial Services Holdings Limited	Holding company in the United Kingdom	31 March	–	100
2. Holding companies within the Alexander Forbes Limited Group
Alexander Forbes Limited	Holding company	31 March	90	100
Alexander Forbes Emerging Markets Investments Proprietary Limited	Holding company for African operations	31 March	100	100
3. Operational companies within the Alexander Forbes Limited Group
Alexander Forbes Administration Services Proprietary Limited	Administration functions and risk-related services	31 March	100	100
Alexander Forbes Direct Proprietary Limited	Direct marketing	31 March	100	100
Alexander Forbes Financial Planning Consultants Proprietary Limited	Financial planning	31 March	100	100
Alexander Forbes Financial Services Holdings Proprietary Limited	Provision of financial services	31 March	100	100
Alexander Forbes Group & Technology Services Proprietary Limited*	Technology services	31 March	100	100
Alexander Forbes Group Services Proprietary Limited	Administration and support services	31 March	100	100
Alexander Forbes Health Proprietary Limited	Healthcare, wellness and related consulting, broking and actuarial services	31 March	100	100
Alexander Forbes Individual Client Administration Services Proprietary Limited	Financial services Administration	31 March	100	100
Alexander Forbes Insurance Company Limited	Short-term personal lines insurer	31 March	100	100
Alexander Forbes Life Limited	Long-term insurer	31 March	100	100
Alexander Forbes Retail Client Administration Services Proprietary Limited	General trading and investment	31 March	100	100
Alexander Forbes Retail Holdings Proprietary Limited	Holding company for retail business	31 March	100	100
Caveo Fund Solutions Proprietary Limited	Hedge fund management company	31 March	100	50.01
Faranani Risks Solutions Proprietary Limited	Insurance broking and related services	31 March	100	100
Investment Solutions Holdings Limited	Multi-manager investment	31 March	100	100
Investment Solutions Administrative Services Proprietary Limited	Investment administrative services provider	31 March	100	100
Investment Solutions Unit Trust Limited	Unit trust management	31 March	100	100
Seniors Finance Proprietary Limited	Equity housing finance	31 March	86.7	86.7
Superflex Limited	Multi-manager investment	31 March	–	100
Alexander Forbes Compensation Technologies Proprietary Limited	Facilitation of injury on duty and road accident claims	31 March	–	100
Emerging markets
Alexander Forbes Financial Services (Botswana) Proprietary Limited	Financial services (Botswana)	31 March	67	67
Alexander Forbes Asset Consultants Proprietary Limited	Financial services (Botswana)	31 March	74	74
Alexander Forbes Financial Services (U) Limited	Financial services (Uganda)	31 December	51	51
Alexander Forbes Financial Services (East Africa) Limited**	Financial services (Kenya)	31 March	40	40
Alexander Forbes Insurance Company Namibia Proprietary Limited	Financial services and risk services (Namibia)	31 March	75	75
Investment Solutions (Namibia) Limited	Multi-manager investment (Namibia)	31 March	75	75
Alexander Forbes Consulting Actuaries Nigeria Limited	Financial services (Nigeria)	31 March	100	78
Alexander Forbes Zimbabwe Holdings Proprietary Limited	Risk services (Zimbabwe)	31 March	–	60
United Kingdom/Europe
Alexander Forbes Channel Islands Limited	Financial services	31 March	100	100
Alexander Forbes Group Jersey Limited	Holding company in Jersey	31 March	100	100
Investment Solutions (Jersey) Limited	Multi-manager investment	31 March	100	100
Lane Clark & Peacock LLP	Financial services	31 March	–	60
Lane Clark & Peacock Netherlands BV	Financial services	31 March	–	42
Lane Clark & Peacock Ireland Holdings Limited	Financial services	31 March	–	30
Lane Clark & Peacock Ireland Limited	Financial services	31 March	–	30
Associates
Alexander Forbes Risk and Insurance Brokers Limited*	Risk services (Kenya)	31 December	40	40
Alexander Forbes Financial Services Zambia	Financial services (Zambia)	31 December	49	49
*    Dormant. **  Entity held for sale.

48.2 Unconsolidated structured entities
While the group consolidates certain structured entities other structured entities are not consolidated owing to the group not having an exposure to variability in returns and the power to govern the activities that affect this exposure.

The unconsolidated structured entities in which the group has an interest are:

• Alexander Forbes Staff Share Trust
• Certain collective investment schemes of which the group is the fund manager and has an investment
• The Alexander Forbes Community Trust

Alexander Forbes Staff Share Trust (the staff share trust)
The Staff Share Trust was formed to provide a vehicle for employee investment in the ordinary shares of AFGH. While the trust is not consolidated, the group had historically invested in preference shares of R34 million issued by the trust, which were redeemed in the prior financial year. The group provides no financial assistance to the trust nor are there any contractual obligations to provide assistance to the trust. The trust is finalising settlements to beneficiaries and will be deregistered on completion of this exercise.

Unconsolidated collective investment schemes
The group manages six collective investment schemes as fund manager which are not consolidated. It also invests certain policyholder assets with these trusts. The value of these investments at 31 March 2017 is R162 million (2016: R92 million) (1.75% of the total assets in the schemes (2016: 1.37%)), included in financial assets of multi-manager investment contracts on the statement of financial position. The group provides no financial assistance to the schemes nor is there any contractual obligation to provide assistance to the scheme.

49. Subsidiaries with material non-controlling interest

The group consolidates certain entities with material subsidiaries. The summarised financial information of these entities is disclosed below.

The information represents 100% of the entity’s results and has not been adjusted for the non-controlling interest share. Intercompany transactions and balances have not been eliminated.

	Alexander Forbes Insurance Company Namibia Limited		Alexander Forbes Financial Services Botswana		Alexander Forbes Financial Services (East Africa)*		Alexander Forbes Limited
Rm	2017	2016	2017	2016	2017	2016	2017	2016
Balance sheet information
Total assets	699	563	20	37	67	60	7 187	8 112
Total liabilities	(672)	(539)	(8)	(8)	(11)	(17)	(1 411)	(1 694)
Total net assets	27	24	12	29	56	43	5 776	6 418
Summarised income statement
Revenue	54	51	76	108	84	76	495	2 921
Profit before tax	17	19	15	46	(63)	18	307	2 956
Tax expense	(5)	(6)	(4)	(10)	20	(7)	(8)	(12)
Profit after tax	12	13	11	36	(43)	11	299	2 944
Other comprehensive income	–	–	–	–	–	–	(1)	(11)
Total comprehensive income	12	13	11	36	(43)	11	298	2 933
Dividends paid to non-controlling interest	10	–	30	11	–	5	75	–
Summarised cash flows
Cash from operating activities	28	12	14	43	15	10	(943)	218
Cash from investing activities	(2)	(1)	–	–	(1)	(2)	(1)	(120)
Cash from financing activities	–	–	(27)	(37)	(3)	(12)	940	(303)
Net increase/(decrease) in cash and cash equivalents	26	11	(13)	6	11	(4)	(4)	(205)
Cash and cash equivalents at the beginning of the year	172	161	26	20	4	8	135	340
Exchange gains on cash and cash equivalents	–	–	–	–	(4)	–	–	–
Cash and cash equivalents at year-end	198	172	13	26	11	4	131	135
* Alexander Forbes Financial Services (East Africa) is included in discontinued operations in the current year.

50. Events after reporting period

Capital commitment
On 7 April 2017 the group announced a significant contractual agreement relating to system and process development. The financial commitment relating to this contract amounts to $51 million over the next four financial years, of which $11 million will be paid within 12 months, and the costs of development will be capitalised and depreciated over the expected useful life of the system. The group has entered into a foreign currency hedge contract in order to reduce the currency risk associated with this contract. The hedge is designed to cover 75% of the commitment at an effective exchange rate of R13.88 to the US dollar.

Sovereign downgrade
In April 2017 Standard & Poor’s (S&P) and Fitch downgraded South Africa’s foreign currency rating to sub-investment grade, commonly referred to as ‘junk status’. Moody’s, however, retained its foreign currency rating at a lower medium grade, but lowered its outlook from negative to negative watch. The local currency rating has not yet been downgraded by Moody’s. The group has considered the impact of the downgrade with specific reference to the valuations of its financial and non-financial assets and liabilities. Whilst the economic impact on future earnings cannot yet be determined, there is no reported revaluation required on the reported assets and liabilities subsequent to this announcement.

In addition to a review of the financial and non-financial assets, the group considered its capital requirement and established that the downgrade increased the group’s solvency capital requirement by R60 million. The group reported a surplus in regulatory capital of R2.3 billion at 31 March 2017.

51. Restatement of comparatives

During the year under review management enhanced its process with regard to the accounting provision for tax payable by AF Investments on behalf of policyholders. This enhancement highlighted an error in the calculation of the income tax provision recorded in the 2016 financial year. The policyholder taxes were overstated in our financial accounts by R127 million. As the principal payer of this tax liability, policyholder taxes are included in tax expense on the income statement of AF Investments. The right to recover the taxes from the policyholder is recorded as a financial asset and deducted from the policyholder assets. The policyholder liabilities are then reduced to match the policyholder assets, resulting in a gain recorded under investment income.

It is important to note that there is no impact on operating profit, profit after tax, total assets, total liabilities and accumulated profits in equity. In addition, there is no impact on previously disclosed earnings per share figures and return on assets or equity figures. The financial impact of this restatement is shown below.

Rm	Restated 2016	Adjustment	As reported 2016
Assets
Financial assets held under multi-manager investment contracts	276 385	127	276 258
Financial assets of insurance and cell-captive facilities	253	–	253
Other assets	12 126	–	12 126
Financial assets	362	(127)	489
Assets of disposal groups classified as held for sale	131	–	131
Total assets	289 257	–	289 257
Equity and liabilities
Total equity	6 156	–	6 156
Financial liabilities held under multi-manager investment contracts	276 509	127	276 382
Liabilities of insurance and cell-captive facilities	253	–	253
Other liabilities	5 999	–	5 999
Deferred tax liabilities	262	(60)	322
Tax liabilities	35	(67)	102
Liabilities of disposal group classified as held for sale	43	–	43
Total liabilities	283 101	–	283 101
Total equity and liabilities	289 257	–	289 257

Rm	Restated 2016	Adjustment	Discontinued operations	As reported 2016
Continuing operations
Operating profit	765	–	(308)	1 073
Investment income	163	(127)	(4)	294
Finance costs	(69)	–	2	(71)
Reported profit arising from accounting for policyholder investments in treasury shares	59	–	–	59
Share of net profit of associates (net of income tax)	4	–	–	4
Profit before tax	922	(127)	(310)	1 359
Income tax expense relating to corporate profits	(231)	–	40	(271)
Income tax expense related to policyholder investment returns	(70)	127	–	(197)
Profit for the year from continuing operations	621	–	(270)	891
Discontinued operations
Profit/(loss) on discontinued operations (net of income tax)	253	–	(270)	(17)
Profit for the year	874	–	(270)	874
Profit attributable to:
Equity holders	729	–	–	729
Non-controlling interest	145	–	–	145
	874	–	–	874
Earnings per share (cents)
Basic earnings per share	56.9	–	–	56.9
Headline earnings per share	58.1	–	–	58.1
Diluted earnings per share	56.4	–	–	56.4
Weighted average number of shares	1 282	–	–	1 282