ALEXANDER FORBES EQUITY HOLDINGS PROPRIETARY LIMITED Alexander Forbes Financial Services,...

ALEXANDER FORBES EQUITY HOLDINGS

PROPRIETARY LIMITED

Integrated Annual Report31 March 2011

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31 GOVERNANCE REPORT

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CONTENTS

INTRODUCTION 7

WHO WE ARE AND WHAT WE DO 8

WHERE WE’RE GOING AND HOW WE’LL GET THERE 8

OUR SERVICE MODEL 9

THE SCOPE OF THIS REPORT 9

GROUP OVERVIEW 11

GROUP STRUCTURE 12

GROUP OPERATIONS AND PERFORMANCE OVERVIEW 14

ACHIEVEMENTS AND AWARDS 16

CHAIRMAN’S STATEMENT 20

GROUP CHIEF EXECUTIVE’S REVIEW 24

STAKEHOLDER ENGAGEMENT 28

GOVERNANCE REPORT 31

CORPORATE GOVERNANCE 32

BOARD OF DIRECTORS 40

BOARD COMMITTEES 48

REMUNERATION COMMITTEE REPORT 50

AUDIT COMMITTEE REPORT 54

OPERATIONAL REVIEW 59

OPERATIONAL PERFORMANCE 60

SOCIAL PERFORMANCE: OUR PEOPLE, OUR COMMUNITIES, OUR CLIENTS, OUR COMMITMENT 74

ENVIRONMENTAL PERFORMANCE 80

FINANCIAL REPORT 83

GROUP FINANCE DIRECTOR'S REPORT 84

FINANCIAL STATEMENTS 89

SHAREHOLDERS' NOTICES 227

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The sun, guiding us through the seasons, arcs across the sky, guiding our lives. So, too, the sundial leads us through the days ahead, our plans, hopes and dreams. Welcome to the new Alexander Forbes brand.

WELCOME

Our new brand: On 1 April 2011

the Group launched its new brand to

the business and on 3 May 2011 the

brand was launched to the world as part

of our new corporate brand advertising

campaign. This development signals the

internal transformation of the business

over the past number of years through a

rethinking and redrawing of our strong

existing “sun” logo.

We have retained the sun image,

redesigning it to create a fresher and

more vibrant brand – one that clearly

introduces the concept of movement

which, in turn, is most noticeable

at sunrise. The new “arc” design,

reminiscent of the sun’s trajectory

through the skies, echoes the dynamism

of our business, capturing the feeling

of excitement at the dawn of a new day,

as well as the consistency and reliability

of the diurnal cycle.

The launch of the revised brand

represents the culmination of significant

recent transformation within our

organisation – echoing the revitalising

change that has already taken place and

marking the start of a new era in the

Group’s long and impressive history.

Our new brand is who we are, what

we aspire to, how we act and how we

make our clients feel. So our brand is

far more than a logo. Our new brand is

an evolution of the existing Alexander

Forbes brand; but it is also a distinct

break from the past and a fresh

interpretation of the Alexander Forbes

promise.

Our new logo represents the new

strategic direction for Alexander

Forbes. It signals a clear shift forward,

a determined, modern and meaningful

expression of what we stand for and

aspire to – for our clients, for our

shareholders, for ourselves, for all

our stakeholders. That’s why it has to

make a powerful and memorable first

impression. Because first impressions

not only count; they last.

Our aspiration: We are rooted in Africa,

yet globally distinctive, creating wealth

and protecting our clients' assets in

a way that impacts positively and

sustainably on their lives.

Our higher purpose: In rendering our

services to clients, we respond to a

higher purpose by enhancing their

quality of life and providing peace of

mind – now and for the future.

Our brand promise: A respected

financial services company committed

to making a positive impact on the

financial well-being of our clients.

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This is our very first integrated annual report. It focuses not only on our performance but also on people and planet – because our business is about holistically creating positive futures.

INTRODUCTION

Alexander Forbes Equity Holdings Proprietary Limited (“AFEH”) is a privately held and controlled company. Its financial statements are made publicly available solely to further inform the shareholders of the listed special purpose vehicle, Alexander Forbes Preference Share Investments Limited (“AF Pref”), which holds 26.5% of the issued ordinary shares and 31.8% of the issued “A” preference shares of AFEH, as well as certain debt instruments issued by the Group. AF Pref was established at the time of the Group’s delisting for the sole purpose of enabling certain existing shareholders

of the Group to reinvest after it was the subject of a take private bid by a consortium of private equity investors in 2007. Following the inclusion of the King III Code in the Listings Requirements of the JSE Limited, all listed companies with financial years commencing on or after 1 March 2010 are required to issue an integrated annual report or to explain why they are not doing so. Although AFEH is not a publicly listed company, the integrated annual report provided here is aimed at ensuring that the most material items are addressed so as to further inform the investors of AF Pref.

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CLIENTS | BRAND | INNOVATION | SALES & SERVICE | RETAIL | PUBLIC-SECTOR | AFRICA | UK


WHO WE ARE AND WHAT WE DO Alexander Forbes is a leading provider of risk, insurance, health, retirement and multi-manager investment solutions internationally. Our primary operations are based in South Africa and the United Kingdom. A significant network of subsidiaries and partners ensures that we provide an outstanding level of service to our global clients, particularly in Europe and Africa.

WHO WE SERVE AND WHY At Alexander Forbes, we serve a clear purpose – the interests of our clients. These people include small,

medium and large private and public

organisations, specialist groups and

individuals. They are at the heart of

what we do.

We focus on delivering expert and innovative solutions through empowered people wherever we operate. But our higher purpose is to serve in a way that ensures we have a consistently positive impact on the peace of mind and financial well-being of our clients. This means we see a bigger picture than the bottom line, integrating and balancing the multiple demands of clients and colleagues, shareholders and stakeholders, community and country, people and planet. This holistic approach is writ large in this, our first integrated annual report.

WHERE WE’RE GOING AND HOW WE'LL GET THERE Alexander Forbes has already embarked on an ambitious five-year plan. We plan to achieve our goals by improving market leadership through the meeting of the following key objectives:

• Increasing value to our clients;

• expanding our brand;

• Investing and innovating for growth; and

• extending our sales and service capacity.

The strategy aims to achieve substantial growth through:

• Focusing on clearly identified growth iniatives in the Retail Sector, Public Sector, African and International markets;

• Effectively de-leveraging by

managing working capital, cash and

debt reduction; and

• Maximising enterprise value by:

– building a strong and respected

brand;

– developing core sales and service

competencies; and

– creating a strategic and innovative

portfolio of assets attractive to

potential future investors.

In summary, the intention of our

strategy is to ensure that our collective

efforts continue to deliver on our

higher purpose to create enhanced

value for our clients, as we strive to

remain a world-class employer that

impacts positively on society while

simultaneously providing superior

returns to our shareholders.

This means four things:

• Our clients matter: without them

there is no business;

• Our employees matter: without them

there are no clients;

• Our communities matter: they are

where our clients and employees live;

and

• Our shareholders matter: they expect

a return on their investment.

OPERATING INCOME NET OF DIRECT

EXPENSES INCREASED By 2.7%

(2010: R4.4 BILLION)

OPERATING PROFIT BEFORE NON-TRADING ITEMS FOR THE yEAR

INCREASED By 8%

(2010: R1.0 BILLION)

R4.6 BILLION

R1.1 BILLION

OUR HIGHER PURPOSE

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ALEXANDER FORBES EQUITy HOLDINGS PROPRIETARy LIMITED 2011


S IMPLICITYHow we deliver

XPERT INNOVATIVE SOLUTIONSWhat we deliver

E

NRICH PEOPLE’S LIVESWhy we exist

E

ELATIONSHIPSWhat we strive for

R

ALUE OF TRUSTWhat we stand for

V

IMPACTFUL

SERVICE

OUR SERVICE MODEL The SERVE model drives the way we

at Alexander Forbes do business. We

strive to deliver Simple and Expert

innovative solutions that build long-

lasting Relationships founded on the

Value of trust – all this in the service

of Enriching people’s lives by providing

them with Impactful Service.

THE SCOPE OF THIS REPORT This report covers the financial year ended 31 March 2011. It covers the operations of the Alexander Forbes Equity Holdings Proprietary Limited (“AFEH”), whose corporate and financial structure follows on page 12. Alexander Forbes is a financial services company whose products include risk, insurance, health, retirement and other employee benefits, as well as multi-manager investment solutions. The

Group employs a total of 4 889 people

across its various divisions, which are

primarily based in South Africa and the

United Kingdom. It is supported by a

network of subsidiaries and partners

who provide services internationally,

particularly in Africa.

There have been no significant

disposals or acquisitions during the

year under review. The divisional

structure of the Company remains as

illustrated on page 13.

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INTEGRATED ANNUAL REPORT INTRODUCTION


11

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Alexander Forbes has its sights set on a bold new horizon: achieving substantial growth while having a positive impact on the long-term financial well-being of our clients and their loved ones.

GROUP OVERVIEW

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GROUP STRUCTURE AT A GLANCE

HIGH LEVEL GROUP STRUCTURE

AF PREFERENCE SHARE INVESTMENTS

8.74% ORDINARY SHARES0.21% “A” PREFERENCE

SHARES

AF HOLDCO(PTY) LTD

14.7% ORDINARY SHARES7.92% “A” PREFERENCE SHARES100% “B” PREFERENCE SHARES

AF EQUITY HOLDINGS (PTY) LTD

B-BBEE SHAREHOLDERSSHANDUKA AND AF STAFF TRUST

MANAGEMENT TRUST ANDCO-INVESTMENT TRUST

PRIVATE EQUITY CONSORTIUM (ACTIS, ETHOS, ONTARIO, HARBOURVEST, CDPQ)


SHARES


SHARES

100% ORDINARY SHARES


AF PIK FUNDING(PTY) LTD


AF FUNDING(PTY) LTD


AF ACQUISITION(PTY) LTD


ALEXANDER FORBES LIMITED AND ITS OPERATING SUBSIDIARIES

R750M PIK DEBENTURES AND ACCRUED INTEREST

“RELEVANT ASSETS”(R1.5 BN HIGH yIELD TERM LOAN

PLUS ACCRUED INTEREST,

AND OTHER “RELEVANT ASSETS”

RMB AND OTHERS

10

0%

26.5%

64.07%

9.43%

R2.3 BNPREFERENCE SHARE FUNDING

EXTERNAL FUNDERS

INVESTOR GROUPS LEGAL ENTITIES FUNDING INSTRUMENTS

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OPERATING COMPANY STRUCTURE

ALEXANDER FORBES LIMITED

ALEXANDER FORBES GROUP & TECHNOLOGY

SERVICES (PTY) LTDAND SUBSIDIARIES

ALEXANDER FORBES FINANCIAL SERVICES HOLDINGS (PTY) LTDAND SUBSIDIARIES

ALEXANDER FORBES RISK & INSURANCE

SERVICES (PTY) LTDAND SUBSIDIARIES

INVESTMENTSOLUTIONS

HOLDINGS LTDAND SUBSIDIARIES

ALEXANDER FORBES AFRINET INVESTMENTS

(PTY) LTDAND SUBSIDIARIES

ALEXANDER FORBES INTERNATIONAL LTDAND SUBSIDIARIES

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INTEGRATED ANNUAL REPORT GROUP OVERVIEW


GROUP OPERATIONS AND PERFORMANCE OVERVIEW

FINANCIAL SERVICES SOUTH AFRICA

IncOme frOm OperatIOns

OperatIng results

2011 2010 2009

Net revenue (Rm) 1 339 1 276 1 236

Trading results (Rm) 303 302 268

Employees 1 751 1 734 1 926

Alexander Forbes Financial Services, established in 1955, is a leading provider of holistic employee benefit, actuarial and asset management consulting and advice to corporate and retirement fund clients in South Africa.

three maIn dIvIsIOns:

• Institutional cluster: We are the largest provider of retirement fund administration, actuarial and consulting services in SA. We provide a comprehensive range of umbrella and stand-alone retirement funds, share scheme and payroll administration services and solutions.

• health cluster: With our healthcare consulting and actuarial services, we offer an integrated approach to the management of the costs and risks associated with employee absenteeism, injury on duty, incapacity and disability matters, and HIV/AIdS management.

• retail cluster: Utilising our expert financial planning advice and a range of products and services, we ensure that we provide tailor-made solutions to meet the needs of individuals. We provide administration for discretionary savings products as well as individual pre- and post-retirement products.

We also offer death, disability and critical illness insurance cover to retirement funds, employers and individuals through our Alexander Forbes Life business.

RISK AND INSURANCE SERVICES SOUTH AFRICA


OperatIng results

2011 2010 2009

Net revenue (Rm) 1 120 1 041 1 034


Employees 1 337 1 305 1325

AFRIS SA is the largest risk advisory and specialist insurance provider in South Africa. In addition, AFRIS SA also has an extensive network in Africa.

fOur maIn dIvIsIOns:The Company has four main divisions, each with its own specialist expertise:

• risk services provides risk management and insurance broking services for corporate clients and SMMEs. These services include negotiation of the terms and placement of insurance cover and the management and handling of claims management services, loss prevention, alternate risk finance and enterprise-wide risk management consulting services.

• alexander forbes compensation technologies (afct) provides comprehensive claims administration and recovery services to both the private and public sector, focusing on the recovery of benefits and medical expenses in respect of the Road Accident Fund as well as the Compensation for Occupational Injuries and diseases Fund.

• alexander forbes Insurance (afI) is a provider of motor and household insurance.

• guardrisk group is a short-term and life Cell-captive insurance and facility management service provider with additional representation in Gibraltar, Mauritius and Namibia. The Guardrisk portfolio also includes Guardrisk Allied Products and Services, a dedicated underwriting manager operation that focuses on niche products and schemes.

Health

11%

59%

Institutional

OtherLife

Retail25%

4% 1%

7%

24%

46%

23%

CompensationTechnologies

Guardrisk

Risk Services

AF Insurance


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INVESTMENT SOLUTIONS AFRICA AND INTERNATIONAL


OperatIng results

2011 2010 2009

Net revenue (Rm) 522 471 468


Employees 137 153 164

Investment Solutions provides multi-management and investment administration services to retirement funds, high net worth individuals and corporate clients. We have offices in South Africa, as well as in Windhoek, London and Jersey.

We provide a range of investment capabilities which are designed to help clients meet their investment objectives and maximise diversification. Our solutions cover all major asset classes and can be designed to meet all major investment needs including those that are unique to individual clients.

AFRINET


OperatIng results

2011 2010 2009

Net revenue (Rm) 307 290 289



AfriNet is the name and registered trademark of Alexander Forbes’ network of offices and correspondents throughout Africa and represents one of the most extensive network of its kind in Africa.

AfriNet enables Alexander Forbes, through its own operations and correspondents, to provide its clients with risk and financial services products across the continent. The network has operations in 10 countries and correspondents in over 30 countries on the continent.

Our principal objective has been to provide our clients with fast and efficient local service, facilitated by the empowerment of the local management of each operating company, along with access to the group’s extensive expertise and resources across risk and financial services.

FINANCIAL SERVICES INTERNATIONAL


OperatIng results

2011 2010 2009

Net revenue (Rm) 1 279 1 371 1 630



Alexander Forbes Financial Services (AFFS) is a United Kingdom and Channel Islands-based, national corporate pensions Independent Financial Adviser (IFA) and employee benefits consultant, providing pensions, investments, health and risk, and annuity solutions to corporate and institutional clients, their employees and executives, and trustees of pension plans.

The Group also provides independent trustee services to pension plans through Alexander Forbes Trustee Services.

Lane Clark & Peacock (LCP), approximately 60% owned by Alexander Forbes, are actuaries and consultants who focus on employee benefits, investment consulting, general insurance consulting and consulting in other areas of business analytics. LCP has offices in the United Kingdom, Abu dhabi, Belgium, Ireland, the Netherlands and Switzerland.

The Group owns 40% of Alexander Forbes UK direct, which markets accidental death benefit policies directly to the retail market under the “Media Insurance Services” brand.

6%

12%

39%

23%

Swaziland/Mozambique

West Africa

East Africa

Namibia/Angola

Botswana/Malawi

20%

30%

70%

Financial Services

LCP

7%

93%

International

Africa


Global Assets Under Management at the end of the financial year are as follows:

region2011

r billion2010

r billion2009

r billion

africa 168 151 125

International (mainly uK) 15 11 10

183 162 135

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ACHIEVEMENTS AND AWARDS

ALEXANDER FORBES GROUP ACHIEVEMENTS AND AWARDS 2010/11A key element of Alexander Forbes’ integrated performance strategy is our commitment to invest in and develop expertise and resources which:

• Enhance our ability to anticipate and resolve clients’ changing needs;

• Build Alexander Forbes’s reputation as a respected brand;

• Promote our reputation for innovation and growth; and

• Assist in maintaining technical, sales and service standards.

The following list of achievements and awards are evidence of this commitment.

alexander forbes equity holdings (pty) ltd and its South African subsidiaries, including alexander forbes financial services, alexander forbes risk and Insurance services and Investment solutions have each received a Level 3 rating (valid to May 2012) based on the verified audit conducted by independent rating agency Empowerdex in terms of the gazetted Codes of Good Practice on Broad-Based Black Economic Empowerment. Furthermore, each of these operating subsidiaries has been rated as a Value-Adding Entity, which means our clients may claim a further 25%, i.e. 137,5% for their own B-BBEE preferential procurement spend. Guardrisk and AFCT have received a Level 2 rating, valid to May 2012.

alexander forbes has been recognised in February 2011 as a Level 3 Gold Financial Contributor by the National department of Social development and the National CSI Registrar for its continued compassion and generosity demonstrated in assisting those less fortunate in South Africa.

alexander forbes has been recognised in March 2011 for its involvement in the Adopt a Panel shop initiative, which has been awarded a certificate by the South African Motor Body and Repairers Association (SAMBRA) for being the only initiative driven by a private company aimed at the development of black-owned panel shops.

business Insurance ranks alexander forbes financial services (including lane clark & peacock) as 9th in the World’s Largest Employee Benefit Consultants in its Employee Benefit Consultants survey published in May 2010.

A sas 70 type ll unqualified report was awarded (for the fourth consecutive year) to alexander forbes administration services south africa, after a voluntary review independently completed by PwC to the standards of the American Institute Of Certified Public Accountants. We are the first and only fund administrator in South Africa to have achieved an unqualified SAS 70 Type ll report. SAS 70 is regarded as the most appropriate independent review of our control environment. The process is reviewed annually.

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alexander forbes financial services south africa (AFFS) was awarded the professional management review’s 2010 pmr diamond arrow award for being rated first overall (for the fourth year running) in the Large Pension Fund Administrators & Consultants category (administering more than 100 000 members). Interviewees comprised principal officers and trustees of 201 funds.

alexander forbes financial services south africa (AFFS) was awarded the professional management review’s 2011 pmr diamond arrow award for being rated first overall (for the third year running) in the Consulting & Actuarial category.

The Acting Pension Funds Adjudicator, at the Pension Lawyers Association conference in March 2010, publicly recognised alexander forbes financial services legal team as the best (pensions) legal services team in South Africa, citing the team’s work, preparation, accuracy, completeness, submissions and commitment.

alexander forbes retirement fund was awarded Best Communication in the Umbrella Funds category in the 2010 Institute of Retirement Funds Communication Challenge.

The Nedbank defined Contribution Pension and Provident Funds, clients of alexander forbes communication services, were awarded Best Communication in the Large Fund category and Winner Overall in the 2010 Institute of Retirement Funds Communication Challenge.

Investment solutions is an investment manager signatory to the United Nations Principles for Responsible Investment (http://www.unpri.org/signatories/#im ) developed by an international group of institutional investors reflecting the increasing relevance of environmental, social and corporate governance. Read more at: http://www.investmentsolutions.co.za/investing_responsible_investing.asp

The Principal Officers Association of South Africa, supported by Global Pensions, in May 2010 ranked Investment solutions as Multi-Manager of the Year in the Imbasa Yegolide Awards for Professional Excellence 2010.

crm training, a division of Alexander Forbes Risk Services, has accreditation on the following:

• ServiceProvideraccreditationwithTransportSeta(TETA)from14November2008;

• LearnerProgrammeapprovalfrom:– Health & Wealth SETA (H&W Seta) from 8 September 2008– Manufacturing, Engineering and Related Services SETA (Merseta) from 10 June 2008– Transport SETA (TETA) from 14 November 2008;

• FullAccreditationfromLocalGovernmentSEATA(LGSeta)from14November2008;and

• EndorsementfromInstituteofRiskManagementSouthAfrica(IRMSA)foracourse(withotherspending).

alexander forbes risk services’ and alexander forbes Insurance’s (in South Africa) Compliance (Quality) Management Systems have successfully been re-certified to be in accordance with ISO 9001:2008 standards. Certification valid from May 2010 to April 2013.

alexander forbes has been ranked in the Top 10 in the Best Company to Work for in South Africa. In the 2010 deloitte survey, where Alexander Forbes (South Africa) was ranked 8th best, employees rated their employers on 13 dimensions including leadership, transformation, communication, rewards and management style.

alexander forbes financial services in the UK was awarded an ISO 9001:2000 for quality management systems certificate (for consecutive years since 1996), emphasising its commitment to continually enhancing customer satisfaction and to providing a service that meets regulatory requirements across all aspects of the business.

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alexander forbes financial services in the UK (AFFS) ranked first in the corporate adviser awards in the categories of: • GroupIncomeProtectionAdviseroftheYear(2010;2011).

Furthermore, AFFS was highly commended (i.e. runner-up) in the category of Group Corporate Adviser of the Year (2011) and Group Risk Adviser of the Year (2011).

lane clark & peacock in the UK (LCP) ranked first in the corporate adviser awards of 2009, 2010 and 2011 in the category of:

• BestStrategyforInvestmentAdviceonPensions,wherethejudgespraisedLCP’srigorousapproachtorisk and cutting-edge range of modeling tools, saving scheme managers time while ensuing the best outcome for members.

Furthermore, LCP was highly commended (i.e. runner-up) for Pension Advisor of the Year (2011).

lane clark & peacock llp, our actuarial consulting subsidiary in UK and Europe, has been named european pensions consultancy of the Year by senior industry figures at the prestigious European Pensions Awards in July 2010. Inter alia, LCP demonstrated unrelenting client commitment and success in highlighting pensions as a key cross-border strategic issue for multi-nationals. More: http://www.lcp.uk.com/news/news.asp?Id=209

lane clark & peacock llp, our actuarial consulting subsidiary in UK and Europe has been awarded:

Investment consultancy of the Year (1st place) at the UK Pensions Awards – 2007 and 2011.

For the fourth time in a row, guardrisk Insurance has been voted South Africa’s number one alternative risk transfer (ART) insurer in PwC’s Strategic and Emerging Issues in South African Insurance 2010 biennial survey. This peer ranking is based on success (through performance, presence and momentum) as opposed only to size.

The South African Insurance Industry

Survey 2010

KPMG’s South African Insurance Industry Survey 2010 ranks guardrisk Insurance as South Africa’s 7th largest short-term insurer and its largest Cell-captive short-term insurer.

guardrisk Insurance remains South Africa’s highest rated Cell-captive short-term insurer after having its AA domestic claims-paying ability rating reaffirmed by Global Credit Rating Co in October 2010.

guardrisk life is South Africa’s only independently rated Cell-captive life insurer and its domestic financial strength rating of AA- was reaffirmed by Global Credit Rating Co in October 2010.

In August 2010, for the 7th year running, guardrisk was ranked as the world’s largest specialist captive insurance group of its kind in Business Insurance’s annual survey on Rent-a-captive facilities. Guardrisk Insurance was established in South Africa as the world’s first Cell-captive insurer in 1993.



CHAIRMAN’S STATEMENT

EMBRACING INTEGRATION IN ALL ITS FORMS

INTRODUCTION The aftermath of the recent global economic turmoil triggered an array of international reform initiatives in the areas that contributed to the crisis. These developments, the complex changes to the economic environment, the need to address sustainability issues and the expectations of customers present a number of challenges for financial services companies. And whilst the challenge of change appears enormous, we at Alexander Forbes believe it is essential that the sector engages with it.

Nevertheless, despite the arduous operating environment, Alexander Forbes delivered a satisfactory operating performance in the year to March 2011 with improved quality of earnings.

In addition, I am pleased to present to you this year an annual report that holistically integrates economic, social and environmental performance. Essentially this means that we report on our financial results in far more than just a global economic context – challenging as that continues to be.

GOVERNANCE AND THE REGULATORY ENVIRONMENT The leaders of the Group of Twenty (G20) have begun to take initiatives to stem the global economic crisis through the

creation of new regulatory frameworks. South Africa has representation on the G20’s international think tank and, through this, is able to influence reform debate. These engagements have resulted in significant regulatory changes on the capital requirements and management for the financial services sector globally.

There are three key developments that are likely to shape the context of the financial sector and our business in the medium to long term. These are:

• the convergence of accounting and reporting standards: The lessons of Enron and Worldcom triggered a review of accounting standards in a quest to improve on the information given to stakeholders. The recent global crisis has heightened a need for these reviews. Most South African businesses are grappling with these changes.

• the convergence of actuarial standards: This work will be driven by a task force appointed by the International Actuarial Association (IAA). The work on Solvency II has been the driver of actuarial convergence in the insurance sector. The FSB has established the Solvency Assessment and Management (SAM) Project to develop a South African equivalent solvency regime based on Solvency II. The implementation date is set to be 2014. Alexander Forbes is actively represented on the SAM Task Team.

sello molokoChairman

• RESOLUTION OF THE

LEGACY ISSUES

• TURNAROUND IN THE

UK FINANCIAL SERVICES

OPERATIONS

• SOLID GROWTH IN

TRADING PROFIT

• CONTINUED RECOGNITION

OF EXCELLENCE

THROUGH INDUSTRY

AWARDS

• COMPREHENSIVE

REVITALISATION OF OUR

BRAND

• IMPROVING OUR

RISK MANAGEMENT

FRAMEWORK

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• Increased government intervention: In addition to SAM, South Africa has several other regulatory initiatives in the pipeline. These include the amendment of the asset spread of retirement funds, the Treating Customers Fairly programme and the regulation of credit rating agencies.

Whilst South Africa’s financial system was relatively resilient during the crisis, we will be affected by these regulatory reforms. In addition to the international reforms, the domestic market has come under the influence of additional themes, chief of which are the King Report on Governance for South Africa 2009 (“King III”) and the new Companies Act. The latter came into effect after the financial year-end. The combination of the developments on the international and local fronts has a significant impact on the day-to-day capital management, the governance framework and the reporting requirements for our business.

At Alexander Forbes, we have embraced these developments and have made significant endeavours to apply the principles of King III and we continue to review our governance practices against these principles. We view sustainability in our business as an imperative that makes sound commercial sense. It is an imperative that must pervade all aspects of our business and inform the way we think, strategise and operate. Given the structure of ownership of the Alexander Forbes Group, the Board is satisfied with the Group’s compliance with King III. The Board is satisfied that where there are deviations from King III, there are sound explanations and that apposite governance controls are in place. In addition, the Board is satisfied with the financial management of the Group in light of the changing regulatory capital dispensation.

PRIMED FOR A SUSTAINABLE FUTURE This integrated Annual Report is our first effort towards integrated reporting

in line with the recommendations of King III. The Board seeks to improve our reporting and to demonstrate Alexander Forbes’ long-term sustainability on multiple dimensions – economic, financial, environmental and social. We plan to develop a Sustainability Management Framework to bolster our information co-ordination across our businesses.

Under the private equity ownership, the Board governance structures and Risk Management Framework have improved remarkably. We continue to be committed to ensuring that the Group can sufficiently address the demands on environmental, social and governance issues.

We believe that there are three key indicators of sustainability:

transfOrmatIOn The transformation of our country and the financial sector is an indicator that is close to my heart. Progress on the implementation of the B-BBEE status at Alexander Forbes has been pleasing and we have retained our Level 3 certification. The Board remains committed to this indicator and keeps focus on progress through its Transformation Committee. The main challenge we continue to grapple with is the Employment Equity pillar of our scorecard.

peOple People are the cornerstone in ensuring success in a fiercely competitive financial services sector. We place significant emphasis on seeking and retaining high calibre professionals with sound business values. To this end, there will be renewed focus on bolstering the management team and attention will be paid to key technical areas so as to maintain our competitive edge and attain our ambitious goals.

sOcIal respOnsIbIlItY In terms of our social performance, we have always been very clear and committed in our support of the pressing community issues of the

day, as is evidenced by the five focus areas the Alexander Forbes Community Trust concentrates on: the Elderly, the disabled, Women, those living with or affected by HIV/AIdS and Education.

In this context, the Trust’s unique In 4 Life Community development Model addresses the two most pressing of these issues head on: Education and HIV/AIdS. Please refer to the Social and Environmental Performance sections of this report on pages 74 to 81 to discover more about the very real and credible impact we are making. It is particularly heartening to be doing so in a context of a more positive attitude towards addressing the challenges facing orphans due to the impact of HIV/AIdS.

ECONOMIC PERFORMANCE: AN UNCERTAIN WORLD The global economic recovery, which continued to gain momentum in the first quarter of 2010, faced some headwinds during the second quarter of 2010, which marked the first quarter of our financial year. Notable was the realisation that public finances in countries in the European periphery were much worse than initially estimated. This raised fears of debt defaults and contagion spreading to larger European countries such as France and Germany and has seen bailout packages being extended to Greece, Ireland and, more recently, Portugal. The fiscal problems in the European periphery reflect a widespread problem across many developed countries, with the US recently under the spotlight for its weak fiscal position, culminating in a downgrade of the outlook on its long-term debt to negative.

Barring temporary pull-backs from risk events, global equities and commodity prices have largely rallied, supported by high liquidity stemming from further quantitative easing and record low interest rates in developed markets. Emerging markets in particular

| 21 |



continued to attract capital inflows given their high yield and growth differentials relative to developed economies. However, one consequence of these capital inflows, as well as rising commodity prices, has been building inflationary pressures in these economies, resulting in countries like China and India hiking interest rates as early as 2010.

Rising food prices in particular have resulted in a surge in social and political turmoil in some countries in the Middle East/North Africa region. That in turn saw a surge in the oil price to levels above $100/barrel, which further fuelled inflation, not only in emerging markets but also in developed economies.

The first quarter of 2011, which marked the end of the Company’s financial year, ended with renewed risk aversion stemming from the large-scale earthquake and tsunami that hit Japan in March. However, the concomitant pull-back in markets was short-lived and the rally in equity markets resumed. For the year to March 2011, the MSCI World Index returned 14.0%, while the MSCI Emerging Market Index gained 18.8% on a total return basis.

In line with this, the South African economy had a strong start to the year, largely driven by improved global demand for commodities and a rebound in manufacturing production off a very low base. The strong infrastructural spending ahead of the 2010 FIFA World Cup, together with the consumer spending which was steadily improving for most of the year, bolstered economic activity.

The FTSE/JSE ALSI returned 25.1% in dollar terms during the year ended March 2011, outperforming both developing and emerging markets and benefiting from the massive amounts of liquidity rotating into risk assets. In Rand terms, the FTSE/JSE ALSI was up 15.2% during that period.

These inflows also helped to support the Rand and its strength has helped

keep inflation in check, which in turn has enabled the SA Reserve Bank to maintain interest rates at 37-year lows. While the inflation cycle has clearly turned up, the Rand still remains pivotal to the inflation and interest rate outlook. Furthermore, while the next major move on interest rates will be upwards, it is possible that the Bank will not need to increase rates until later this year or even early 2012 if there is sufficient strength in the Rand. However, the risk is that the local currency has become very dependent on capital inflows and will be vulnerable once they change direction.

The economy also gained further momentum in the first quarter of 2011, growing by an impressive and better than expected 4.8% (seasonally adjusted and annualised), up from 4.5% in the final quarter of 2010. The economic recovery has largely been led by the demand sectors; however, recent data suggests a more broad-based recovery, with supply sectors, notably manufacturing, posting relatively robust growth. While the weak labour market, subdued credit growth and flagging fixed investment spending remain a downside drag to the recovery, the medium-term outlook for economic expansion remains on the upside, particularly as fixed-investment spending and the labour market are expected to reflect stronger growth.

HIGHLIGHTS OF THE PAST YEARWhilst the domestic economic indicators are strong, confidence on the ground was impacted by the significant lay-offs in the banking sector this year – signalling that the good times are by no means rolling. In this context, our businesses performed adequately – posting growth in trading profit of 8%. Much of this has come from the Company’s strategic focus on the retail arena, linked as this is to the long-term strategies of extending our sales capacity. These strategic growth initiatives have shown strong traction,

particularly in the retail space with combined revenue growth of 11%.

The injection of new management into the UK Financial Services operations saw this business return to profitability. This turnaround, coupled with the continuing strong performance from the Lane Clark & Peacock business, bolstered the overall performance of our international operations. This was, however, muted by the effects of a stronger Rand.

The year in review saw the ultimate resolution of the significant legacy issues dating back to the 1990s. These historical cases have taught us invaluable lessons and have increased our resolve to ensure fair and transparent interaction with our clients and other key stakeholders. We are pleased that the outcome of the Lifecare case is that the right thing was ultimately done in the interests of the affected pensioners.

A further and visible aspect of this report is the revitalisation of our brand and the relaunch of our corporate identity. The investment in our brand marks the dawn of a new era – it stands for a renewed vigour to grow the Company and a new way of operating. It also seeks to support our bold strategic initiatives, which are driven by our quest to achieve a steeper performance trajectory. In this regard, our new corporate advertising campaign has got off to a good start and has received positive reviews.

Our businesses also continue to receive recognition for professional excellence and quality service locally and internationally. Recent examples include the 2010 PMR diamond Award awarded to our Financial Services subsidiary and the recognition bestowed on our Healthcare division and Lane Clark & Peacock. Our Investment Solutions business continues to be the dominant multi-manager and continues to generate superior investment

performance over most periods.

| 22 |



CHANGES TO OUR BOARD OF DIRECTORSduring the financial year, our Board was reinforced with the appointment of Barend Petersen as an Independent Non-executive director and a member of the Audit Committee. We are excited to have attracted a Board member with his strong commercial, financial and strategic insights.

By the same measure, we are also excited about the arrival of Tshakalisa (“Shakes”) Matiwaza onto the Board.

Whilst injecting new blood, the Board also bade farewell to Peter Schmid and Kojo Mills who left for the foreign climes of the United Kingdom and the United States respectively. We thank them for their insightful contributions and wish them both well for the future.

Post the financial year-end, the Board also appointed Hillie Meyer as an Independent Non-executive director. Hillie brings a wealth of industry experience and strategic insights gained after an illustrious career in the insurance industry. We are excited about his appointment and we look forward to his contribution.

The Board also welcomes Natalie Kolbe as a Non-executive director – replacing Peter Schmid. Natalie is familiar with our operations and Board processes after serving as an alternate since 2007. We are pleased that we will continue to benefit from her contribution.

In a further quest to bolster the Board, we are in the process of finalising the recruitment of an additional Independent Non-executive director with relevant industry expertise and international experience.

At the end of the financial reporting period, the Board comprised 12 directors and 4 Alternates. Of these 12 directors, three are classified as Independent Non-executives (in terms of King III), nine as Non-executives and three are Executive directors.

CONCLUSION AND APPRECIATIONThe resolution of the legacy issues,

dating back to the 1990s, is a

significant achievement for the

affected pensioners and our business.

Its conclusion has aptly shifted

Management’s attention towards the

attainment of our ambitious strategic

objectives.

I wish to express my gratitude to

Edward Kieswetter for his immense

contribution since he joined the Group

18 months ago. His leadership has been

transformational. It is my firm belief

that his vision of growth and opportunity

and his commitment to investing for

growth, whilst at the same time being

prudent with costs, stand to extract

maximum value for all our stakeholders.

Equally, my gratitude must go to

the Executive team for embracing

his challenging vision and for their

dedication despite the constraints.

I wish to thank my fellow directors and

the members of the Board Committees

for their contribution and wisdom over

the past financial year in a rapidly

changing regulatory and governance

dispensation.

There is no doubt that our success

fundamentally lies in the depth of

the human capital and energy within

Alexander Forbes. I wish to direct my

appreciation to each employee for the

visible continued dedication and hard

work. It is only through the collective

efforts of our employees that we can

deliver on our stated mission to serve

and to safeguard our clients’ precious

savings and help them to leverage these

to achieve economic growth.

I cannot end without thanking those to

whom the Company has rededicated

itself through its strategic themes – our

corporate, institutional and individual

clients. We remain inspired by our

clients’ ongoing support and partnership

as we seek to take the business to new

heights. Indeed, it is an honour for us

to be in the service of securing your

financial well-being – now and into the

future.

sello moloko Chairman

Sandton

24 June 2011

There is no doubt that our success fundamentally lies in the depth of the human capital and energy within Alexander Forbes. I wish to direct my appreciation to each employee for the visible continued dedication and hard work. It is only through the collective efforts of our employees that we can deliver on our stated mission to serve and to safeguard our clients’ precious savings and help them to leverage these to achieve economic growth.

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GROUP CHIEF EXECUTIVE’S REVIEW

A CHALLENGING YET INSPIRING YEAR

I am pleased to report on my first full financial year with Alexander Forbes since my appointment as Group Chief Executive. After 18 months in this challenging post, I remain inspired by the people that make up this great Company: a Company with a proud record of innovation and success.

ESTABLISHING OUR HIGHER PURPOSEAt Alexander Forbes, we work in response to a higher purpose; that of providing impactful service that enriches people’s lives. Our aspiration is to be a truly African, globally distinctive organisation that creates wealth, protects clients’ assets from risks and, in so doing, impacts positively and sustainably on their lives. This provides us with the inspiration to become a winning organisation.

On 1 April 2010 we took the first steps towards the realisation of this aspiration and introduced a clear message to the business that we exist to serve this higher purpose. This means that every employee has to become more aware of how the work they do impacts on all our key stakeholders: clients, colleagues, communities and shareholders.

At that time, we also clarified our strategic choice of driving growth through a key focus on the retail segment, i.e. on individual clients. This is strongly supported by our continued drive in the public sector

and investment in the rest of Africa. Furthermore, we remain determined to turn around our performance in the international areas of our business.

We framed these choices through a focus on delivering on four strategic themes: increasing value for our clients; expanding our brand; investing and innovating for growth; and extending our sales and service capacity.

In living up to our higher purpose, we have resolved to further build on our reputation for innovative products and services and have taken steps to entrench a more client-focused and caring culture, because we believe this is the best way to ensure the sustainability of our business. To this end, we have invested much time and resources in building our leadership brand and, along with this, relaunched our corporate brand. We have also placed a significant emphasis on improving employee engagement and have stepped up our performance management and reward practices. We also undertook to substantively address the legacy issues that placed questions over our reputation.

Finally and very importantly, to ensure the delivery of impactful service that positively impacts on people’s lives, we have developed a “SERVE” values model that also informs our leadership brand. The “SERVE” calling card invites every employee at Alexander Forbes to continually strive to deliver to our clients with greater simplicity, the expert and innovative solutions we

edward chr KieswetterGroup Chief Executive

• INCOME FROM OPERATIONS, NET OF DIRECT PRODUCT COSTS INCREASED BY 2.7% TO R4.6 BILLION

• PROFIT FROM OPERATIONS BEFORE NON-TRADING ITEMS INCREASED BY 8% TO R1.1 BILLION

• OPERATING LOSS AFTER NON-TRADING ITEMS, FINANCE COSTS AND TAXATION REDUCED BY 64% TO R28 MILLION

• CONTINUED INVESTMENT IN STRATEGIC GROWTH AREAS INCLUDING LEADERSHIP DEVELOPMENT AND BRANDING

• STRATEGIC GROWTH INITIATIVES SHOWED STRONG TRACTION, PARTICULARLY IN THE INDIVIDUAL CLIENT SECTORS WITH A COMBINED REVENUE GROWTH OF 11%

| 24 |



provide. We do this in order to create

long-term relationships, based on the

priceless value of hard-earned trust, in

order to enrich people’s lives.

ALEXANDER FORBES SERVE MODEL

S IMPLICITYHow we deliver

XPERT INNOVATIVE SOLUTIONSWhat we deliver

E

NRICH PEOPLE’S LIVESWhy we exist

E

ELATIONSHIPSWhat we strive for

R

ALUE OF TRUSTWhat we stand for

V

IMPACTFUL

SERVICE

PLEASING OPERATING RESULTS IN TOUGH TRADING CONDITIONSduring the financial year under review we continued to experience tough trading conditions in the large corporate client segment. We are, however, pleased to report that we are seeing early signs of success in our retail strategic initiatives.

Gross income from operations was R5.2 billion while income from operations was R4.6 billion, 2.7% up on the previous financial year. However, the stronger Rand against the Sterling had a negative effect on our overall growth rate as the Africa region’s net revenue increased by 7%, while the International region delivered net revenue growth in local currency terms of 4%. The recovery in equity markets supported the results in both Investment Solutions and certain parts of the Financial Services businesses.

Through a heightened attention to costs, our operating expenses of R3.4 billion show an increase of only 1% year on year in Rand terms. This disciplined cost management in the established business areas was balanced with selective investment in the strategic growth areas, particularly to support our expansion in the individual client retail market. As a

result, operating expenses in the Africa region grew by 8% and International, in local currency terms, remained in line with the previous year.

Profit from operations before non-trading items and capital items increased to R1.1 million, up by 8% compared to the previous year. The profit contribution from the African operations of R940 million represents 84% of the Group’s total profit, reconfirming Alexander Forbes as a business firmly rooted in Africa. Our international businesses, mainly the UK, contributed R173 million after exchange rate effect (or 16%) to Group profit.

This is a pleasing result, particularly given the continuing investments we have made in the development of our individual client retail offering and also the investments we have made over the past year in branding and leadership development.

The International division showed a pleasing 36% year-on-year growth before exchange rate effect and 27% after translation. It is particularly satisfying that Financial Services UK and Investment Solutions UK have recovered from a loss-making position, with both reporting positive results.

It is also noteworthy that, with year-on- year growth of 17%, the Cell-captive provider, Guardrisk, continues to perform well, contributing R118 million to the Group’s operating profit at a healthy margin.

Investment Solutions Africa, the asset multi-manager, is also a significant contributor to profit in the Group. With a 9% year-on-year growth, and supported

by above benchmark investment

performance, this division contributed

R269 million or 24% of Group profit.

As already indicated, the Retirement

Funds business of Financial Services

and Corporate Risk Services, which both

serve institutional clients, continued to

experience a tough trading environment

and a changing competitive landscape.

These areas continue to receive

attention, with a focus on reducing costs

and maximising growth opportunities.

BRINGING OUR STRATEGIC THEMES TO LIFEThe Group’s performance was achieved through various initiatives that were implemented in line with our strategic themes. Some of the key highlights in this regard are as follows:

IncreasIng value fOr Our clIents Providing better value for our clients and therefore enhancing the overall experience that they have when dealing with Alexander Forbes underpins our growth strategies. Our intention is to make sure that existing clients

demonstrate loyalty through higher

levels of client retention and that we

continuously attract new clients and

increase new business.

| 25 |



I am therefore pleased with the number

of new product and service enhancement

initiatives that were implemented during

the year under review. To ensure that

our clients always get the right advice

at the right time, Alexander Forbes

Financial Services launched the “Hot

Topics” Summit series, which provides

a platform for our clients to engage with

leading industry experts on pension

and savings challenges and solutions.

Through a joint venture with Personal Finance, we also initiated our “How

to…” series of articles, which provide

insights on retirement. In addition,

we introduced Retirement Income

Statements for members two years from

retirement to help them better plan for

their retirement.

Additional value-adding services

introduced this year include various

online service improvements; a range

of new products from Alexander

Forbes Insurance such as Easilite,

Tyre Insurance and Platinum Woman;

increased distribution capacity for our

Risk Services Commercial division;

and improved services from Alexander

Forbes International, including individual

pricing decisions made to suit client

needs, and a new service called

mymoneywindow which provides clients

with “one-stop” online access to their

financial position.

Added value was also realised from the

fact that 88% of Investment Solutions’

funds outperformed their benchmarks.

expandIng Our brand

To ensure that corporates and individuals

instantly recognise the Alexander Forbes

family of brands as a “trusted and

respected” household name, we have

completely revised and relaunched the

Alexander Forbes corporate brand and

logo. This has given new life to our

strategies and our communications. Our

reputation continues to be bolstered by

the numerous awards we won during the

year (see pages 16 to 18).

INNOVATING AND INVESTING FOR GROWTHThe objective of this theme is to build a culture of excellence that produces sustainable growth derived from innovative products and services delivered as “best in class”. Successes realised over the past year include Alexander Forbes International’s launch of the National Pensions Index in London, with front-page supplement coverage in the Financial Times Weekend edition.

In South Africa, Alexander Forbes Financial Services launched an Intermediary Services initiative that is designed to give independent financial advisors access to retail products for their individual clients. Alexander Forbes Financial Services also launched a new Access product, which is the first ever umbrella fund offering to non-Alexander Forbes advisors. We also made significant progress in expanding our Actuarial Services with the launch of the Alexander Forbes Financial Services General Insurance Consulting offering.

Guardrisk implemented various growth initiatives which include Instant Life, an internet-based individual life cover offering, a Cell-captive solution offering for the Absa Group and an employee comprehensive cover scheme for Toyota and various branded products for Tracker.

buIldIng Our sales and servIce capacItY Initiatives that reflect our efforts to continuously improve our sales and service excellence included the continued recruitment of experienced consultants and actuaries, especially for our International businesses where the focus is to expand both our employee benefits consulting and our product and service offering beyond employee benefits. In South Africa, our Financial Services business grew its retail sales team from 49 to 64 and as a result new business assets under management increased by 11%. Financial Services

South Africa further augmented its institutional and health sales teams by making 179 new appointments. Alexander Forbes Insurance also recruited an additional 70 sales and service consultants over the past 18 months, which has resulted in new business growth of 37% year on year.

EARLY SUCCESS WITH OUR GROWTH STRATEGIESWe have made good progress on all our growth strategies this year, with the most positive traction being in our retail initiatives, which show a positive year-on-year increase in trading margin of 12.9%. Alexander Forbes Insurance, which sells motor and household cover to individuals, showed an impressive 17% year-on-year revenue growth, underpinned by strong new business growth.

The Financial Services Retail Cluster, created to serve individual retail clients with all their wealth-creating needs, has grown 12% year on year, underpinned by an 11% growth in assets under management. The contribution from this cluster was R151 million, or 14% of Group profits.

With increasing confidence and traction in these businesses, we remain positive that our biggest growth opportunity over the next few years is in the retail segment, and we will continue to make investments to increase our ability to serve this retail client segment.

As already highlighted, significant progress was made in turning the International business around, especially the Financial Services and Investment Solutions UK businesses, which have recovered from loss-making positions and have reported positive results.

Good progress was also made with identifying opportunities for growth in Africa beyond South Africa. Initiatives for the South African public sector are also being scoped for implementation in the forthcoming year.

| 26 |



LAYING THE PAST TO RESTduring the year under review, we also successfully concluded the resolution of the Lifecare and bulking matters, bringing to a close the long-outstanding matters that have negatively impacted our reputation. Subsequently, we have received very welcome feedback and believe we can move forward positively. Tellingly, the financial press has now recognised our genuine commitment to doing the right thing. This is all part of our commitment to put our clients first and provide them with better value for their investment.

BUILDING A HIGH-PERFORMANCE CULTURETo ensure a sustainable growth trajectory, we have succesfully implemented the following Group-wide initiatives to strengthen our capability to deliver exceptional performance:

• Established a Group Strategy, Programmes and Performance Management Office to strengthen our strategic, operational planning and execution capability;

• Introduced a new performance management system using a customised balanced scorecard to better clarify deliverables and align short-term objectives with the need to enhance the sustainability of the business;

• developed a common leadership brand model and launched a leadership development programme to improve leadership effectiveness;

• Completed the groundwork for and relaunched a new corporate logo and brand campaign; and

• Established a baseline and developed plans to improve employee engagement.

The impact of these initiatives is evident in the many pockets of excellence that continue to emerge throughout our companies, here in Africa and in the UK.

In addition to this, we have this year, for the first time, produced a report that demonstrates the Group’s commitment to more than just our people and our performance, but also to our communities and the country – indeed the world, we live in. This is our first integrated annual report – in line with the King III guidelines – and talks to both our social performance and our environmental performance.

CHECKING IN AND LOOKING FORWARDduring the third quarter of 2010/11 we undertook a further strategic assessment of the Group. The purpose of this was to evaluate whether we were still on track to achieve our ambitious growth aspiration. The outcome of this review was the identification of our focus areas for the new financial year, which include a continuation of some of the abovementioned Group-wide initiatives whilst taking significant steps towards the creation of a winning organisation by exploring ways to improve the management of our capital structure, reconfiguring our cost base and reviewing the way we are organised.

However, I would be remiss in not observing that we have achieved our 2010/2011 results against a backdrop of limited growth and ongoing challenges to cost containment that we need to continue to face head on. The year ahead may therefore be tougher than the year past and we will have to use all our resilience and resources to meet our strenuous targets. I am, however, confident that we have the people in place to achieve exceptional performance.

In conclusion, I would like to thank the entire Executive and Senior Management team for their contribution towards what was a tough but challenging year. In particular, I would like to thank Mpho Nkeli, former Group Human Resources director, and Anton Ossip, former Managing director of Alexander Forbes Financial Services (SA), who

after their excellent contribution over many years, decided to pursue other career interests. At the same time, I wish to welcome Gari dhombo, Managing director of Alexander Forbes Insurance, Herman Schoeman, Managing director of Guardrisk, Tony Gusmao, Managing director of our Financial Services business in the UK, and Peter Edwards, Acting Managing director of Alexander Forbes Financial Services (SA), who have recently been appointed as members of the executive team (Group Exco).

I would also like to thank the Group’s Chairman, Mr Sello Moloko, who has given me amazing support in my first year, as well as the Board for their confidence and trust in supporting the strategic direction on which we have embarked.

edward chr Kieswetter Group Chief Executive Officer Sandton 24 June 2011

| 27 |



STAKEHOLDER ENGAGEMENT

ENGAGING WITH OUR STAKEHOLDERS

Alexander Forbes interacts with a broad range of stakeholders on an ongoing basis. This engagement is premised on our SERVE philosophy which is the cornerstone of our engagement with all our stakeholders: Simple, Expert and innovative solutions to build long-lasting Relationships, based on the Value of trust in Enriching people’s lives.

We endeavour to consider all stakeholders in everything we do at Alexander Forbes and to balance those interests in a fair and equitable manner. We have identified the following specific areas of focus and will be consistently and incrementally building on these areas of engagement.

• CommitmenttotheprincipleofTreatingCustomersFairly• Appropriateandaccessiblemembercommunication• ProvisionofinputtotheRegulatorviaindustrybodiesontheapplicabilityoftheSouthAfricanConsumerProtectionAct

in respect of pension funds• Redrafting,wherenecessary,ofclientcontractstoensureeaseofunderstanding,fairness,awarenessanddisclosure• Responsibleandknowledgeableresolutionofcomplaints,includinglegacyissues• Regularclientsatisfactionsurveys.

CLIENTS

• Awell-developed“In4Life”ModelundertheauspicesoftheAlexanderForbesCommunityDevelopmentTrust,whichisaimed at enabling vulnerable youth in communities

• OurEmployeeVolunteeringProgramme,whichencouragesemployeestosupporttheworkoftheCommunityTrust,financially and in kind

• Long-termpartnershipswithNGOs,andasharingofexpertisewhichwillcontributetowardsthesustainabilityoftheseorganisations

• Capacity-buildingprogrammesonvariousaspectsofmanagement,whichwillprovidenecessaryskillsinenterprisedevelopment

• GraduateTraineeprogrammesandInternshipswhichprovidenecessaryskillsandexperience.

COMMUNITY

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• GroupChiefExecutive’sregularcommunicationandstrategicengagementsessionstwiceayear

• GroupChiefExecutive’semployeeengagementroadshowsatleastfourtimesayeartoengageonvariousstrategicissues

• Employeeengagementsurveys

• ImplementationofanewPerformanceManagementandRewardProgrammeintegratedintothebusiness,andmanagedfrom a Group Strategy, Programmes and Performance Management Office

• Employeeengagement:EnterpriseWidePeopleStrategywhichistrackedonaquarterlybasis

• Remunerationphilosophyandstrategyrevisitedtoensurethatourremunerationremainscompetitiveinordertoattract,engage and retain key talent

• Transformationstrategyfocusingonamorerobustimplementationandfurtherimprovementofourempowermentrating

• Technicaltraininganddevelopmentprogrammesforcurrentandpotentialemployees,particularlyinrespectofFAISqualifying exams

• ImplementationoftheLeadershipBrandandSERVEmodelwhichclearlyoutlinebehavioursexpectedinAlexanderForbes.

EMPLOYEES

• BuildingofrelationshipsandregularinteractionwithSeniorManagementtoensureunderstandingofissuesraisedbygovernment

• Provisionofleadingedgethinkingtomattersofnationalinterest

• Provisionofindustrycommentondraftlegislation

• Subscriptiontogovernment(SouthAfrica)empowermentprinciples.

GOVERNMENT

• Comprehensivecommitmenttoensuringallregulatorycompliancerequirementsaremet

• RegularinteractionandengagementwiththeRegulators

• TimeousfeedbacktotheRegulators

• Thoroughandco-ordinatedcommunicationandsubmissionssothattheRegulatorsareprovidedwithacomprehensiveand accurate picture

• ProvisionofopinionsandsolutionstomattersraisedbytheRegulatorwhichareinthepublicinterest

• ParticipationonthesteeringcommitteeandvarioustaskgroupsrelatingtotheSolvencyAssessmentandManagementproject.

REGULATORS (IN EACH COUNTRY)

• StrongrelationshipswiththeGroupChiefExecutive,FinancialDirectorandExecutiveCommittee

• Continuousengagementthroughformalisedboardmeetings,monthlystrategicforumsandadhocdiscussions

• Discussionofmaterialissuessuchasthechangingcomplianceandregulatoryenvironment

• Investorrelationsinformationmadeeasilyaccessibleonourwebsite

• Analystpresentationsinordertoimproveanunderstandingofcomplexfundingstructures.

SHAREHOLDERS

• Contractmanagementforclarityofrightsandobligationsonbothsides

• Relationshipmanagementandco-ordinationofpointsofcontact

• Complianceofsupplierswithlegislativestandards

• OptimisationofprocurementacrosstheGroup,focusingonstrategicalignment,methodology,processandpractices.

SUPPLIERS

| 29 |



31 GOVERNANCE REPORT



Alexander Forbes has a firm hold on its responsibility to its clients, its stakeholders, the country and the world it influences: and so it has dealt with its legacy issues directly and honestly.

GOVERNANCE REPORT

| 31 |



GOVERNANCE REPORT

CORPORATE GOVERNANCE IN OUR BUSINESS: KEEPING THINGS RESPONSIBLE, FAIR AND TRANSPARENT The Group’s Board of directors is

responsible for ensuring that the

group’s operations, processes and

activities are underpinned by a

strong system of governance that

is fully integrated into all aspects

of its business. The Board remains

accountable for the ongoing

sustainability of the Group.

This governance framework has been developed to enable the Alexander Forbes Group to attain a number of goals and objectives:

• Creating a culture of values and ethics which is aligned with the ethos of the Group;

• Ensuring an effective corporate governance structure;

• defining the Group’s strategy and supporting the structures created for its implementation;

• Cohesion between the objectives and needs of all stakeholders;

• Encouraging growth and innovation;

• Integrating sustainable business practices and economic results with environmental and social objectives across the business;

• Ensuring the effective functioning of the risk management framework; and

• Compliance with legislation, regulations and King III.

ALEXANDER FORBES EQUITY HOLDINGS (PTY) LTD – BOARD OF DIRECTORS

GROUP NOMINATIONS COMMITTEE

GROUP REMUNERATION

COMMITTEE

GROUP TRANSFORMATION

COMMITTEE

AUDIT COMMITTEES

(GROUP & SUBSIDIARIES)

INTERNAL AUDIT

RISK MANAGEMENT

AF SAM STEERING

COMMITTEE

STAKEHOLDERS(CLIENTS, COMMUNITIES, EMPLOYEES, GOVERNMENT, REGULATORY

BODIES, SHAREHOLDERS AND SUPPLIERS)

GROUP UNDERWRITING

(LIFE & NON-LIFE)

COMMITTEES

COMPLIANCE

GROUP CAPITAL

COMMITTEE

GROUP EXECUTIVES

GOVERNANCE, RISK &

COMPLIANCE FORUM

OPERATIONAL RISK &

COMPLIANCE COMMITTEES

GROUP INVESTMENT COMMITTEE

GROUP LEGAL ADVISORS

FORUM

GROUP INVESTMENT COMMITTEE

MARKET RISK FORUM

| 32 |



The Board of directors and

Management of AFEH are committed

to applying the principles of good

governance as contained in the King

Report on Governance for South Africa

2009 (“King III”). deliberations,

decisions and actions of the board and

executive management are based on

the four ethical values underpinning

good corporate governance, namely

responsibility, accountability, fairness

and transparency.

ADHERENCE TO

CORPORATE GOVERNANCE:

KEEPING OUR STANDARDS

HIGH

The directors of Alexander Forbes

Equity Holdings (Pty) Ltd (“AFEH”) are

committed to the highest standards

of corporate governance. The Board

supports the principles of transparency,

ethical behaviour and honesty in all

dealings.

The King III, which was published on

1 September 2009, took effect from

1 March 2010.

In furtherance of our commitment to

corporate governance, the Alexander

Forbes Group has participated as a

Founding Partner in the development

of the Institute of directors’

Governance Assessment Instrument.

This is an automated web-based tool

that serves as both a measure and an

enabler of good corporate governance

and structures and practices. AFEH

and ten of its major subsidiaries

utilise the tool and have, in doing so,

performed a detailed analysis of their

application of the King III principles.

Having performed the assessment,

those principles that must still be

applied were identified. Actions to

improve the application of King |||

continue to be considered to improve

the level of governance maturity into

the future.

IMPROVEMENTS IN THE GOVERNANCE PROCESS: COMMITTING TO KING III during the 2011 financial year, the Group implemented enhanced compliance to King III in the following areas:

• A Group Code of Ethics was introduced, as was the Group’s Code of Conduct and Conflicts of Interest Policy;

• With regard to Board composition, at 31 March 2011 altogether 8 of the 11 Board members were Non-executives, with 3 of these being Independent (27%);

• All Committee self-assessments are performed annually;

• The Board and its Committees have adopted plans which are reviewed annually;

• The Group Audit Committee now comprises three Independent directors; and

• Establishment of the Group Capital and AF SAM Steering Committees.

ETHICS – MAINTAINING HONESTY, ENSURING INTEGRITY Ethics can be defined as a set of moral principles or guidelines. Business ethics are used to govern employee behaviour, regulate moral decisions and professional conduct.

One of Alexander Forbes’ greatest assets is its reputation, yet it is also an extremely fragile asset that can be destroyed by just one employee’s lapse in judgement. It is vital that we maintain the highest level of legal and ethical conduct in all our business dealings in order to preserve Alexander Forbes’ integrity.

AFEH, its subsidiaries and its employees are committed to the principles contained in its Code of Ethics, which is tailored to the South African operating

environment. Codes of Ethics are adopted in the Group’s operations in various territories.

It is a core value of Alexander Forbes

to act with uncompromising honesty

and integrity. AFEH’s Code of Ethics

provides guidance to all employees,

Management and directors of Alexander

Forbes and its subsidiaries to ensure

adherence to this and its other values.

Alexander Forbes’ core values are:

• Honesty & Integrity;

• To Treat Clients Fairly;

• To be Socially Responsible;

• Teamwork;

• To be Empowered and Accountable,

Motivated, Passionate Employees;

• To Meet & Exceed Client

Expectations;

• To be Market Innovators;

• To Embrace & Encourage diversity;

• Clear & Consistent Communication,

Accessible Leadership; and

• To Attract, Retain & develop High

Calibre People.

All employees conducting business

on behalf of Alexander Forbes,

regardless of their role, are expected

to consistently demonstrate its values

and ethics in the workplace in their

behaviour, along with the behaviours

inherent in the SERVE model.

PROTECTED DISCLOSURES: MAKING IT SAFE TO BLOW THE WHISTLE Alexander Forbes is committed to

providing a professional working

environment that is free of any form

of corruption, dishonesty or criminal

activity. Its Protected disclosures Policy

introduces a mechanism to facilitate

the reporting of any unlawful or irregular activity by an employee, customer, supplier or third party that engages with

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INTEGRATED ANNUAL REPORT GOVERNANCE REPORT


the Alexander Forbes Group. It also

ensures that employees who report such

an activity are not prejudiced in any

manner for making the disclosure.

THE GOVERNANCE OF RISK: KEEPING AN EYE ON THE RISKS WE TAKE As a diversified Financial Services

business, we are exposed to a wide

variety of risks across our entire

range of businesses. Risk taking is

integral to some of the core business

sectors in which we operate. In the

course of conducting our business

operations, we are exposed to a variety

of risks including financial, market,

credit, liquidity, operational and other

risks that are material and require

comprehensive controls and ongoing

oversight.

Senior Managers of our core businesses

are responsible and accountable for

management of the risks associated

with their business activities. In

addition, independent Risk Committees

monitor market risk, credit risk,

liquidity risk and operational risk. We

have comprehensive risk management

structures in place, which are intended

to enable management to recognise

and analyse risks early and to take the

appropriate action.

In the broadest sense, the risk

management system is designed to

identify potential events that may

affect the Company and to provide

reasonable assurance regarding the

achievement of Company objectives,

specifically our ability to achieve our

financial, operational or strategic goals

as planned. This system is implemented

as an integral part of our business

processes across the entire Alexander

Forbes Group. Seeking to ensure our

corporate risk management efforts are

effective and to enable us to aggregate

risks and report on them transparently,

we have adopted an integrated

approach.

The Board is ultimately responsible

for the governance of risk. The Board

has delegated the responsibility for the

design, implementation and monitoring

of the risk management process to

the Audit Committee. This Committee

considers risk and reports back to

the Board on this process and the

management of significant risks.

Below is a summary of our material

risks and the actions in place to

mitigate and manage them.

material risks controls/response

1. Operational risk Operational risk reports are produced for the Group Audit Committee and Board of directors who have primary oversight for all risk matters.

Management and the Board are of the opinion that there has been significant improvement in the measurement and management of operational risk, due to an improved control environment.

The risk of loss suffered because of inadequacy of, or a failure in, internal processes, people and systems or from external events.

Main sources of operational risk include: Fraud risk management, legal risk, technology risk, information risk, business continuity risk and insurance risk.

1.1 fraud risk management Together with internal audit, Executive Management regularly reviews the business units at an operational level to ensure that appropriate controls are in place and monitored effectively. Fraud vulnerability assessments are undertaken in areas with high risk exposures.

Understanding vulnerabilities to fraud and misconduct is essential in today's global marketplace, as regulators are demanding more active management of fraud risk. Fraud risk management within the group is focused on building a solid infrastructure for evaluating, mitigating and monitoring the risk of fraud and misconduct. This involves building sustainable fraud risk assessment processes and developing anti-fraud programmes and controls to meet fiduciary and regulatory responsibilities.

1.2 legal risk The Group has access to internal and external legal counsel and subject matter experts in each of the countries within which it operates. Controls have been developed to ensure that new regulations are studied to ensure that systems and processes can be adapted on a timely basis to address new requirements and to ensure that contractual arrangements are escalated to an appropriate level for approval prior to finalisation.

There is a risk that systems and processes may lead to the incorrect application of regulatory requirements. As the Alexander Forbes business is highly client-focused and reliant on external suppliers with whom contractual relationships exist, there is an increasing risk that contractual obligations may be enforced against the Group in an adverse way.

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1.3 technology risk Group IT identifies vulnerabilities and threats and provides businesses within the group with a view of the risks faced by the the respective businesses. Once these risks have been identified, an appropriate IT risk management strategy is developed and implemented.

Businesses within the Group have choices in their approach to managing these risks, which include:

•Managingtheriskviainternalprocessesandcontrols;

•Outsourcingorcontractingouttheactivity;and

•Transferringtheriskviathepurchaseofinsurancecoverage.

IT risks may arise due to project failure to deliver system modifications required by changes in product design or new legislation, poor controls over data protection and information privacy, and the effects of physical disasters on information systems.

1.4 Information risk The Group’s Risk and IT divisions, under the leadership of the Group Executive Committee, are in the process of developing processes and controls for the adherence to the Consumer Protection Act and Protection of Personal Information Act so as to promote consistent and sound information risk management policies and practices and to minimise the risk of data losses.

Information risk is the risk of the accidental or intentional compromise of the confidentiality of data or the loss of strategically important data.

1.5 business continuity risk Contingency and recovery plans for core services, key systems and priority business activities have been developed, are regularly tested, and are revisited to ensure the Group’s capability to deal with interruptions to business.

Business continuity management (BCM) is defined as the ability of the Group’s business operations to adapt and respond to internal or external changes on a timely basis, whether they are opportunities or threats, and continue operations with limited impact to the business through predetermined and well-embedded procedures. A key aspect of BCM is the ability to attract and retain competent resources.1.6 errors and omissions risk The Group has a well-structured insurance programme,

led by the Group’s Legal Counsel, supported by the Risk Officers and the Group’s internal insurance brokers, to cover its financial and non-financial insurable risks to mitigate its operational risk exposures. Controls are in place to ensure that appropriate cover is purchased for the Group, that all key insurable risks are identified and that the cover is updated on a timely basis as the risks evolve or diminish.

The risk that employees, advisors and professionals employed within the Group fail to perform their occupational duties properly, resulting in a third party claiming damages for losses that they may have been incurred as a result of a failure to perform. A professional liability claim can have a devastating financial impact on a Group.

2. business risk Business risk and therefore the Group’s revenues and costs are addressed by executive management and overseen by the Board in the following ways:

•Innovativeandcustomer-centricproductdesignwhichaddresses changes in customers’ needs and changes in legislation;

•Monitoringtheprofitabilityofproducts;and

•Managingandmonitoringexpenditure.

Business risk refers to the Group’s ability to generate revenue and/or maintain or reduce costs to produce a profit acceptable to shareholders.

3. reputational risk Each business unit is responsible for identifying, assessing and determining reputational risks that may arise within their operations, particularly where processes are changed or new products are marketed. Customers are the key influencers of the Group’s reputation.

If a particular reputational risk is identified it is reported to the Group Executive Committee, who will address the risk with the management team and the board if necessary.

The Group’s Communications division monitors complaints and ensures that all stakeholders, including customers and employees, are able to make complaints and that these are addressed at the right levels in the organisation.

Reputational risk results from damage to the Group’s image which may impair its ability to retain and generate business. Safeguarding the Group’s reputation is of paramount importance to its continued success and is the responsibility of every member of staff.

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4. compliance and regulatory risk The Group’s compliance policy is formalised and embedded into each of the businesses within Group.

Compliance Officers are responsible for enforcing the policy and determining the impact that regulatory changes will have on the business. The Compliance Officers report directly to the business Chief Executives and by obligation to the Group Risk and Compliance Executive.

Changes in legislation are seen as opportunities and where they require procedural changes, the Group uses these to add value and create improvements for all affected stakeholders.

All employees, Management and directors are made aware of their regulatory responsibilities through ongoing differentiated awareness programmes and formal training.

Compliance and regulatory risk arises from the failure to comply with laws and regulations, which leads to operational, financial or reputational losses.

5. credit and counterparty risk The credit risk, concentration risk and insurance risks are monitored by independent Oversight Committees to ensure that the activities are within limits and reduced to high exposures.

The Group’s Market Security Committee, Investment Risk Committee and Non-Life Underwriting Committees track all credit risk exposures and provide management with the necessary guidance on managing such exposures.

Credit and counterparty risk is defined as the current and prospective risk to earnings or capital arising from an obligor’s (typically a client or counterparty’s) failure to meet the terms of any obligation to us or otherwise to perform as agreed. Credit and counterparty risk arises when funds are extended, committed, invested or otherwise exposed through actual or implied contractual agreements, whether reflected on or off balance sheet.

6. liquidity risk Liquidity risk within the Group is mitigated by careful cashflow management, including optimising working capital and by maintaining unused, committed financing facilities or a liquidity buffer. These allow the business to easily meet its future requirements or contingencies.

Liquidity risk is the risk that the Group is unable to meet its payment obligations when they fall due and to replace funds when they are withdrawn, the consequence of which is the risk of the Group being unable to continue as a going concern.

RISK MANAGEMENT: BALANCING RISK WITH PERFORMANCE The Board is responsible for the

total process of risk management,

as well as for forming its own opinion

on the effectiveness of the process.

Management is accountable to the

Board for designing, implementing

and monitoring the process of risk

management and integrating it into the

day-to-day activities of the Company.

The Board must identify and fully

appreciate the business risk issues and

key performance indicators affecting

the ability of the Company to achieve

its strategic purpose and objectives and

ensure that appropriate systems are in

place to manage the identified risks,

measure the impact and to proactively

manage them. The Company has a

structure and process to help identify, assess and manage risks. This process has been in place throughout the year under review.

The AFEH Board and Audit Committee, which both meet quarterly, have reviewed and continue to review the Company’s key risks contained in its corporate risk register and ensure that all new and emerging risks are appropriately evaluated and that any further actions required are identified and implemented.

Our risk management process was developed to cover financial, credit, liquidity, operational and other risks. It has five key elements:

• A global risk management structure;

• A Group-wide risk management policy;

• A uniform Group-wide process model involving the essential elements of risk management – risk planning, identification, analysis, response and monitoring;

• Software implemented throughout Alexander Forbes to support the risk management processes; and

• Standardised Group-wide risk reporting.

All major business areas are required to report their most significant financial and non-financial risks quarterly, along with plans or processes to manage these risks. The Group Risk and Compliance Executive challenges business areas about reported risks. Reported risks are then consolidated into a ranking and assessment of the Company’s key risks. This information is presented to Subsidiary Risk Committees and then

| 36 |



to the Audit Committee and the AFEH Board of directors.

All assessments of risk take into account the likelihood of a risk materialising and its potential impact on the business. Impacts are quantified and assessed in terms of potential financial loss and reputational damage. Risks are assessed both as gross risk and as net risk impacts. The assessment of gross risk assumes that no mitigating actions have been implemented, whereas net risk assessment takes into account mitigating actions already implemented and their anticipated effect. Enterprise risk management increases our ability to assess and understand risks, separately and in relation to each other from a global perspective, but with local control.

RELATIONS AND COMMUNICATION WITH SHAREHOLDERS: KEEPING IN TOUCH The Board is committed to keeping shareholders and the investor community informed of developments in the group’s business. Communication with our shareholders is based on the principles of balanced reporting, clarity and transparency. Both positive and negative aspects of financial and non-financial information will be provided to shareholders.

POLICIES & PROCEDURES: FILTERED DOWN THROUGH THE BUSINESS Policies and procedures that are applicable across the Group's businesses are developed as guidelines to the subsidiaries of the Group. Policies and procedures with specific application to the subsidiaries are adopted by businesses alone.

COMPLIANCE: KEEPING TO LAWS, RULES, CODES AND STANDARDS Alexander Forbes understands that

compliance is more than simply

responding to regulatory requirements,

as invariably good compliance will

protect their clients and stakeholders

and represents good business practice.

This, in turn, will enhance Alexander

Forbes’ reputation and assist with the

achievement of its overall strategic

plans.

Alexander Forbes views compliance

with laws, regulations and supervisory

requirements as an integral part of

all business processes within the

organisation and compliance is

managed by each business function as

part of its duties and responsibilities.

Alexander Forbes is committed to

the preservation of its reputation

and integrity by complying with all

applicable laws, regulations, operational

procedures and ethical standards.

Responsibility for compliance rests

with Management who are assisted

by qualified, experienced and ethical

Compliance Officers.

In line with the statement above,

Alexander Forbes produces a regular,

quarterly report by the Group Risk and

Compliance Executive to the AFEH

Board that includes an update on

laws, rules, codes and standards. The

directors of AFEH collectively have

ultimate responsibility for compliance

within the Group.

Management is responsible and

accountable for compliance within

their operational business unit(s).

This includes the implementation of

policies and procedures to support

compliance. Managers coordinate these

tasks with the appropriate compliance

personnel and may not delegate

these responsibilities. Compliance

Officers monitor compliance and assist

Management in controlling compliance

risk. There may be occasions relating to

certain businesses or operations where

compliance risks can be controlled

without the appointment of a dedicated

Compliance Officer.

The Group has a compliance framework

that is currently being reviewed in

light of the many regulatory changes

locally and internationally. There is a

formal process in place for compliance

activities, including oversight and

monitoring by the Audit Committee.

INTERNAL CONTROL ENVIRONMENT: KEEPING CONTROLS ON TRACK The Company continues to review its

internal controls to ensure it maintains

a strong and effective internal control

environment. The effectiveness of the

control environment has been under

regular review by the Group’s internal

audit unit. The Audit Committee

considers significant control issues

raised by Management and both the

internal and external auditors and

reports its findings to the Board. Where

weaknesses are identified, the Audit

Committee ensures that Management

takes appropriate action.

The Audit Committee has reviewed the

finance function and determined that

it is adequate and is of the opinion

that the internal financial controls are

working optimally. There are no material

deficiencies that need to be reported on

for the past financial year.

EXTERNAL AUDIT: INDEPENDENT ASSURANCE The Audit Committee is responsible

for nominating the Company’s external

auditor. PricewaterhouseCoopers Inc.

(“PwC”), whose report appears on

page 91, is responsible for providing an

independent opinion on the financial

statements. The external audit function

offers reasonable, but not absolute,

assurance on the fair presentation

of the financial disclosures. The

JSE Listings Requirements require the

external auditors of all listed companies

and their major subsidiaries to be

accredited with the JSE. The Company’s

external auditor, PwC, is accredited with

the JSE.

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GOING CONCERN: A BUSINESS WITH A FUTURE The Board believes that the Group has adequate resources and facilities available to continue to operate in the foreseeable future. The Board, therefore, continues to apply the going concern basis in preparing the annual financial statements. The Board is satisfied that there is no reason to believe that the Group will not continue as a going concern in the year ahead.

IT GOVERNANCE: EFFECTIVELY MANAGING TECHNOLOGY Alexander Forbes requires the establishment and implementation of an IT governance programme that is in line with business requirements, best practices and industry standards. King III makes specific reference to IT governance and its requirements, thereby adding impetus for a suitably managed IT governance programme. Several governance principles exist in the processes of the various functional areas within Group IT. On an ongoing basis, we review and look to enhance and improve upon our current IT governance framework and strategy across the Group.

The Group’s IT governance framework is based on the ISACA’s/IT Governance Institute’s CobiT 4.1 framework which is an international best practice. Furthermore, the requirements of ITIL v3 and King III have been mapped to achieve a single perspective in order to simplify our approach. We view IT governance as a subset of corporate governance and therefore the responsibility of executives and the Board of directors. It consists of the leadership, organisational structures and processes that ensure that the enterprise’s IT sustains and extends the organisation’s strategies and objectives. An internal readiness assessment was conducted to determine the capability and capacity to implement a proper IT governance programme.

IT and the governance thereof are on the Board’s agenda and complement the organisation’s IT governance programme. Group IT has access to the executive structures of the organisation as the Group Chief Information Officer has accessibility and representation at these levels.

The IT leadership is suitably positioned to mobilise efforts and embed an IT culture that is congruent with governance, compliance, continuous improvement and risk mitigation principles. The skills and expertise to drive this programme exist within the organisation.

CONFLICTS OF INTEREST: MAINTAINING OBjECTIVITY AND TRANSPARENCY The Group has adopted Conflict of Interest (“COI”) policies for both employees and Financial Service Providers (“FSPs”). The Group COI policy aims to ensure that every FSP in the Group adopts and implements its own COI management policy complying with the provisions of the Financial and Advisory and Intermediary Services Act No. 37 of 2002 (FAIS) and all Regulations, Board Notices and Codes of Conduct issued thereunder. The conflict of interest policy aims to set minimum standards and guidelines which must be contained in each Financial Service Provider’s Conflict of Interest Management Policy. All Group FSPs have adopted the necessary COI Management Policy.

The Group COI policy for employees contains minimum standards that must be applied by subsidiaries, should they wish to adopt their own COI policy, and to which all employees must adhere should their employer not adopt their own COI policy. The COI policy includes guidance on behaviours expected in accordance with Group values, promotes transparency and endeavours to avoid business-related conflicts of interest. It further aims to ensure and maintain fairness in the interests of employees

and the Group. The policy documents the process for disclosure, approval and review of activities which may amount to actual, potential or perceived conflicts of interest, and provides a mechanism for the objective review of personal outside interests.

DIRECTORS’ DEALINGS IN SECURITIES: KEEPING THE PROCEDURES CLEAR A procedure on directors’ dealings in Alexander Forbes Preference Share Investments Limited securities is documented and in place and is regularly communicated to Group directors. Prior to the commencement of a closed period, the directors of AFEH and all major subsidiary companies are informed of the implementation and duration of the closed period and the procedures applicable in that regard.



BOARD OF DIRECTORS

EQUITY HOLDINGS BOARD

INDEPENDENT DIRECTORS 1. len KOnar (57) dIrectOrappointed: 1 February 2008Qualifications: BCom, PG dip in Acc, CA (SA), MAS, Cert in Tax Law, dComafeh board responsibilities: Chairman of the Group Audit Committee

Len has lectured to postgraduate students on a range of topics at various universities in South Africa. He is a member of the King Committee on Corporate Governance, the Corporate Governance Forum and the Institute of directors. Len is also a Non-executive director of the J d Group, Sappi, Chairman of Steinhoff International Holdings and Exxaro Resources. He also chairs or serves on the Audit Committees of these boards. He is the past Co-chair of the independent oversight panel of the World Bank, former member of the Safeguards Panel of the International Monetary Fund (IMF) and the past Chairman of the External Audit Committee of the IMF in Washington. Since 1998 he has been engaged in specialist consulting services in Corporate Governance, Risk, Internal Audit, Forensic Investigations and Technical Accounting and Auditing matters, as well as training in these areas in the private and public sectors, including national, provincial and local governments.

2. hIllIe meYer (52) Independent dIrectOrappointed: 9 June 2011 Qualifications: BCom, FIA, AMP (Oxford)

Hillie is the Managing Partner of Nodus Investment Managers, a private equity fund manager, and holds a number of non-executive positions. He also manages his own portfolio of private investments in small- and medium-sized companies. Previously, Hillie was the CEO of the Momentum Group.

3. vuYanI ngalwana (43) dIrectOrappointed: 3 November 2008Qualifications: BA, LLB, PGdIPTAX, LLMafeh board responsibilities: Member of the Group Audit Committee

Vuyani is a member of the Johannesburg Bar and the Johannesburg Bar Council, as well as serving as a member of Advocates for Transformation. He chairs the Council for Medical Schemes Appeals Committee and has on numerous occasions served as an Acting Judge of the Labour Court and High Court. He previously served as Pension Funds Adjudicator and prior to that was deputy director of the Asset Forfeiture Unit. Vuyani has penned numerous legal publications. He has received professional recognition for his achievements from the Black Management Forum and the Association of Black Securities & Investment

Professionals (ABSIP) in the form of

the BMF Presidential Corporate Activist

Award and the ABSIP Financial Services

Pioneer of the Year Award.

4. barend petersen (51) dIrectOrappointed: 10 June 2010

Qualifications: BCompt (Hons), CA (SA)

afeh board responsibilities: Member

of the Group Audit Committee

Barend Petersen is a chartered

accountant with broad international

business experience in mining, finance,

auditing, oil, energy, government

relations, business turnarounds,

corporate recovery, consulting and

corporate governance.

In the past decade Barend has had

a wide involvement in the de Beers

Family of Companies. Barend is

Executive Chairman of de Beers

Consolidated Mines and the Chairman

of the Environment, Community,

Health and Safety Committee of the

de Beers Family of Companies. He also

owns a stake in Ponahalo, the black

empowerment partner of de Beers

Consolidated Mines.

He is a director of several companies,

including being a Non-executive

director of Anglo American South Africa

Limited and the Alexander Forbes

Group. Barend is the Chairman of Sizwe

Business Recoveries, which he founded

in 1997.

1. 2. 3.

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NON-EXECUTIVE DIRECTORS

5. lOrI hall-KImm (34) (canadIan) dIrectOrappointed: 3 September 2007Qualifications: BBA (Hons, Finance), MBA afeh board responsibilities: Member of the Remuneration, Nominations and Transformation Committees

Lori joined Teachers’ Private Capital in 2005. She is a director in their London office, responsible for private equity fund and direct co-investment activities in the EMEA region. She has been involved in a number of equity and mezzanine investments, including Alexander Forbes, ConvaTec, Alliance Boots and Kabel deutschland. Lori sits on the Advisory Board of selected private equity funds across the UK, Europe and Africa. Prior to joining Teachers’ Private Capital, Lori worked with Goldman Sachs in investment banking and has held previous positions with Td Securities and OMERS.

6. natalIe KOlbe (35)dIrectOrappointed: 3 September 2007Previously John van Wyk’s Alternate director; appointed full director 9 June 2011Qualifications: BCom, CFA, MBAafeh board responsibilities: Member of the Transformation Committee

Natalie joined Actis in 2003 and was a leading member of the deal teams on Alexander Forbes and Medscheme. She

was previously an equity analyst with PLJ Financial Services and worked as an investment consultant to Investec Bank, South Africa.

7. shaKes matIwaza (41) dIrectOrappointed: 5 May 2010Qualifications: BSc Engineering (Chemical), BCom, MBAafeh board responsibilities: Member of the Remuneration and Nominations Committees

Shakes is an investment executive at Shanduka Group. He joined Shanduka in April 2010 and he has 12 years’ experience in investment banking and financial services. Previously, he was investment executive at the Mvelaphanda Group responsible for sourcing, executing and monitoring the company’s investments and sat on several boards of the investee companies. Previously a director in the Investment Banking team at Standard Bank, his core skills are in investment management and general corporate finance (mergers and acquisitions (“M&A”)). He has been involved in M&A transactions in the mining, telecommunications, media & technology (TMT) and public sectors both in South Africa and on the continent, where he has been mainly responsible for deal origination, execution and capital-raising activities. Shakes has a good knowledge of the South African regulatory environment, including the Listings Requirements of the JSE Limited and the Securities Regulations Panel.

8. cYrIl ramaphOsa (58)dIrectOrappointed: 3 September 2007Qualifications: BProc

Cyril is founder and Chairman of Shanduka Group. He is Joint Non-Executive Chairman of Mondi plc and Non-Executive Chairman of MTN Group Limited. He is a director on a number of boards of Shanduka’s partner companies including Standard Bank Group, Bidvest Group and Assore Limited. Cyril is the former Chairman of the Black Economic Empowerment Commission (1998-2000). He is committed to South Africa’s development in the areas of education and enterprise development and the Shanduka Foundation channels its work in these areas through the initiatives of the Adopt a School Program and the Shanduka Black Umbrellas. He serves on The Coca Cola Company’s International Public Policy Advisory Board (IPPAB) and is a member of the United Nations Global Leadership Group, which advises the Secretary General’s Special Representative on Business and Human Rights. He also serves on the Board of the Commonwealth Business Council (CBC). Cyril received the Olof Palme prize in 1987 (Stockholm) and was included in the Time 100 annual list of the 100 most influential people in the world in 2007. He was awarded the National Order of the Baobab in Silver in 2009 (South Africa) for his contribution to the multi-party negotiations and for convening the Constitutional Assembly to draft the new Constitution. He has received several honorary doctorates from universities both locally and internationally.

4. 5. 6. 8.7.

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9. andré rOux (62) dIrectOrappointed: 3 September 2007Qualifications: BCom, CA (SA)

André is the Chief Executive of Ethos Private Equity, having established the business in 1984. He is regarded as a pioneer in the private equity industry in South Africa.

10. JOhn van wYK (46) dIrectOrappointed: 3 September 2007Qualifications: BCom, BAcc, CA (SA)afeh board responsibilities: Member of the Remuneration and Nominations Committees

John joined Actis in 2004, where he heads up the Industrials sector. Prior to joining Actis he spent nine years with Ethos Private Equity. He has extensive experience in the private equity industry and has been involved in managing some of the largest deals in South Africa. Prior to Ethos, John spent four years in corporate finance.

EXECUTIVE DIRECTORS

11. sellO mOlOKO (45)chaIrmanappointed: 3 december 2007Qualifications: BSc (Hons), PG Cert in Education, AMP (Wharton)afeh board responsibilities: Chairman of the Transformation, Remuneration and Nominations Committees.

Sello is the Executive Chairman and founder shareholder of Thesele Group. He began his career in the pensions industry where he gained a wealth of actuarial consulting experience. He went on to pursue a successful career in the investment management industry where he managed some significant accounts as an investment professional. He is the former deputy CEO of Brait Asset Managers and former CEO of Old Mutual Asset Managers (OMAM). He served on the OMSA Exco and boards of other Old Mutual subsidiaries. Sello left the Old Mutual Group in August 2004 to pursue his own business interests. He is a Non-executive director of the Industrial development Corporation, Goldfields, General Reinsurance Africa and Acucap Properties Limited. He chairs the Nelson Mandela Foundation Sustainability Committee. Sello received special recognition for his achievements when the Association of Black Securities & Investment Professionals (ABSIP) presented him with the Financial Services Pioneer awards.

12. edward chr KIeswetter (52)grOup chIef executIveappointed: 4 January 2010Qualifications: NHd (Elec Eng), HdE (Engineering Education), BEd (Mathematics & Science), MEd (Cognitive development), Executive MBA (Strategy & Transformation), MCom (Tax) cum laude

Edward has extensive experience at leading diverse organisations at

executive and governance levels. His

most recent appointment was as deputy

Commissioner of the South African

Revenue Service. Before this Edward’s

career appointments included Senior

Executive and director of the FirstRand

Banking Group, Senior General Manager

at Eskom (SA Electricity Utility) and

divisional Head: Electrical Engineering

Faculty – Athlone Technikon. Edward’s

professional accomplishments include

South Africa’s Boss of the Year (2000);

South African Representative at the

International Centre for the American

Tax Administrations (2004 – 2009);

Award for contribution to Leadership

Thinking, Boss of the Year (2006);

President – South African Institute of

Bankers, South Africa (2002-2004);

Exemplary Leadership in Safety

Management, Eskom (1998); National

Productivity Institute Gold Award for

sustainable business transformation

as General Manager at Matla Power

Station (1994-1999); Academic

Scholarship, African American Institute

(1991); and Research Fellowship,

Harvard University (1991). Edward

is a committed servant leader who is

actively involved in community projects

and lay ministering, pastoral counseling

and leadership development. He is

currently the Vice-chair of the Free

State University, where he is also

a visiting Professor. He is also a

member of the International Education

Accounting Standards Board.

10. 11.9.

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13.12. 15. 16.14.

13. deOn vIlJOen (46)

grOup fInance dIrectOr

appointed: 3 September 2007

Qualifications: BCom (Hons), CA (SA)

Prior to his appointment as Group

Finance director in 2007, deon held

the position of Africa Finance director,

taking overall responsibility for the

financial management and overall

coordination of all the Alexander

Forbes operations in the Africa region.

deon initially joined the Alexander

Forbes group in March 2003 as

Financial director of Investment

Solutions.

Prior to joining the Alexander

Forbes Group of Companies,

deon was a partner/director of

PricewaterhouseCoopers Incorporated.

He practised in the Financial Services:

Banking Group in the Johannesburg

Office in the service line of Assurance

and Business Advisory Services

(ABAS). He was with the firm from

1987 and was admitted to partnership

of one of PwC’s predecessor firms,

Coopers & Lybrand, in 1995. Other

professional responsibilities included

chairing both SAICA’s Fund Manager’s

Industry Group and the Collective

Investment Schemes Industry Group

(until 2005). He was a member of the

SAICA Banking and Capital Markets

Industry Group (until 2003) and a

member of SAICA’s Employment Equity

Committee (until 1999).

ALTERNATE DIRECTORS

14. anthOnIe de beer (38)

alternate dIrectOr tO

andré rOux

appointed: 29 February 2008

Qualifications: BCom (Hons), CA (SA)

afeh board responsibilities: Member

of the Remuneration and Nominations

Committees

Anthonie is a partner at Ethos Private

Equity and has been involved in deal

sourcing, execution, restructuring,

monitoring or disposals of eight

Ethos investments. Prior to joining

Ethos Private Equity, he worked for

PricewaterhouseCoopers for five years,

two of which were spent in New York in

the Corporate Value Consulting division.

15. Jean-charles dOuIn (33)

(french)


lOrI hall-KImm

appointed: 8 September 2009

Qualifications: MBA

Jean-Charles joined Teachers’ Private

Capital in 2008 and was involved in the

buy-out of Acorn Care and Education.

Jean-Charles serves on the board

of Acorn Care and Education. Prior

to joining Teachers’ Private Capital,

Jean-Charles worked at CapVest Ltd.,

a mid-cap private equity fund based

in London and active in the consumer

and healthcare space across Europe,

and UBS Investment Bank, where he

focused on the consumer and retail

sectors. Jean-Charles earned a master’s

degree from HEC in Paris.

16. mOdIse mzImba (31)


JOhn van wYK

appointed: 9 June 2011

Qualifications: BCom, CA(SA)

Modise joined Actis in 2010. She

was previously in corporate finance at

deutsche Bank South Africa for five

years. She qualified as a chartered

accountant in 2004 and served her

articles at deloitte.

| 43 |



1. edward KIeswetter grOup chIef executIve

2. deOn vIlJOen grOup fInance dIrectOr

3. KOfI amegashIe ceO: afrInetappointed: 15 November 2010

4. garI dhOmbO md: alexander fOrbes Insuranceappointed: 1 April 2011

5. peter edwards actIng md: alexander fOrbes fInancIal servIces saappointed: 17 May 2011

6. brad elIOt grOup executIve: It

7. JurIe erwee ceO: rIsK and Insurance servIces sa

8. tOnY gusmaO ceO: alexander fOrbes fInancIal servIces uKappointed: 1 April 2011

9. laura machaba-abIOdun grOup executIve: chrO & strategIc advIsOr/(InterIm)appointed: 1 december 2010

10. derrIcK msIbI md: Investment sOlutIOns

11. vIshnu naIcKer grOup executIve: rIsK & cOmplIance

12. geOffreY nzau managIng executIve: publIc sectOr

13. JanIce salvadO grOup cOmpanY secretarY

14. herman schOeman md: guardrIsKappointed: 1 April 2011

15. lYnn stevens grOup executIve: brand, marKetIng & cOmmunIcatIOnsappointed: 4 August 2010

16. grant stObart ceO: alexander fOrbes InternatIOnal lImIted

Mrs Mpho Nkeli resigned on 31 december 2010 and Mr Anton Ossip resigned on 17 May 2011.

EXECUTIVE COMMITTEE

11. 12. 13. 15.

1. 2. 3. 5.4.

14.

| 44 |



16.

COMPOSITION

The Company has a unitary Board. As at the date of publication of this report, the Board of Alexander Forbes Equity Holdings Proprietary Limited (“AFEH”) comprised four Independent Non-executive directors, six Non-executive directors, three Non-executive Alternate directors and three Executive directors. The Board is considered to be effective in size and composition, with an appropriate balance between Executive, Non-executive and Independent directors, thereby enabling objective decisions and internal processes. The directors have access to management whenever required.

The consortium shareholders require a Chairman who is hands on and involved in the business and therefore an Executive Chairman was appointed to AFEH commencing business under private equity ownership. The shareholders evaluate the effectiveness of the Chairman, who is remunerated and incentivised to deliver against certain performance criteria. The Group Chief Executive is adequately empowered to run the Company and the roles of the Chairman and Group Chief Executive are clearly defined and differentiated. The Chairman spends two days a week in the office. The Chairman has no shareholding control in the Company and the AFEH shareholders are satisfied with the position of the Executive Chairman.

The Independent directors now rotate annually and their performance and independence will be reviewed by the Board for the first time in June 2011.

The Group maintains an appropriate balance between entrepreneurial growth and compliance with corporate governance requirements. The Board comprises individuals with a range of skills and experience, collectively suitable to carry out the Board’s responsibilities, and are involved in all material business decisions enabling them to contribute to the strategic and general guidance of management and the business. An induction process is followed for all new directors.

AFEH is headed by a Board that directs, governs and is in full control of the Company with details of duties and responsibilities clearly articulated in its charter.

The primary mission of the Board is to effectively represent and promote interests of shareowners, and its relevant stakeholders, by adding value to the Company’s performance.

The purpose of the Board Charter is to regulate how business is to be conducted by the Board in accordance with the principles of good corporate governance. The Board Charter sets out the specific responsibilities to be discharged by the Board members collectively and the individual roles expected from them.

The primary mission of the Board is to effectively represent and promote interests of shareowners, and its relevant stakeholders, by adding value to the Company’s performance.

6. 7. 9. 10.8.

| 45 |



All Board members of Alexander Forbes are required to act in a professional manner, thereby upholding the core values of integrity and enterprise with due regard to their fiduciary duties and responsibilities. The Board is the focal point of the corporate governance system. It is ultimately accountable and responsible for the performance and affairs of the Company.

In accordance with its Charter, the Board considers and approves an annual business plan for the Group, monitoring the performance of executive management against the objectives outlined in this plan. The Board has adopted an authorities matrix, which is regularly reviewed and updated, clearly indicating the matters that are delegated to various Committees, Subsidiary Boards and members of management, and those matters that are reserved for decision by the Board.

CHANGE IN DIRECTORATE

The following changes have occured since our previous report to shareholders.

resIgnatIOns Kojo mills (40) (American) Alternate director to Shakes Matiwaza Appointed: 3 September 2007 Resigned: 1 April 2011

Mr Mills decided to relocate to the United States of America and has therefore resigned as a full time employee of Shanduka Group. He remains a shareholder and a Non-executive director of the Group but owing to practical circumstances will not be in a position to continue representing Shanduka on the Alexander Forbes board.

peter schmid (48) director Appointed: 3 September 2007 Resigned: 15 February 2011

Mr Schmid resigned due to his transfer to London.

appOIntments

shakes matiwaza (41) Non-executive director Appointed: 5 May 2010

hillie meyer (52) Independent director Appointed: 9 June 2011

barend petersen (51) Independent director Appointed: 10 June 2010

Refer to the Governance Report on www.alexanderforbes.co.za for more details on Board responsibilities, meeting attendance, induction of new directors, directors’ and Officers’ liability insurance and Company Secretary role.



BOARD COMMITTEES

GROUP BOARD COMMITTEES: MANAGING OVERSIGHT, ENSURING TRANSPARENCY during the 2011 financial year, the Alexander Forbes Equity Holdings Proprietary Limited (“AFEH”) Board had four standing Board Committees being the Audit Committee, Nominations Committee, Remuneration Committee and Transformation Committee. The Board Committee structure is designed to assist the Board in the discharge of its duties and responsibilities, and was largely unchanged during the past financial year. Each Board Committee has formal written terms of reference that are reviewed on an annual basis and effectively delegated in respect of certain of the Board’s responsibilities. The Board monitors these responsibilities to ensure effective coverage of, and control over, the operations of the Group. This framework ensures that there is a balance of power and that no individual has excessive decision-making powers. The Board evaluates the performance and effectiveness of the Sub-committees every year.

Although the Board delegates certain functions to these Committees, it retains ultimate responsibility for their activities. The Committees are all empowered to obtain such outside or other professional advice as the members consider necessary to carry out their duties.

The Board continually assesses the need for additional committees to

assist it in carrying out its duties and meeting its statutory and legislative requirements.

BOARDS OF SUBSIDIARY COMPANIES Subsidiary Boards have an important role to play in the governance of the Group and all Board members have access to the records of the subsidiary Boards. Although foreign subsidiaries are subjected to legislation particular to those countries, they are included in the Group’s governance structures where possible.

AUDIT COMMITTEE: LOOKING AFTER THE MONEY, CONTROLLING THE RISK The Board has established an Audit Committee to assist it in discharging its responsibilities.

The Committee’s prime objective is to assist the AFEH Board (“the Board”) in discharging its responsibilities relative to the management of risk, safeguarding of assets, financial control and reporting, internal controls, shareholder reporting and corporate governance, particularly with regard to compliance with accounting standards, legislation, statutory and regulatory requirements. The Audit Committee comprises three members, all of whom are Independent Non-executive directors. The Chairman is not the Chairman of the Board. The Committee meets at least four times per year. These meetings are attended by the internal and external

auditors, management of the operations for which the Committee is responsible, the Group Finance director, the Group Risk and Compliance Executive and other Board members and invitees as considered appropriate by the Committee’s Chairman.

Additional Audit Committees have been constituted at subsidiary Board level, being the Alexander Forbes Financial Services Holdings Audit Committee, the Alexander Forbes Risk & Insurance Services Audit Committee, the Investment Solutions Holdings Audit Committee and the Alexander Forbes International Audit Committee. These additional Audit Committees are mandated to review the operations of the subsidiary Group and their reports are reviewed by the Group Audit Committee.

NOMINATIONS COMMITTEE: RECRUITING DIRECTORS, ENSURING CONTINUITY The Nominations Committee comprises four Non-executive directors and an Executive director. It is chaired by the Chairman of the Board. The Committee meets at least four times per year. The Committee identifies, reviews and makes recommendations to the Board in respect of new Independent or Non-executive Board appointments and the composition of Group Boards generally. The Committee is also tasked with the consideration of succession planning in respect of executive appointments as well as succession planning relating to Independent and Non-executive directors.

| 48 |



REMUNERATION COMMITTEE: FAIR COMPENSATION, FAIR REWARD The Remuneration Committee comprises four Non-executive directors and an Executive director. It is chaired by the Chairman of the Board. Following the launch of King III, the question as to whether the Chairman should continue to chair the Remuneration Committee was specifically considered by the Board. It was agreed that there was no impediment to the functioning of the Committee by virtue of the fact that it comprised no Independent directors and mainly Non-executives and that it was chaired by the Chairman of the Board. The Committee meets at least four times per year. It determines, agrees and develops the general policy on Executive directors and Senior Management remuneration for approval by the Board. The objective is to ensure that such remuneration is fair, responsible and appropriate and that the remuneration scales, including share and other incentive schemes and conditions of employment, are market-related and at levels sufficient to

attract, retain and motivate individuals of quality.

TRANSFORMATION COMMITTEE: ELIMINATING DISCRIMINATION, ENABLING DEVELOPMENT The Transformation Committee comprises three Non-executive directors and an Executive director. It is chaired by the Chairman of the Board. The Committee meets at least four times per year. The Board recognises that transformation and diversity are a key business imperative and accordingly strategies are required to ensure the successful transformation of the Group in respect of ownership, Board and Management composition, employment equity, skills development, procurement, enterprise development, social investment and other industry initiatives. The Group Chief Executive is responsible for driving transformation in the business.

The Board is committed to transformation and recognises the role Alexander Forbes has to play as a corporate citizen of South Africa

in contributing to eliminating unfair discrimination in the workplace and to create an enabling environment for the growth of previously disadvantaged groups. Through the Transformation Committee, the Board wants to engender the spirit of transformation through sustainable programmes, where leadership is held accountable to infuse transformation into the day-to-day activities of business.

MEETINGS AND ATTENDANCE: MAKING A CONTRIBUTION, BUILDING THE BUSINESS Meetings are scheduled in advance in accordance with a plan established at the beginning of each financial year. Additional meetings are scheduled as circumstances dictate. Management ensures that all directors are provided with all the information they need ahead of the meetings to ensure they are able to make well-informed decisions. The attendance of meetings by the directors of the Company during the financial year is reflected in the table below:

directors board audit and risk remuneration nominations transformation

meetings planned 4 4 4 4 4

number of meetings held in the year 7 4 4 4 3

MS Moloko 7 4 4 3

E Chr Kieswetter 7

LA Hall-Kimm 7 4 4 2

NC Kolbe 6 2

d Konar 7 4

T Matiwaza(1) 6 3

V Ngalwana 6 2

PG Nkadimeng(2) 1

B Petersen(3) 5 2

MC Ramaphosa 3

A Roux 5

P Schmid(4) 2

JA van Wyk 3 2 2

dM Viljoen 7

A de Beer (alternate) 7 4 4

JC douin (alternate) 6

KA Mills (alternate) 2 2

(1) Mr Matiwaza was appointed to the Board on 5 May 2010 and the Remuneration Committee on 9 June 2010. With Mr Mills’ resignation on 1 April 2011, Mr Matiwaza has also been appointed to the Nominations Committee from that date. However, his attendance at the Nominations Commmittee meetings will only be reflected in the next reporting period.

(2) Mr Nkadimeng resigned on 5 May 2010.(3) Mr Petersen was appointed to the Board on 10 June 2010 and to the Audit Committee on 24 November 2010.(4) Mr Schmid resigned from the Board on 15 February 2011.

| 49 |



REMUNERATION REPORT

INTRODUCTIONAlexander Forbes has developed an integrated approach to performance management and remuneration to give effect to the Group’s new remuneration philosophy.

The objective of the new philosophy is to create a high performance culture that rewards performance with premium incentives in the following ways:

• Increasing the ratio of variable performance-based remuneration (performance bonuses and longer term incentives) whilst reducing the relative level of guaranteed remuneration (salaries, etc.) over time, in order to more closely align overall total potential remuneration with a high performance culture. This transition of increasing the variable component of remuneration will only be possible over a longer term period.

• Setting the ultimate ideal to have mid-of-market (for the industry) pay to individuals who are at the required competence levels for their role and high-end variable performance-based rewards for high performers in order to end at an above average total remuneration potential, subject to performance.

• Instituting a robust performance management system to differentiate rewards based on team and individual performance which seeks to maximise employees’ personal contributions to the business.

• Creating opportunities for top performers to earn incentives at the upper end of the market.

• Long-term wealth creation for “key destiny changers”.

In this way the Group aims to attract and fully engage the right employees, retain key and core skills, promote internal equity and fairness and reward and encourage behaviour consistent with the Group’s values to align the interests of all stakeholders.

The Group Executive Committee, with the support of the Human Resources functions, are responsible for the development and implementation of the new remuneration philosophy, as well as human resources processes and procedures under the auspices of the Group Remuneration Committee. The Committee has access to internal and external advisors who specialise in remuneration and employee practices.

A FORMAL PERFORMANCE MANAGEMENT PROGRAMMEOver the past year significant effort has gone into the development and refinement of a formal performance management and reward programme to ensure that the performance of all employees is assessed and rewarded in accordance with our stated objectives. This process will ensure that each employee has a development leader who conducts the assessment based on their achievement of the objectives

documented in the employee’s performance contract and feedback from others.

Performance contracts contain bespoke qualitative and quantitative objectives for each employee and are aligned to achieve the Group’s strategic objectives. These include:

• The Group’s long- and medium-term financial growth targets;

• Strategic enablers; and

• Ways of improving business governance and sustainability to enhance enterprise value.

In its endeavour to align the human resources agenda with its strategy, the Group’s new philosophy includes:

• A performance management system designed to drive business imperatives in the longer term (currently four-year) cycles; and

• In addition, a bonus scheme quantification mechanism agreed with the Remuneration Committee that creates certainty for and alignment with shareholders to drive short- and medium-term performance.

SHORT-TERM ANNUAL REMUNERATIONIn order to align guaranteed pay and variable bonuses with the philosophy of performance-based remuneration, pay differentiation is based on competence and scarcity of the resource, with a greater proportion of remuneration at risk for more senior employees.

| 50 |



Annual pay reviews are based on market benchmarks, inflation, individual performance and affordability.

BONUS FUNDING METHODOLOGYThe Group Remuneration Committee has approved a bonus pool funding methodology which makes a percentage of trading results available to fund Management bonuses. The available funds are moderated by the relevant line of business performance against their balanced scorecard.

The funding or total quantum of the bonus pools is set at the level of each main business division or unit and for the Group as a whole. The amounts are aligned with defined percentages of trading results above and below pre-determined thresholds, as reflected by the required growth rates. These thresholds are reviewed annually by the Remuneration Committee. Thresholds are set to ensure that the bonus pool reduces at a proportionally higher rate for below-target performance, but will increase at a higher proportional rate for above-target

performance.

The mechanism for quantifying the pool

is intended to be applied consistently but

is always subject to annual review and

refinement by the Group Remuneration

Committee and can be modified where

necessary. Distribution of this pool to

individual participants will be based on

the overall financial and non-financial

performance of the business unit to

which the employee is aligned, as

reflected in the divisional scorecard and

Group scorecard, as well as individual

performance contracts.

LONG-TERM INCENTIVESAt the time of the private equity buy-

out of the Group, certain members

of Management were afforded the

opportunity to invest in the ordinary

share capital of Alexander Forbes Equity

Holdings (Pty) Ltd (“AFEH”). Participants

were required to purchase shares via

cOmpanY headcOunt

AFFS SA 1 751

AFRIS SA 1 337

IS AFRICA & INTERNATIONAL 137

AFRINET 565

AFFS INTERNATIONAL 942

GROUP 157

tOtal as at 31 march 2011 4 889

two trusts that were created specifically

for this purpose. The Alexander Forbes

Management Share Trust (“AFMST”),

which only invests in the ordinary shares

of AFEH, and the Alexander Forbes

Management Co-investment Trust

(“AFMCT”), which allowed Management

to invest in the ordinary and “A”

Preference shares issued by AFEH.

As at 31 March 2011, the AFMST held

8.56% and the AFMCT held 0.18% of

the issued ordinary shares of AFEH.

Vesting (or release) of points occurs at

20% per annum, but realisation can only

take place at a private equity exit event

unless the participant resigns and the

AFMST exercises certain rights accruing

at resignation.

The trust deed provides for instances

where employees leave to join potential

competitors of the Group, in which case

the provisions that apply are different

to employees who leave under other

circumstances or who may be part of a

disposal of an entity within the Group or

a retrenchment programme. Investment

in the AFMCT remains in place until a

private equity exit event.

Given the limited capacity that was

available in the above-mentioned trusts,

the Management, in conjunction with the

Remuneration Committee, is currently

assessing the requirements and potential

structure of a long-term incentive scheme

that can be applied more widely in the

organisation. However, the viability of

introducing such a scheme is still to be

assessed.

TOTAL REMUNERATIONTotal headcount as at 31 March 2011

is shown in the table below.

Total staff costs for the year are also

analysed in the table below.

Staff costs include Executive directors’

and directors’ remuneration (see overleaf).

EXECUTIVE DIRECTORS’ AND EXECUTIVE MANAGEMENT’S COMPENSATIONExecutive directors and Executive Management are rewarded in accordance with the remuneration philosophy discussed above. All Executive directors and Senior Management are subject to performance assessments by the Group Chief Executive.

Reviews are based primarily on contribution to the achievement of the Group’s strategy and other key stakeholder objectives such as sustainability of operations. The reviews are submitted to the Group Remuneration Committee for approval to ensure that total compensation is fair and can be benchmarked appropriately.

employee costs (2 434) (2 442)

Salaries, wages and other benefits (2 380) (2 380)

Termination (13) (9)

Retirement benefit contributions (41) (53)

| 51 |



The Group’s Chairman makes recommendations to the Group Remuneration Committee regarding the Group Chief Executive’s remuneration.

Once the Group Remuneration Committee has benchmarked proposed remuneration and ensured that it has been calculated in terms of the remuneration policy and applicable bonus rules, the results are sent to the Board for final approval.

Compensation paid or accrued to Executive directors and Non-executive directors is set out in note 41 to the financial statements.

SHARE PARTICIPATION BY EXECUTIVE DIRECTORSExecutive directors participate in the Alexander Forbes Management Trust as outlined above by having acquired units in the Trust which in turn acquired ordinary shares in the AFEH. The beneficial interest of Executive directors is set out in note 41.10 to the financial statements. There were no changes in the beneficial interest between the financial year end and the date of the approval of the financial statements.

NON-EXECUTIVE DIRECTORS’ COMPENSATIONThe Group Remuneration Committee receives recommendations from the Group Chief Executive and the Chairman in respect of remuneration for Non-executive directors, who are paid a fixed fee for Board and Board Sub-

committee membership. Chairpersons

of Committees receive a fixed fee

calculated at a multiple of the fixed fee

paid to other Non-executive directors.

Non-executive directors’ remuneration

is set out in note 41 to the financial

statements.

The Independent Non-executive

directors’ fees paid with effect from

March 2010 are shown in the table

below.

The next Independent Non-executive

director increase in fees will be subject

to approval at the annual general

meeting of the shareholders to be held

in August 2011.

The other shareholder representative

Non-executive directors are paid in

terms of the existing AFEH shareholders’

agreement, which currently amounts

to R277 975 per director, which is

adjusted annually by CPI.

SERVICE CONTRACTSExecutive directors have permanent

employment contracts with the Group.

These contracts carry a six-month

termination period with the Group

having rights to terminate the contract

in the event of poor performance or

misconduct. Independent Non-executive

directors receive letters of appointment

which include a notice period of three

months. Non-executive directors do not

receive letters of appointment as they

are shareholder representatives.

main board

subsidiary boards

audit committee

group

audit committee subsidiary

underwriting committee

remco and

nomco

transformation committee

chairperson n/a 212 800 372 400 212 800 95 760 159 600 79 800

member 372 400 106 400 159 600 106 400 47 880 79 800 42 560



AUDIT COMMITTEE REPORT

We are pleased to present our

report for the financial year ended

31 March 2011. The Audit Committee

is an independent statutory committee

appointed by the Board. With effect

from the Annual General Meeting

scheduled for 5 August 2011 and

in accordance with King III and

Section 61 of the Companies Act

71 of 2008, the Audit Committee

will be appointed by shareholders.

duties are delegated to the Audit

Committee by the Board of directors.

This report includes these duties and

responsibilities.

AUDIT COMMITTEE: TERMS OF REFERENCE The Audit Committee has adopted

formal terms of reference that have been

approved by the Board of directors.

The Committee has conducted its

affairs in compliance with its terms

of reference and has discharged its

responsibilities contained therein.

AUDIT COMMITTEE: MEMBERS, MEETING ATTENDANCE AND ASSESSMENT The Audit Committee is independent

and consists of three independent

Non-executive directors. In accordance

with King III, the Audit Committee members will be appointed annually by the shareholders with effect from the coming Annual General Meeting to be held on 5 August 2011.

The Chairman of the Board, certain Non-executive Board members, Group Chief Executive, Finance director, Group Risk and Compliance Executive, external auditor, internal auditors and other assurance providers attend meetings by invitation.

The Audit Committee meets at least four times per year as per its terms of reference, or more frequently should circumstances dictate. during the year under review four meetings were held.

name of member 9 June 2010 19 august 2010 24 november 2010 9 march 2011

d Konar (Chairman) P P P P

V Ngalwana A A P P

B Petersen* n/a n/a P PP PresentA Apologies received* Mr Petersen was appointed to the Audit Committee on 24 November 2010

The effectiveness of the Audit Committee is assessed on an annual basis.

| 54 |



ROLE AND RESPONSIBILITIES The Audit Committee’s primary objective is to assist the Board in discharging its responsibilities relative to the management of risk, safeguarding of assets, financial control and reporting internal controls, shareholder reporting and corporate governance, particularly relating to legislative and regulatory compliance.

The Audit Committee’s roles and responsibilities include statutory and regulatory duties as per the Companies Act, 2008 and according to King ||| on Governance for South Africa 2009. In addition, the Board has assigned duties to the Audit Committee, embodied in its terms of reference, which are reviewed on an annual basis.

the Integrated annual repOrt The Audit Committee has reviewed the integrated annual report and submits that management is presenting an appropriate view of the Company’s position and performance.

fInancIal statements and accOuntIng practIces The Audit Committee has reviewed the annual financial statements for the year ended 31 March 2011, as well as related narrative information included in this annual report, and believes that they present a balanced view of the Group’s performance for the period under review and that they comply with International Financial Reporting Standards.

external audItOr appOIntment and Independence The Audit Committee has satisfied itself that the external auditor is independent of the Group, as set out in section 94(8) of the Companies Act, 2008, which includes consideration of previous appointments of the auditor, the extent of other work undertaken by the auditor for the Group and compliance with criteria relating to independence or conflicts of interest as prescribed by the Independent Regulatory Board

for Auditors. Requisite assurance was sought and provided by the auditor that internal governance processes within the audit firm support and demonstrate its claim to independence.

The Committee ensured that the appointment of the auditor complied with the Companies Act, 2008, and any other legislation relating to the appointment of auditors. The Committee, in consultation with Executive Management, agreed to the engagement letter, terms, audit plan and budgeted audit fees for the 2011 year.

A formal procedure has been adopted governing the process whereby the external auditor may be considered for non-audit services.

The Committee has nominated, for election at the Annual General Meeting, PricewaterhouseCoopers Inc. as the external audit firm and Mr J Grosskopf as the designated auditor responsible for performing the functions of auditor, for the 2012 year. The Audit Committee has satisfied itself that the audit firm and designated auditor are accredited as such on the JSE list of auditors and their advisors.

Internal fInancIal cOntrOls The internal financial controls are working optimally and the Audit Committee believes that there are no known material deficiencies in this regard.

whIstle-blOwIng The Audit Committee reviews the whistle-blowing arrangements, ensuring arrangements are in place for independent investigation of matters and appropriate follow-up action. Major findings of internal investigations and management’s response thereto are considered by the Audit Committee.

The Audit Committee receives reports of any complaints, whether from within or outside the Group, relating to the accounting practices and internal audit of the Group, the content or auditing of

the Group’s financial statements, the internal financial controls of the Group and related matters.

Integrated annual repOrtIng and cOmbIned assurance The Audit Committee fulfils an oversight role regarding the Group’s integrated annual report and the reporting process.

The Audit Committee considered the information as disclosed in the integrated annual report and has assessed its consistency with operational and other information known to Audit Committee members, and for consistency with the annual financial statements, and is satisfied with the content therein.

The Audit Committee is satisfied that the group has optimised the assurance coverage obtained from management, internal and external assurance providers in accordance with an appropriate combined assurance model.

The Audit Committee has, at its meeting held on 8 June 2011, recommended the integrated annual report for approval by the Board of directors.

The Company acknowledges that it is only beginning its sustainability reporting journey, which will be enhanced in years to come.

gOIng cOncern The Audit Committee has reviewed a documented assessment, including key assumptions, prepared by management of the going concern status of the Group and has made recommendation to the Board in accordance. The Board’s statement on the going concern status of the Group, as supported by the Audit Committee, appears elsewhere in the Annual Report.

gOvernance Of rIsK The Audit Committee fulfils a dual function, being both an Audit and Risk Committee.

Internal audIt and cOmplIance The Audit Committee is responsible for ensuring that the Group’s internal

| 55 |



audit function is independent and has

the necessary resources, standing and

authority within the Group to enable it

to discharge its duties. Furthermore,

the Committee oversees cooperation

between the internal and external

auditors, and serves as a link between

the Board of directors and these

functions.

The Audit Committee approved the

internal audit charter and the internal

audit function’s annual audit plan

during the year under review.

The internal audit function reports to

the relevant divisional Audit Committees

with responsibility for reviewing and

providing assurance on the adequacy of

the internal control environment across

all of the Group’s operations. The Head

of Group Internal Audit is responsible

for reporting the findings of the internal

audit work against the agreed internal

audit plan to the Audit Committee on a

regular basis.

The Head of Group Internal Audit

has direct access to the Group Audit Committee, primarily through

its Chairman. during the year, the Committee met with the external

auditors and with the Head of Group Internal Audit without Management

being present.

The Audit Committee is satisfied that it

complied with its legal, regulatory and

other responsibilities.

evaluatIOn Of the expertIse

and experIence Of the fInancIal

dIrectOr and the fInance

functIOn

The Audit Committee has satisfied

itself that the Financial director

has appropriate expertise and

experience. The Audit Committee has

considered, and has satisfied itself of

the appropriateness of the expertise

and adequacy of resources of the

finance function and the experience

of the senior members of Management

responsible for the financial function.

dr d Konar

Chairman of the Audit Committee

8 June 2011

The Audit Committee’s primary objective is to assist the Board in discharging its responsibilities relative to the management of risk, safeguarding of assets, financial control and reporting, internal controls, shareholder reporting and corporate governance, particularly relating to legislative and regulatory compliance.



59 OPERATIONAL REVIEW



Alexander Forbes will achieve its performance goals by increasing value for our clients, expanding our brand, investing and innovating for growth and extending our sales and service capacity.

OPERATIONAL REVIEW

| 59 |



OPERATIONAL PERFORMANCE

KEY INITIATIVES TO SUPPORT OUR GROWTH STRATEGIES

The four strategic themes which underscore the vision and business objectives of the Alexander Forbes Group remain:

• Increasing value for Clients;

• Expanding our Brand;

• Investing and Innovating for Growth; and

• Extending our Sales and Service Capacity.

during the year under review we established a Group Strategy, Programmes and Performance Management Office to enhance our capability to deliver, coordinate and manage our Group-wide initiatives. The following are some of the key initiatives that were successfully implemented to support our growth strategies.

1. the alexander fOrbes brand: tellIng the wOrld what alexander fOrbes stands fOr

The brand’s development included a

consideration of the name, the logo and

the strapline, in line with the following

mandate from the Board:

the alexander forbes brand mandate

Alexander Forbes has to be a globally

recognised and relevant brand in the

markets in which it operates.

• Alexander Forbes has to have a

brand presence which conveys

consistent messages and images to

its intended target audiences: this

provides a framework within which

the divisional units can leverage their

own marketing strategies.

• Alexander Forbes has to ensure that

its reputation is well-managed and

maintained.

• Alexander Forbes has to recognise

and develop sustainable relationships

with its clients – internally and

externally.

the brand strategy process in overview

In line with the above mandate,

the year saw the Alexander Forbes

Brand Strategy process, led by the

Group Executive: Brand, Marketing &

Communications, achieve the following

milestones:

• We distilled the Brand dNA – the

essence of the brand.

• We revisited our target audiences,

values, competitors and competitor

spends.

• We developed a clear new Brand

Positioning and strapline – securing

your financial well-being.

• We developed a simple and clear

Brand Architecture.

• We completed a comprehensive

Communications Strategy, covering

all aspects of communication,

external and internal.

On 1 April 2011 the Group launched its new brand to the business and on 3 May 2011 the brand was launched to the world as part of our new corporate brand advertising campaign. This development signals the internal transformation of the business over the past number of years through a rethinking and redrawing of our strong existing “sun” logo. We have retained the sun image, redesigning it to create a fresher and more vibrant brand – one that clearly introduces the concept of movement, which, in turn, is most noticeable at sunrise.

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OPERATIONAL PERFORMANCE

• We created an internal Leadership

Brand focused on Service – the

SERVE model.

• We completely redesigned our

external-facing Corporate Brand – our

new logo.

• We created memorable TV and print

advertising campaigns, which will be

extended to both radio and online

channels in due course – the Live

without Regret campaign.

• We launched the new Corporate

Brand internally before it was

launched externally on 3 May 2011.

• We are applying meaningful

measurement and tracking tools to

all the above.

the new brand: more than just a name

As part of the commitment to changing

the face and the pace of the Company,

a new brand has been created for

Alexander Forbes. Its development

included a consideration of the name,

the logo and the strapline.

In addition, the current hand/sun logo

has been completely redesigned to

make it more modern and relevant.

However, the positive aspects of the sun

have been retained and enhanced, using

new colours, shapes and typefaces.

The new brand was publicly launched

on 3 May 2011.

brand reputation management

Activities throughout the year have

focused on the following key reputation

management objectives.

• To educate and inform our chosen

target audiences about what we do

and what we stand for.

• To maximise coverage around not

only what Alexander Forbes does but

what and how it thinks.

• To renew and build strategic

partnerships with the media.

• To demonstrate Alexander Forbes is

an ethical company.

• To entrench Alexander Forbes as

acting in the best interest of its

clients.

Key reputational issues such as the

Lifecare legacy issue and the bulking

issue have been positively managed,

as mentioned in the Chief Executive’s

report, and we are confident that the

goodwill earned by the Group’s actions

with regard to these matters will stand

us in good stead for the coming year.

branding the way ahead

The cumulative effect of the brand

strategy process has borne fruit, as

indicated, in our new brand, which is

introduced to you on page five of this

report. The brand is closely aligned with

the strategic themes and initiatives,

in particular our commitment to the

retail sector and to enhancing long-term

client value. We have no doubt that

its marketing manifestations – such

as advertising, our new website and

reputation management activity – will

also assist in the extension of our sales

and service efforts.

Indeed, there can be no doubt that

the Alexander Forbes Brand has made

critical strides in terms of a positive

reputational shift in the period under

review. In addition, the ongoing

brand strategy process is now bearing

considerable fruit in the form of the

new brand and attendant corporate

advertising.

2. the leadershIp develOpment

prOgramme: learnIng better

waYs tO serve

In a rapidly changing world –

technically, materially, financially,

socially, environmentally – constant

attention to adapting leadership

attitude, ability and activity is essential.

Leadership development at Alexander

Forbes is about turning customer and

investor expectations into positive

employee actions through best practice

leadership behaviour. As such, it adds

value to all our stakeholders: clients,

employees, shareholders and business

partners.

The leadership brand created for

Alexander Forbes is based on the

Smallwood and Ulrich leadership brand

model, which can be summarised by

their belief “that long-term success

– the kind that lasts generation after

generation – depends on making the

critical distinction between leaders

and leadership. A focus on leaders

emphasises the personal qualities of

individuals whilst a focus on leadership

emphasises the methods that secure

the ongoing good of the firm and, in the

process, also builds future leaders.”

Alexander Forbes has taken the

following steps to build its leadership

brand, based on its own internally

developed SERVE model.

• We developed a business case for

leadership development, based on

the vital need the organisation has

for a committed and single-minded

high-performance culture – one

that is clearly focused on both the

Company’s ambitious strategic goals

and the long-term financial well-

being of our clients.

• Around these twin goals, business

performance and client value, we

have built a leadership brand,

articulated in the SERVE model.

• The SERVE leadership calling card

challenges all leaders to ensure that

their teams provide customers with

Impactful Service through simplicity

in the delivery of expert innovative

solutions. In doing so, the goal is to

create long-term relationships based

on the priceless value of hard-earned

Trust with the ultimate objective of

enriching people’s lives.

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• Key to the success of the leadership brand is the building of relationships, as articulated above. This embraces both internal and external relationships, building the necessary inter-divisional efforts that make the Group whole powerfully greater than the sum of its sometimes silo-driven parts.

• The mission to provide Impactful Service is further based on building the effectiveness of leaders in five key areas: Personal Proficiency, Strategy, Execution, Talent Management and Human Capital development. The leadership brand demands that all these areas are strengthened, starting from Personal Proficiency and building out to the other key skills.

• We have begun a regular engagement programme focussed on the Group’s first 50 executive leaders, based on milestones set for the year. The programme is focused on helping the Group’s executive leaders develop and/or improve the core competencies that they need to lead the business towards the achievement of its goals.

• Two development sessions have been held. The first was in July 2010, working with the Top 50 leaders. The second was the Leadership Conference in January 2011, working with a wider group, as mentioned above. The leadership brand is also continuously reinforced at all leadership meetings, EXCO meetings and Board meetings, which occur throughout the year.

• A variety of leadership tools will be developed as the programme is cascaded down to the next group of executive leaders over the coming year.

• The programme’s progress and effectiveness is measured on an ongoing basis and a full audit of effectiveness will be completed by

March 2012.

S E

E VR

SIM

PL

ICIT

Y

EX

PERT INNOVATIVE RELATIONSHIPS

VALUE OF TRU

ST

EN

RIC

HIN

G P

EO

PL

E'S

how

we

deliv

er

SOLUTIONS

what w

e deliv

er

what we strive for

what we stand for

LIV

ES

why w

e exist

IMPACTFUL

SERVICE

nex

t gen

eratio

n deve

loper – strategist – executor – talent manager

ALEXANDER FORBES LEADERSHIP BRAND

personal profi ciency

3. perfOrmance management

and reward

towards a high-performance, goal-oriented culture The delivery of our strategic goals in a manner that fulfils the needs of all our stakeholders was a key consideration in the way in which we chose to pursue the creation of a high-performance culture. This is especially important as we understand that a high-performance organisation is a product of motivated individuals who work together to differentiate Alexander Forbes from its competitors by enabling us to provide cutting-edge advice, products and services.

Our performance management philosophy is thus embedded in the need to direct the efforts of all our employees towards the achievement of both business and individual goals. To enable them to achieve high levels of performance, we provide them with learning and growth opportunities through performance planning, coaching and development, appraisals and performance-based reward and recognition. We have endeavoured to create a clear link between performance and reward in order to drive the discretionary effort necessary for us to deliver exceptional results.

As part of our performance improvement programme, we implemented an

integrated performance performance management and reward framework to embed greater accountability for both short- and long-term results and to create more robust performance management practices that would enable us to achieve sustainable business success.

The framework enables us to clarify accountability and increase our bias for action through the development of strategy-aligned balanced scorecards for the business and for each individual employee. The business scorecards set out the key performance objectives, measures and targets that we must collectively achieve in each of the years of our strategic plan.

In line with this, performance targets are stretched to ensure that we achieve our ambitious business goals. This not only ensures greater alignment of interests between the business and its current shareholders, but also, we strongly believe, stretches us to live up to our true potential.

To balance the need to achieve short-term objectives whilst ensuring that we improve the sustainable integrity of our business, scorecards have two sections:

section a: financial performance which outlines the financial or output-based outcomes that must be achieved in a

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financial year in line with the objectives of our strategy.

section b: Institutional sustainability which reflects the more sustainability focussed objectives that are also necessary to enable the achievement of Section A. This section reflects the customer, internal processes, and people perspectives of the balanced scorecard, as well as strategic enabling projects, which are high priority initiatives that are undertaken to speed up delivery of performance objectives.

tracking and monitoring performance, carefully and consistently Performance against the business scorecards is reviewed quarterly by the Group CEO with each divisional Md and his Exco team. For each section and measure of the scorecard, actual performance is substantiated by appropriate evidence and internal audit processes are followed to ensure that evidence provided adequately substantiates performance achieved. Business performance dashboards are published after each quarter’s review and the Group CEO formally communicates results to staff twice a year during staff strategic update sessions.

As each employee is expected to conclude an individual performance contract that defines their performance contribution towards the achievement of business goals, their individual performance is also formally reviewed bi-annually. Both business and individual performance review outcomes are used as input to determine performance related reward and recognition.

linking performance to reward The intent of our remuneration philosophy is to align guaranteed remuneration to the 50th percentile of the market, while over time aligning annual incentives for on-target performance to the upper quartile of the market. The objective of our policy is to be able to attract, retain and motivate appropriately skilled executive management. The Management Trust, as part of the equity structure, serves as a long-term incentive plan.

As outlined above, a balanced scorecard approach to performance management was introduced and rolled out to all Executive Management during this financial year. Each Group Exco member agreed their performance scorecards with the Group CE at the beginning

of the year. Performance against the scorecards was reviewed by the Group CE and the Group Strategy, Programmes and Performance Management Office

provided the required assurance.

Group Exco members’ annual bonuses were based on performance against the scorecards and approved by Remco. In the 2011/12 year the improved performance management and reward approach will be cascaded to all participants of the bonus scheme and suitable performance based rewards will be investigated for the rest of the employees.

STRUCTURE OF BUSINESS SCORECARD

INSTITUTIONALSUSTAINABILITY

CUSTOMER RETENTIONAND SATISFACTION

IMPROVE PRODUCTIVITYAND BUSINESS HEALTH

DEVELOP PEOPLE

DELIVER STRATEGICINITIATIVES

IMPROVE CASH MANAGEMENT

FINANCIALPERFORMANCE

INCREASE NET REVENUE

CONTAIN COSTS

IMPROVE TRADING MARGIN

IMPROVE EBITDA

TO ACHIEVE LONG-TERM SUSTAINABLE GROWTH

In a rapidly changing world – technically, materially, financially, socially, environmentally – constant attention to adapting leadership attitude, ability and activity is essential. Leadership development at Alexander Forbes is about turning customer and investor expectations into positive employee actions through best practice leadership behaviour. As such, it adds value to all our stakeholders: clients, employees, shareholders and business partners.

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OPERATIONAL REVIEW BY DIVISION: HOW EACH DIVISION IS PERFORMINGThe following table gives an overview of the profile, activity, challenges and outlook for each of the main divisions of the Alexander Forbes Group.

ALEXANDER FORBES FINANCIAL SERVICES SOUTH AFRICA

CONTRIBUTION

TO GROUP

EARNINGS

net revenue (rm): 1 339trading result (rm): 303employees: 1 751

BUSINESS

PROFILEAlexander Forbes Financial Services, established in 1955, is a leading provider of holistic employee benefit, actuarial and asset management consulting and advice to corporate and retirement fund clients in South Africa. We have offices in all major South African centres.

We provide a comprehensive range of umbrella and stand-alone retirement funds, share scheme and payroll administration services and solutions.

With our healthcare consulting and actuarial services, we offer an integrated approach to the management of the costs and risks associated with employee absenteeism, injury on duty, incapacity and disability matters, and HIV/AIdS management.

Utilising our expert financial planning advice and a range of products and services we ensure that we provide tailor-made solutions to meet the needs of individuals. We provide administration for discretionary savings products as well as individual pre- and post-retirement products. We also offer individual financial and retirement planning advice through our Integrated Personal Financial Management (IPFM) programme.

Finally, our life insurance business. Alexander Forbes Life, offers long-term insurance products including death, disability and critical illness cover to retirement funds, employers and individuals.

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REVIEW OF 2011 Net income from operations increased by 5% to R1.3 billion while trading profit for the year remained in line with that of the previous year at R303 million, reflecting further investment in the strategic development of our individual client offering. The past year was characterised by strong new business growth in all our major divisions. A total of 179 new client appointments were secured in our core retirement funds division and healthcare broking business. Client retention has remained strong despite a competitive operating environment. Growth in members under administration in our retirement fund administration business was particularly strong, growing by 11% over the year to reach in excess of 806 000 active contributing members at year-end. In addition, we administer the monthly payments to more than 157 000 pensioners.

We continue to invest in operational efficiencies in our administration areas with a focus on improving the client experience and automation of manual processes. We are seeing strong growth in our umbrella retirement fund offering with our flagship fund, the Alexander Forbes Retirement Fund, growing to over 170 000 members, making it the largest fund of its kind in the market. We also launched a new umbrella fund offering, AF Access, for the independent financial advisory market, which has been well received. In addition, we launched a General Insurance Consulting business, which promises to make a meaningful contribution to our forecasted business growth during 2012 and beyond. The bedding down and effective implementation of our holistic employee benefits consulting model is a key focus as this presents us with significant potential in achieving our business growth objective through our consulting division.

Our retail investment platform continued to enjoy strong net new cash flows with significant new business flows written in the year and assets under management on our retail administration platform totaling R28.8 billion at year-end. In line with our focus on the retail (individual client) segment of the market, we increased the size of our internal advisory force during the year by 25% and have established three new offices. We are also engaging the wider financial advisory market in the distribution of some of our offerings.

Alexander Forbes Life achieved strong new business growth, increasing premiums by 36%. However, the underwriting result for the group life book was below our expectations and interventions have been put in place to improve the result.

We reported in the previous report that we were conducting a review of our pension-backed lending business, Homeplan. In November 2010, we announced the conclusion of the sale of this business to the bank who had previously been our funding partners. The results of this business for the period until sale are reflected under discontinued operations in line with the treatment in the prior year. We launched the Alexander Forbes Research Institute towards the end of the year to confirm our Group as the thought leaders in the savings and investment industry and to organise, share and collaborate on current topical ideas that will help shape Government’s efforts to establish a stronger savings and investment culture in the future.

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INTEGRATED ANNUAL REPORT REVIEW OF OPERATIONS



KEY

CHALLENGESWith the increased competition in the industry, we continue to face pricing pressure.

We are also experiencing challenges in recruiting effective sales consultants within our retail businesses.

despite the abovementioned challenges, we continue our determined approach to achieve our aggressive new business targets and are confident that we will continue to maintain and grow our trading margins.

LOOKING AHEAD Our focus for the next year is to continue growing our market share in all our divisions with the aim of providing holistic employee benefit solutions to corporate and individual clients.

We will maintain our focus on assisting clients to meet their holistic long-term financial security objectives.

We will continue building strong client relationships, concentrating on serving clients by delivering improved client experiences with our people, products and services, including the creative use of innovative technology.

Maintaining our ongoing focus on improving the sales culture within all business units will ensure that we are in a position to build our sales and distribution capacity.

We will take advantage of improved operational efficiencies resulting from innovation and the automation of manual processes and procedures to improve trading margin.

There will be a continued emphasis on the underwriting and risk management in the Alexander Forbes Life business.

Accordingly, the abovementioned strategies are expected to deliver an increase in recurring income revenue streams.

We will continue to ensure our focus on building on and executing key strategic initiatives.

Empowerment also continues to be high on the agenda as we maintain our focus on striving to meet the dti Codes of Good Practice on B-BBEE targets.


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ALEXANDER FORBES RISK & INSURANCE SERVICES SOUTH AFRICA

CONTRIBUTION

TO GROUP

EARNINGS

net revenue (rm): 1 120trading result (rm): 299employees: 1 337

BUSINESS

PROFILEAlexander Forbes Risk & Insurance Services (AFRIS SA) is the largest risk advisory and specialist insurance provider in South Africa. In addition, AFRIS SA also has an extensive network in Africa.

The Company has four main divisions, each with its own specialist expertise:Risk Services provides risk management and insurance broking services for corporate clients and SMMEs. These services include negotiation of the terms and placement of insurance cover and the management and handling of claims management services, loss prevention, alternate risk finance and enterprise-wide risk management consulting services.

Alexander Forbes Compensation Technologies (AFCT) provides comprehensive claims administration and recovery services to both the private and public sector, focusing on the recovery of benefits and medical expenses in respect of the Road Accident Fund, as well as the Compensation for Occupational Injuries and diseases Fund.

Alexander Forbes Insurance (AFI) is a provider of motor and household insurance.

Guardrisk Group is a short-term and life Cell-captive insurance and facility management service provider with additional representation in Gibraltar, Mauritius and Namibia. The Guardrisk portfolio also includes Guardrisk Allied Products and Services, a dedicated underwriting manager operation that focuses on niche products and schemes.


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REVIEW OF 2011 Income from operations increased by 8% to R1.1 billion and trading profit increased by 9% to R299 million. In line with the Group’s strategic drive into the retail market, investment in sales capacity continued in our target retail (individual household and motor insurance) business, as well as in the commercial insurance broking businesses. As a result, pleasing sales growth was achieved in retail insurance business with gross written premiums increasing by 17% above the comparative period.

despite the recessionary pressures across all sectors of our client base and the reduction in prime interest rates that led to a decline in operational earnings, the year still produced a solid result. New business development remains a core of our operations and our strategic focus on this initiative has resulted in continued strong new business results in all divisions, particularly by the Alexander Forbes Insurance division.

The growing presence of international insurance brokers in the African insurance market will also contribute to the competitive environment, but we are positive that the depth of our resources, the quality of our people and our ability to deliver superior solutions will continue to make the difference for our clients. Market conditions in the core brokerage operations of Corporate and Commercial have continued to be challenging. However, reductions in premiums will continue to be achieved by our brokers in the Commercial sector, as long as the loss profiles of the clients show a positive picture from an underwriting perspective and there is clear evidence that the client has a well-structured and explicit risk management strategy.

The Corporate broking teams in the construction sector have shown signs of a rebound in activity and there have also been strong results from some of our other specialist areas. We continue to build on and develop our strategy of enhancing our ability to add value to our clients through our detailed understanding of the risks they face in their specific sectors.

despite the soft market conditions, our Commercial Solutions business has shown growth through a focus on enhancing the ability we have to deliver custom-made products to our SME client base. We are building our client-facing sales teams to enable us to further expand our market share in this growth sector.

AFCT has produced stable results for the period. The business has managed the pressures resulting from the economic downturn well and, as a result, client retention in the public sector, as well as strong growth in particular sectors, surpassed expectations.

AFI had strong new business growth over the year in review and the trend is set to continue. Our three year's sales comparison indicates an increase of 97% over that period, from R90m to R177.4m.

Strong new business growth, coupled with an improvement in client retention, has translated into overall net premium growth for AFI of 15%.

Year-on-year policy count continues to improve and a gross loss ratio of 68% as at 31 March 2011 was eight points better than the previous year.

The domestic insurance market remains highly competitive with new entrants coming into this space. AFI is well positioned for continued growth as our offering remains superior, product distribution unique and quality of service geared towards client retention.


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KEY

CHALLENGESIn our core Corporate and Commercial divisions we expect the market to remain challenging, both in respect of the continued “soft” insurance market and the reduced investments by our client base in general. We are, however, seeing signs of substantial investment in selected sectors and accordingly we still expect the slow recovery to positively impact on our business.

AFCT continues to face operational challenges driven by the many changes in key decision-makers and the varying approaches which are taken in handling the business process.

AFI’s sector remains competitive. However, working together with our existing partners and developing new partnerships will ensure that our team is well-positioned to respond to any challenges.

For Guardrisk, the moratorium on the issue of mining rehabilitation guarantees by short-term insurers which prevailed for most of the financial year, limited its ability to continue to provide alternative risk transfer solutions to its mining clients. The moratorium was eventually lifted by the department of Mineral Resources (dMR) in January 2011 after a high-level investigation into the short-term insurance industry in conjunction with the Financial Services Board to gain a better understanding of the risk management and risk mitigating measures being applied by the industry. Guardrisk is one of only six insurers approved by the dMR to issue these types of guarantees. Proposed new legislation regarding demarcation of medical scheme and health insurance business and binder holder arrangements has not yet been finalised and the industry is awaiting publication of the regulations in this regard.

LOOKING AHEAD Corporate and Commercial divisionsWe will continue to build on our market leadership position in identified sectors with a focus on developing our skills, resources and service capability to the benefit of our clients.

AFCTWe have identified new opportunities to streamline claims collation and submission processes through collaboration with our clients, as well as opportunities for the development of new services and new business into the future.

AFI Motor and Household Insurance expect to continue with their strong growth strategy and will further invest in systems and processing capability to enhance the client service experience. Our focus will be a strong emphasis on enhanced client service, improving the underwriting process and effective management of claims costs to further benefit our clients.

GuardriskWe are well-positioned to continue the momentum of Guardrisk's strong trading results over the last few years. We will continue to reinforce our strong relationships with our clients and suppliers and are confident of our prospects for the future.


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INVESTMENT SOLUTIONS AFRICA

CONTRIBUTION

TO GROUP

EARNINGS

net revenue (rm): 484trading result (rm): 269employees: 137

BUSINESS

PROFILEInvestment Solutions provides multi-management and investment administration services to retirement funds, high net worth individuals and corporate clients. We have offices in South Africa as well as in Windhoek, London and Jersey.

We provide a range of investment capabilities which are designed to help clients meet their investment objectives. Our solutions cover all major asset classes and can be designed to meet all major investment needs, including those that are unique to individual clients.

REVIEW OF 2011 Assets under management in Africa increased from R151 billion at March 2010 to R168 billion at March 2011, driven largely by the recovery in equity markets. Income from operations, net of direct product cost, increased by 11% to R484 million for the year while trading profit increased by 9% to R269 million. The increase in revenue does not reflect the growth in assets under management, mainly due to the fact that the previous year’s income was partly hedged against the equity market downturn experienced in prior years. New business flows have been encouraging for the period, although ongoing benefit payments to fund members remain relatively high, reflecting the underlying pressure the South African economy is still facing.

Capital markets in the past year were favourable towards our business, with all major indices showing pleasing growth. However, volatility of capital markets has continued to escalate, and so while the long-term trend shows an upward trajectory, short-term ebbs and flows still negatively affected some aspects of our revenue line.

Assets under management closed the year at R168 billion, which was 11.3% above the prior year closing figure. We achieved new business flows from new clients of R5 billion, which is 25% more than the R4 billion of the prior year. A significant portion of the funds were achieved from a wider range of distribution channels, thanks to our efforts to diversify and extend access to our product range.

Our investment performance continued to be very competitive, with over 80% of our funds outperforming benchmarks over the industry-accepted three-year investment horizon. All major portfolios met their investment objectives across all major periods.

Awards: We were honoured to be voted the Multi-Manager of the Year by the Principal Officers Association in the past year.

KEY

CHALLENGESMarket volatility continues to negatively affect short-term profitability. We do not see this trend changing but have adjusted our business to withstand short-term shocks.

The regulatory environment has become very demanding and unrelenting. The upside of greater regulatory scrutiny and oversight has been to improve the overall confidence that clients have in the industry and our business.

LOOKING AHEAD We anticipate increased competition in the industry and in all major distribution channels. We believe our capabilities in multi-management, investment administration and implemented solutions offer our clients a diverse range of solutions to help them meet emerging investment-related challenges.


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AFRINET

CONTRIBUTION

TO GROUP

EARNINGS

net revenue (rm): 307trading result (rm): 69employees: 565

BUSINESS

PROFILEAfriNet is the name of Alexander Forbes’ network of offices and correspondents throughout Africa and represents one of the most extensive network of its kind in Africa. It enables Alexander Forbes, through its own operations and correspondents, to provide its clients with local service across the continent. The network has operations in 10 countries and correspondents in over 30 countries on the continent. The Network is managed and co-ordinated from South Africa by a team of financial and risk services professionals, who ensure that the correct resources and expertise are made available to our local offices and clients. However, unlike some of our international competitors, our experts are based in Africa and are therefore both easily and cost-effectively accessible. This is particularly important when one recognises that the benefits and risk services industries are becoming increasingly complex. Today, benefits and risk services programmes need to be customised to ensure that they meet each client’s unique requirement. As Africa’s leading provider of financial and risk management services, Alexander Forbes is committed to Africa and has the necessary expertise to deliver informed, sustainable and innovative solutions.

REVIEW OF 2011 Financial Services businesses grew by 11% year on year. The Namibia and Botswana businesses remain the main contributors within the AfriNet Financial Services businesses and still hold 80% of the market share on average in their respective markets. The growth in these operations is expected to not only result from traditional core income streams, but more so from innovative products.

Risk Services businesses contributed 54% to the overall revenue, but grew by only 1%. Across operations there has been considerable competition while commission income is slowly being phased out across operations in favour of fee-based arrangements.

The stronger Rand compared with most currencies in the rest of Africa has had a negative effect on the AfriNet reported results. In Rand terms, total revenue grew by 6% to R307 million and the various operations delivered a consolidated trading profit of R69 million, 3% below the previous year. Ignoring the impact of exchange rates, this result is still somewhat below expectation and resulted in a determined effort to contain cost inflation.

The year was also characterised by a strong competitive environment in each of the regions in which AfriNet operates. The Risk Services businesses in particular were affected not only by this increased competition but also softer insurance markets. The Financial Services businesses delivered a pleasing result. Challenging operating environments still remain the key issue for most of our operations in the rest of Africa but despite this our operations remain resilient and are benefiting from an increased focus on governance, control and strategic positioning.

KEY

CHALLENGESCapitalising on the growth opportunities in Africa requires the ability to respond to fast changing economic and political environments that characterise these markets. Market volatility and changes in the base trading currencies will continue to affect profitability.

LOOKING AHEAD We continue to see Africa as a particularly attractive market for growth opportunities in the various areas of strength of the Group. Our focus remains on revenue growth and ensuring efficient operations with good governance in all areas. Our strategic initiatives, in particular the Alexander Forbes Insurance business in Namibia, are starting to bear fruit. We continue to search for similar expansion opportunities on the African continent.


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ALEXANDER FORBES INTERNATIONAL

CONTRIBUTION

TO GROUP

EARNINGS

net revenue (rm): 1 317trading result (rm): 173employees: 942

BUSINESS

PROFILE

Alexander Forbes Financial Services (AFFS) is a United Kingdom and Channel Islands-based, national corporate pensions Independent Financial Adviser (IFA) and employee benefits consultant, providing pensions, investments, health and risk, and annuity solutions to corporate clients, their employees and executives, and trustees of pension plans.

The Group also provides independent trustee services to pension plans through Alexander Forbes Trustee Services.

Lane Clark & Peacock (LCP), approximately 60% owned by Alexander Forbes, are actuaries and consultants who focus on employee benefits, investment consulting, general insurance consulting, and consulting in other areas of business analytics. LCP has offices in the United Kingdom, Abu dhabi, Belgium, Ireland, the Netherlands and Switzerland.

The Group owns 40% of Alexander Forbes UK direct, which markets accidental death benefit policies directly to the retail market under the “Media Insurance Services” brand.

REVIEW OF 2011 The International operations continued to improve their performance, with income from operations increasing by 4% to £118 million and trading results of £16 million, £4.1 million or 36% up on the prior year. The businesses continued to benefit from new client wins and strong client retention. The significant cost-saving measures implemented over the past two years drove the improved performance and it is very pleasing to see the Alexander Forbes Financial Services (AFFS) business returning to profitability.

The United Kingdom and Europe regions continued to be affected by the uncertain economic environment. Unemployment appears to have stabilised, providing clients with the confidence to increase wages and focus on employee benefits once again. Fees remained under pressure as clients managed their costs. However, demand for pension de-risking solutions and investment consulting, as well as advice on the impact of recent taxation and pending pension changes, remained strong.

Insurers are reducing commission and AFFS in particular has responded by targeting larger clients than its traditional SME client base, with increasing success off its realigned cost base. In addition, the business continued to make good progress in growing its renewable income in anticipation of the implementation of the Financial Service Authority’s Retail distribution Review (RdR) in 2013. The RdR will impact on AFFS’s initial commission revenues.

Lane Clark & Peacock ended the year on a strong note and trading profit for the year increased by 10%. Operations in both the United Kingdom and Europe continued to achieve good client wins across all lines of business. However, fee pressures impacted across the board. The Swiss business, in particular, was impacted during the first half of the year but the business has taken the appropriate actions to restore performance.

In our International Investment Solutions business, assets under management grew from £1.0 billion at March 2010 to £1.4 billion in the year under review mainly through growth in Group assets, in line with a strategy of consolidating the management of the Group’s international assets in-house. As a result, net revenue for the year increased by 21% to £3.4 million, with trading profit of £331 000 considered a modest milestone for the business after some investment over a number of years. International Investment Solutions is now consistently trading profitably, having achieved the required critical mass of assets under management, and it continues to focus on delivering pension and investment solutions to both the United Kingdom and the South African markets.


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ALEXANDER FORBES INTERNATIONAL

KEY

CHALLENGESThe economic environment is still challenging across Europe, impacting clients’ profitability as they face insolvencies, redundancies and wage pressures. Fee pressure is likely to continue, with some major competitors cutting fees to unsustainable levels. Our clients’ employee benefits spend is under pressure and employee contributions to pension plans are affected, thus impacting income.

On a positive note, pending regulatory and tax changes, as well as the economic uncertainty, have stimulated demand for certain consulting services; we continue to recruit high calibre staff to meet market opportunity.

Achieving scale in the expansion of LCP's services into business analytics will, however, be a challenge.

LOOKING AHEAD We will continue to focus on building actuarial and consulting capacity, driving new business growth and applying disciplined cost control to protect and improve margins. There will be a continued focus on building renewable income prior to the regulatory changes.

The sector remains competitive and we will continue to invest in innovating our solutions to address the changing market including, more specifically, building non-pensions capability within the LCP Group (Business Analytics and General Insurance).

We will maintain our investment in developing leadership capability and focus on embedding the SERVE culture.


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SOCIAL PERFORMANCE: OUR PEOPLE, OUR COMMUNITIES, OUR CLIENTS, OUR COMMITMENT

At Alexander Forbes, social transformation is a key strategic business requirement. We recognise that it is both a business and a social imperative. As a responsible corporate citizen, we are committed to participating and contributing positively towards the overall socio-economic transformation of our communities and our country. This includes an ongoing determination to contribute to Broad-Based Black Economic Empowerment (B-BBEE).

Transformation is not simply about compliance and our goal is not just to meet the formal requirement on the scorecard but to contribute towards bringing about effective socio-economic changes that will benefit those that were previously marginalised – both those who work with us and the broader causes and communities who need our support. This is about both human capital in the business and social capital out in the world.

We have thus far implemented a number of initiatives that promote our transformation agenda and demonstrate commitment to our mission to serve.

MAKING THE MOST OF OUR PEOPLE The people management function at Alexander Forbes exists to enable leaders to achieve their business results through attracting, deploying, growing and retaining appropriately qualified and motivated employees. Employees are truly Alexander Forbes’s biggest asset and having an engaged workforce is amongst a company’s biggest competitive advantages. In order to facilitate attaining the competitive advantage, the people management function strives to deliver expert people management solutions, delivered with

simplicity. Innovation is key when developing products and processes to enable Alexander Forbes leaders to better manage their people. Based on the vital value of trust, people management strives to build lasting relationships with all employees. This is an investment, one which we hope repays us with interest: hence the term ‘human capital’.

Four key initiatives have been identified to improve the long-term sustainability of the business through increased levels of employee engagement. The first initiative is to transform and redesign the people management function. This will include establishing centres of excellence, business partners in each of the key businesses and a shared services function.

A second key priority is to manage the largest cost in the business, namely the cost of labour. The third focus area is to embed the SERVE leadership brand of Alexander Forbes, whose goal is “Impactful Service”. The model harnesses Simplicity, Expert innovative solutions, Relationships and the Value of trust, all in the service of Enriching people’s lives. It was developed during FY 2010/11 and will be further embedded during FY 2011/12.

The fourth initiative is to drive an integrated talent and performance management programme, part of which seeks to consistently balance remuneration and reward. The balanced scorecard approach to performance management has been implemented at Group and divisional levels during FY 2010/11 and is being cascaded to all business units and individuals who participate in the Management bonus scheme. The levels of employee engagement were measured during FY 2010/11 and plans, such as those mentioned, have been developed to increase employee engagement. The overall stretch target is to achieve a 5% increase in the levels of employee

engagement over the coming year.


We have thus far implemented a number of initiatives that promote our transformation agenda and demonstrate our commitment to our mission to serve.

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EMPOWERING COMMUNITIES, DEVELOPING SOCIETY

the sOcIO-ecOnOmIc develOpment ImperatIve The Alexander Forbes Community Trust’s corporate social programme is implemented in line with a transformation strategy aimed at the socio-economic upliftment of previously disadvantaged communities.

Five focus areas have been identified as shown. They are linked to the business of Alexander Forbes, as well as national and global development priorities. The captions describe the particular ways in which we invest in each focus area.

the In 4 lIfe cOmmunItY develOpment mOdel An unanimous decision was taken by the trustees of the Community Trust to pilot the In 4 Life model in 2010. This approach primarily focuses on two of the five focus areas, namely, HIV/AIdS and Education.

The In 4 Life is a model that seeks to integrate the holistic care of orphans and vulnerable children (OVCs), providing comprehensive support to one of the most disadvantaged groups in South Africa, from early childhood right through to adulthood and employment opportunities.

At each stage children are able to access pastoral and financial support that allows them to concentrate on their studies, to make the most of their studies, and, ideally, to qualify for both a bursary from Alexander Forbes to study at tertiary level and, ultimately, an internship that could lead to a career in the business. A full exposition of this long-term modular programme is available on our website at www.alexanderforbes.co.za.

The model is implemented in partnership with CBOs, providing a much-needed service that primarily benefits OVCs in both rural and metropolitan settings.


women

Renovation of Old Aged Homes

THE TRUST'S FOCUS AREAS

aged

education disabled

hIv/aIds

RehabilitationProgrammes

day Care Centres for childreninfected and affected by HIV / AIdS

Bursaries

Income Generating

GEOGRAPHIC SPLIT OF THE TRUST PROjECTS

rural 21%

both7%

urban 72%

Day CareCentres

• Employee participation

1

Primary&HighSchool

• AFGrade12 Learnerships

2

Tertiary

3

Employment

4

• Mentoring• Vacwork• LifeSkills• Work readiness programme

• AFgraduate programme• Permanent employment

Benefits

Addressscarceskills

at AF

Addressscarceskills

at AF

Jobcreation

Income

Informedsociety

Stablefamilies

INTEGRATION OF HIV/AIDS & EDUCATIONTO CREATE A SUSTAINABLE IMPACT

Continuousdevelopment&supportoforphansandvulnerablechildren

“ IN 4 LIFE”

This model undoubtedly provides a solid foundation for the development of OVCs in a holistic and sustainable manner. It creates opportunities for Alexander Forbes to develop flagship initiatives

within the model which can be used to profile the Company as a committed corporate citizen. The brand benefits from this positive exposure.

| 75 |


In 4 lIfe achIevements tO date A total of 61 Grade 12 learners supported by the Community Trust through the In 4 Life programme wrote their 2010 final year exams and a pass rate of 88% was achieved.

The breakdown of results is as follows:

• 54 learners passed;

• 39 qualified for university entrance;

• 5 learners were awarded distinctions; and

• 4 of the learners are from the KHATA day Care Centre which was recently visited by the Group CEO and the Chairperson of the Trust.

The Community Trust has awarded

bursaries to some of these students and

it is envisaged that those that manage to

complete their tertiary qualifications will

participate in the Company’s internship

programme. This, in turn, could lead

eventually to full-time employment.

Our emplOYee vOlunteerIng prOgramme The Employee Volunteering Programme

(EVP) is an initiative aimed at

encouraging participation in community

development projects. It is implemented

via the Community Trust in line with the

Company’s transformation agenda.

Employees are encouraged to invest

their time as an in-kind donation to

support community-related initiatives

that are already benefiting from

the Community Trust or projects of

their choice, with the aim of helping

communities to help themselves.

CLIENT DEVELOPMENT: ADDING VALUE TO OUR CLIENTS’ LIVES

value-addIng servIces fOr IndIvIdual and cOrpOrate clIents Over and above the professional

services that we offer to our clients,

Alexander Forbes offers value-adding


Employees from Alexander Forbes offices

participating in various community

initiatives.

services that are intended to enhance the financial status of our individual clients by providing long-term financial security education and advice, as well as inculcating the spirit of responsible reporting for our corporate clients.

IndIvIdual clIents: sharIng the pOwer Of KnOwledge Integrated Personal Financial Management (IPFM), one of the divisions within the Alexander Forbes Financial Services business, provides services designed to raise levels of financial literacy for all members of our

retirement funds. The goal is to teach

clients about all the factors that could

potentially impact on their plans for

achieving long-term financial security.

IPFM raises awareness of the importance

of saving for retirement, and educates

clients about the factors that could

impact on their financial security. It also

issues death Needs Analysis statements

so that members can see if they have

a shortfall in life cover, based on what

their fund benefits provide to protect

their family in the event of their death.

However, the mission of IPFM, while

targeting the individual, is on a higher

plane. Put simply, for every person who

makes the right financial decision today,

we are making a difference to the future

of an individual’s life and also to our

economy and dependence on the state.

Finally and importantly, these services

are offered at half the market rate costs.

cOrpOrate clIents: gettIng tO

grIps wIth KIng III

Alexander Forbes can now offer a

specialised value-adding service

with regard to King III governance

compliance. The King III Scorecard is

a web-based software tool designed by

Alexander Forbes Risk Services (AFRS)

to help all organisations, regardless

of size or form, achieve King III

compliance through self-evaluation. The

purpose of the King III Scorecard is to

show the extent of compliance achieved

by an organisation against the code,

which, in turn, helps organisations

become more accountable for their

corporate governance practices.

The scorecard comprises a series

of pertinent corporate governance

questions, with each question adhering

strictly to the principles defined by

King III. The scorecard questions are

highly focused and allow the user to

determine their King III compliance in

under thirty minutes, a feature that is

highly beneficial given the significant

content included in the report.

| 76 |


The software tool assists organisations

to identify gaps in compliance or

areas of weakness that may have

been overlooked by the organisation.

Areas of weak compliance or partial

compliance, and more importantly areas

of complete non-compliance, if not

justified adequately through the code’s

“Apply or Explain” philosophy, can have

serious repercussions for organisations.

Moreover, the Alexander Forbes King III

Scorecard advises organisations on the

implications of their weak compliance

or non-compliance through a final report

which further assists organisations to

take the appropriate actions in order to

comply with the code. Upon completion

of the scorecard, a detailed report is

generated outlining the organisations

final compliance score along with

pertinent areas of weakness that

require immediate attention by the

organisation.

King III is an aspirational code that

represents a significant advance in

governance practices for South Africa.

TRANSFORMATION AT ALEXANDER FORBES: MEETING A CRITICAL SOCIAL MANDATE

managIng transfOrmatIOn In the busIness At Alexander Forbes, transformation

is managed from the top. The Group’s

Transformation Committee, which is

a sub-committee of the Alexander

Forbes Equity Holdings Board, meets

on a quarterly basis to review progress,

as well as oversee implementation of

decisions taken. Members and guests

invited to committee meetings include

executives, top senior managers and

shareholders.

maIntaInIng Our level 3 status Alexander Forbes and its subsidiaries

have maintained their Level 3

empowerment contributor status

since 2009. The contributor level is a

measure of performance on the Broad-


HOW TRANSFORMATION IS LED FROM THE TOP AT ALEXANDER FORBES

AlexanderForbesLimitedBoard

SelloMolokoChairman of Alexander Forbes

AlexanderForbesLimitedBoardTransformation

Committee

AlexanderForbesEXCO

GroupB-BBEECo-ordinatorsForum

AFRIS TransformationCommittee

JurieErwee-CEO

AFFS TransformationCommittee

PeterEdwards-MD

IS TransformationCommittee

DerrickMsibi-MD

DonRayMalabieGroup Transformation

Manager

VishnuNaickerGroup Executive

Risk and Compliance

EdwardKieswetterGroup CEO

2007 2008 2009 2010 2011

0

10

20

30

40

50

60

70

80

90

afrIs affs Is grOup

47

60

75.04

8178.44

50

66

83.1379.74 78.59

36

65

77.28 76.9979.29

53

59

76.22

80.8283.53

Based Black Economic Empowerment

(B-BBEE) scorecard which ranges from

Levels 1 to 8.

The comparative performance below is

based on independent B-BBEE ratings

which were conducted in 2007, 2008,

2009, 2010 and 2011.

• AFRIS: Alexander Forbes Risk &

Insurance Services;

• AFFS: Alexander Forbes Financial

Services; and

• IS: Investment Solutions.

At Alexander Forbes, transformation is managed from the top. The Group’s Transformation Committee, which is a Sub-committee of the Alexander Forbes Equity Holdings Board, meets on a quarterly basis to review progress.

| 77 |


b-bbee pIllars

The B-BBEE scorecard is comprised of

seven pillars, as outlined below:

OwnershIp

Alexander Forbes has been privately

owned since July 2007. The effective

B-BBEE shareholding in the South

African operations is 27.45% as from

March 2011, based on the independent

assessment which was conducted by an

accredited agency.

The changes to the ownership structure

have resulted in the broadening of our

broad-based shareholding in line with

the objectives of B-BBEE and include

these benefits:

• Ownership by black shareholders is

extended to international operations.

• South African employees are now

shareholders via the Management

Investment Scheme, as well as the

Staff Share Trust, which mainly

benefit black people, and local

communities enjoy an increased

budget allocated towards social

development.

tOp management

There has been a significant

improvement in black representation

at top management level. The Group

Executive Committee comprises

13 members, seven of whom are

black, including two black females.

Improvement is also evident at Board

level with a number of black Non-

executive directors appointed in the last

few years.

emplOYment eQuItY

The Company is on track towards

changing the employment equity

profile to be representative of the

country’s demographics. The black

staff complement was 55% and black

females was 34% of the entire head

count as at end of March 2011.

Management has identified employment

equity as a critical B-BBEE pillar

which requires a rigorous and coherent

approach to ensure that the targets

which were approved by the Group

EXCO are achieved and, ideally,

surpassed.

Companies with a high head count are

generally challenged in attaining the

employment equity scorecard targets.

This is attributed to the fact that

B-BBEE is not about getting rid of white

employees but creating opportunities

for black employees throughout the

organisation. Notwithstanding this

challenge, Alexander Forbes has made

some great strides in improving its

employment equity profile. The junior

to middle management levels have

changed over a period of time, creating

a healthy pipeline of potential future

Transformation is not simply about compliance and our goal is not just to meet the formal requirement on the scorecard but to contribute towards bringing about effective socio-economic changes that will benefit those that were previously marginalised – both those who work with us and the broader causes and communities who need our support. This is about both human capital in the business and social capital out in the world.


dti codes scorecard

af group consolidated

2007 2008 2009 2010 2011

Ownership 20 17.69 15.78 17.60 19.35 17.69

Management & Control 10 4.98 3.39 4.07 6.56 7.51

Employment Equity 15 3.09 3.29 8.31 7.78 9.07

Skills development 15 7.92 4.56 12 12.1 12.21

Preferential Procurement 20 11.34 12.89 14.24 15.03 17.04

Enterprise development 15 2.49 14.26 15 15 15

Socio-economic development 5 5 5 5 5 5

Overall score 100 52.51 59.17 76.22 80.82 83.52

Empowerment Contributor Level 6 5 3 3 3

| 78 |


senior managers. In line with this, there

is a concerted effort to recruit and

develop bright young people to build a

base of diverse leaders for the future.

sKIlls develOpment

There is a complementary relationship

between employment equity and skills

development. Interventions that are

implemented as part of achieving

the goal and objectives of the skills

development pillar have direct benefits

for employment equity. The developed

employees from lower ranks have a

greater chance of climbing up the

corporate ladder through promotions.

The approach is to build a pipeline of

talented individuals who are trained

and mentored for available positions

and are not fast-tracked and set

up for failure. Alexander Forbes is

placing a great deal of emphasis on

developing its leadership team at the

levels of junior, middle and senior

Management. Training programmes

geared at empowering non-management

employees are also implemented.

To demonstrate its commitment,

Management has set five year

employment equity targets which will be

rigorously monitored.

Employment Equity forums have been

established for each entity within

the business to monitor progress and

provide guidance in the implementation

of employment equity strategies.

Alexander Forbes was also named as

one of the top ten best companies in

the 2010 deloitte Best Company to

Work for Survey.

Some of the skills development

interventions that are implemented

include the following:

• A graduate training programme;

• An internship programme;

• A learnership programme;

• On-the-job training; and

• Manager-employee mentoring

programmes.

Over and above these training

programmes, the Company invests a

substantial amount towards employee

bursaries covering a wide spectrum of

qualifications.

Finally, there is a substantial investment

in a Leadership development

Programme, which was initiated in

the year under review and seeks to

transform the way the group is led (see

page 61).

preferentIal prOcurement

Preferential procurement is one of

the most important pillars on the

B-BBEE scorecard. It serves to create

opportunities for black-owned as well

as B-BBEE compliant SMEs to access

mainstream economic opportunities.

We implement a comprehensive preferential procurement policy which provides guidance on how the business should be procuring services and goods as part of advancing the transformation agenda, thus empowering black-owned SMEs.


targets

management levels

b-bbee targets

2010/11 performance

2011 2012 2013 2014 2015

tOp 40% 30% 36% 37% 38% 39% 40%

senIOr 43%20%

20% 26% 31% 37% 43%

mIddle 63%36%

42% 47% 53% 58% 63%

For the 2010/11 financial year, Alexander Forbes has procured services and goods worth R1.9 billion from B-BBEE compliant as well as black-owned service providers.

enterprIse develOpment Similarly to preferential procurement, enterprise development aims to develop black-owned SMEs by linking them with established companies willing to invest in the enhancement of their operational and financial capacity. It is envisaged that this pillar will create the necessary stimulation to drive the development of black businesses in the economy.

Alexander Forbes has relied on the principles as laid out in the B-BBEE codes of good practice in the conceptualisation and implementation of sustainable enterprise development strategies. It has committed to the development of black SMEs at both Group and divisional levels.

One example is the established Adopt-a-Panelshop empowerment-based enterprise development initiative, which Alexander Forbes has implemented since 2006. It is the leading and blueprint transformation initiative within the motor body repairers industry and received an honorary award from the South African Motor Body Repairers Association (SAMBRA) in March 2011.

The assistance is provided in the form of grants which are invested in the renovation of the workshop, upgrading or purchasing of new equipment and training of staff.

To date, six panelshops have benefited from the scheme and, as a result, have received industry accreditations which will enable them to access mainstream opportunities.

sOcIO-ecOnOmIc develOpment The work of the Community Trust in the field of socio-economic development is covered on pages 75 to 76.

| 79 |


ENVIRONMENTAL PERFORMANCE: OUR CONSUMPTION, OUR COUNTRY, OUR PLANET

THE ENVIRONMENT: CONSERVATION AS RESPONSIBLE CORPORATE CITIzENSHIP We comply with relevant environmental

legislation wherever we do business.

However, as a financial services provider

our impact on the physical environment

is limited to our significant use of paper.

We are also able to make significant

changes in our energy consumption.

The activities listed below are currently

being implemented and are monitored

on an ongoing basis:

waste management• Paper recycling is entrenched within

the business.

• double-sided printing is an automatic

default on most printers.

energY cOnservatIOn• Light sensors have been installed

in fire escape stairwells and

boardrooms.

• Offices have timers that switch lights

off after at 6pm and every 2 hours

thereafter if switched on again.

• The heating for the geysers in the bathrooms and kitchens has been recued to save energy.

• There is a drive to increase our spend on purchasing eco-friendly promotional items.

• IT department initiatives have reduced energy use by 3,5 million Kilowatt hours annually by focusing on:

– consolidating and reducing the number of IT data centres;

– continuing our investment in server virtualisation technologies;

– purchasing energy-efficient technologies and, where practical, rationalising and consolidating

technologies; and

– centralising key IT services in the most economically viable geographic regions: for instance, we have increased the number of IT services and solutions provided to our international and African operations from South Africa.

• All printers have been replaced with the Konica Minolta B421 Series, which has the following green benefits:

– uses approximately 62% less electricity than the benchmark;

– does not employ i-chip technology,

which negatively affects recycling;

– is designed so that components

can be easily separated into their

individual component parts for

easy recycling; and

– uses toners with the highest rate

of polymerised toner production

in the industry: this plant-

based polymerised toner makes

all prints and paper printed

100% recyclable and is, more

importantly, entirely organic.

There has been a significant improvement in black representation at top management level. The Group Executive Committee comprises 13 members, seven of whom are black, including two black females. Improvement is also evident at Board level with a number of black Non-Executive Directors appointed in the last few years.


7%

B-BBEE spend Non B-BBEE spend

PREFERENTIAL PROCUREMENT

93%

| 80 |



According to Konica Minolta, the use of polymerised toners has helped reduce 8 400 tonnes of CO2 emission worldwide. To put that into perspective, 8 400 tonnes of CO2 is the total amount absorbed by a 40.9 hectare forest of broad-leaved trees, age class 10, since sprouting. That’s almost three times the size of South Africa’s Soccer City.

ALEXANDER FORBES’ NEW OFFICES

AnartisticimpressionofthenewAlexanderForbesgreenbuilding.

It is envisaged that the new Alexander Forbes Head Office, currently under construction in Sandton, will be classified as a 4 star Green Building, as awarded to buildings using best practices in environmentally sustainable design and construction.

| 81 |


83

FINANCIA

L REP

ORT



Alexander Forbes is determined to grow by building on its existing strong businesses and by focusing on the potential of retail, public sector, African and UK markets and opportunities. This strategy is already bearing fruit for all our stakeholders.

FINANCIAL REPORT


| 83 |



GROUP FINANCE DIRECTOR'S REPORT

rand : sterling2011r : £

2010r : £

Weighted average rate 11.1 12.3

Closing rate 10.9 11.1

rand : euro r : € r : €



INTRODUCTIONI am pleased to present my report for the

financial year ended 31 March 2011.

This report is aimed at complementing

information contained elsewhere in

this report and should be read in

conjunction with the Group operational

review and divisional operational

reviews reported earlier by the Chairman

and the Group CE, as well as other

sections of the integrated annual report.

My report deals with some of the more

technical aspects of our results such

as the material items below the core

trading result, as well as the impact of

currency effects and interest.

Given the apparent complexity of our

capital structure, I thought it would

also be useful to highlight the main

features of the debt structure as it now

stands. This position should be viewed

in the context of the fact that following

the restructure of the High Yield Term

Loan in 2009, a significant portion of

the outstanding debt is in fact now in

shareholders’ hands. I also provide an

analysis of the interest cost and the

impacts of the new regulatory capital

requirements introduced during the

past year.

PROFIT FROM OPERATIONS BEFORE NON-TRADING AND CAPITAL ITEMS (TRADING PROFIT)Profit before non-trading and capital

items (referred to internally as “Trading

Profit”) is used as the main focal point

of our performance measurement within

the organisation. In our view, it most

accurately reflects the true underlying

operational performance of the Group

and individual divisions.

It excludes the impact of certain

exceptional items that are not core to

the underlying operational performance

and excludes the amortisation of

intangible assets that arose upon

the acquisition of the Group by the

private equity consortium and other

shareholders. It also excludes the

results of our Cell-captive insurance

deon viljoen Group Finance director

| 84 |



arrangement, which assumes the first

layer of risk in our own errors and

omissions insurance programme where

impacts are sometimes reflected many

years after the event that gave rise to

the claim occurred. These items are

discussed in more detail in the next

sections of this report.

The Group consolidated trading profit

for the year under review of R1.1 billion

is 8% above last year’s R1 billion.

The segmental report is included on

page 127 in the financial statements.

As discussed in earlier reports, this

trading result includes investments

in certain of our businesses that are

identified as strategic growth areas.

Most of these investments relate to

increased human resource capacity or

technology development and reflect in

the income statement rather than the balance sheet. In line with our strategic themes, we also significantly increased our spend on marketing, branding and leadership development.

In addition to the above impacts, exchange rates impacted negatively on our results as the Rand continued to strengthen over the year under review. Our results are mainly impacted by the Rand exchange rate against Sterling where the average translation rate has moved as per table on page 84.

The income statements and statement of financial positions of material foreign subsidiaries have been translated to Rands in line with IAS 21 The effect of changes in Foreign Exchange Rates, using the following exchange rates:

Other less material foreign subsidiaries have been similarly translated to Rands using the weighted average rates for income statement items and the closing rates for items in the statement of financial position.

If the International Operations’ results were translated at a constant exchange rate equal to the average of the previous year, the trading profit would increase by R19 million, bringing the overall

growth rate to 9.8%. We are also, of course, exposed to certain other currencies, mainly in Africa, where the adjustment would also be positive but less material.

OPERATING PROFITOperating profit is stated before minority interest and associates. In arriving at operating profit for the year, the following more material non-trading and capital items are reflected below core “trading profit”. These items are detailed in note 5 to the financial statements.

cOnsOlIdatIOn Of cell-captIve Insurance lOss Of r26 mIllIOn (2010: prOfIt Of r26 mIllIOn) Our errors and omissions (E&O) insurance programme is very comprehensive, providing cover for claims in any given year and is underwritten in the international professional indemnity insurance market. The cost of this market cover is included in the various divisional trading results.

From a Group perspective, the first layer of insurance risk is not economically viable to insure and the Group assumes this risk at an overall level. We have structured this first insurance layer in a Cell-captive arrangement with Mannequin Insurance PCC Limited, an independent Guernsey-based Cell-captive insurance provider. This structure allows for proper risk transfer and insurance at a subsidiary level. The individual subsidiaries assume only the first R1.5 million of loss (£100,000 for International operations) in respect of each and every claim, while Mannequin and the market assume the losses above that level in respect of each claim year.

In terms of IFRS accounting standards, we are required to consolidate this Cell-captive arrangement in our financial statements as it is deemed that we exercise control over the cell. The net result of this insurance cell is reflected separately in our results. As can be

expected, the results of the cell can cause significant volatility depending on the claims experience for that year or any further developments in respect of previously notified claims.

In the current year, a number of long outstanding potential claims have been settled or cleared which had a positive impact on the level of provisioning required in the cell. Unfortunately, we also experienced negative developments in respect of a small number of larger claims which resulted in the net result of the insurance Cell-captive amounting to a R26 million loss for the year compared to the profit of the previous year of R26 million.

amOrtIsatIOn Of IntangIble assets arIsIng frOm busIness cOmbInatIOn Of r187 mIllIOn (2010: r191 mIllIOn) This amortisation is a non-cash flow

accounting entry to annually amortise

the intangible assets recognised upon

the acquisition of the Group by the

private equity consortium in 2007.

In terms of accounting standards

applicable, the purchase price in

excess of net asset value arising on

acquisition was required to be allocated

to identifiable intangible assets and only

the remainder is recognised as goodwill.

The intangible assets so recognised are

amortised over their estimated useful

lives. As this amortisation effect is non-

cash in nature and does not necessarily

reflect the valuation or performance

of the Group, this impact is typically

adjusted for when assessing the

profitability of the Group.

The remaining goodwill that arises after

the allocation to intangible assets is

subject to regular review for impairment

only and this impairment is reflected

separately, as and when applicable,

under non-trading items.

mOvement In prOvIsIOns r87

mIllIOn (2010: r70 mIllIOn)

This item mainly includes the release

of legal costs and other provisions

| 85 |



previously made in respect of the

Lifecare matter. As reported in the

Group CE’s report, this matter was finally

brought to conclusion during the year

under review and our recovery from

insurers was much better than originally

anticipated, which is reflected in this

release of provision.

FUNDING STRUCTURE AND RELATED FINANCE COSTThe following is a simplified depiction

of the funding structure of the Group as

it now stands (see detailed structure on

page 12).

The three layers of funding depicted

below are structurally subordinated,

which means that the Senior Preference

Shares rank ahead of the High Yield

Term Loan and the Pay-in-Kind Note

will rank behind that (i.e. cash flows are

from the operating Group at the bottom

up to AFEH at the top). Both the High

Yield Term Loan and Pay-in-Kind Note

are substantially held by shareholders

while the Senior Preference Shares

are funded by external funders.

The Senior Preference Shares have

repayment terms for capital and

dividends while the High Yield Term

Loan has repayment of interest only but

provides the flexibility to accrue interest

depending on certain criteria. The Pay-

in-Kind Note has no repayment terms

until an exit event or refinance event.

Included in the total finance cost

paid of R866 million is an amount of

R744 million relating to these three

components of term debt and the

related debt raised subsequent to the

delisting of the Group in 2007. Of this

total interest cost R381 million was

serviced in cash. Included in this is an

amount of R100 million of interest paid

in respect of the High Yield Term Loan.

The remainder of the interest was, as

per the terms of the various components

of debt, accrued to the outstanding

balances of the debt.

As mentioned earlier, following the

restructuring of the High Yield term Loan

in 2009, both it and the Pay-in-Kind

Note are now almost exclusively held

in the hands of shareholders. The High

Yield Term Loan, since its restructuring,

has flexible terms with regard to interest

service, depending on the outcome of

certain distribution measurement ratios,

and requires no capital repayment

for the medium term. These terms

are set out in note 27 to the financial

statements.

AFHoldCo

AFEquityHoldings(Pty)Ltd

AFFunding

AFLimitedandtheOperatingGroup

AF PIK

AFAcquisitions

PIK note R1.4 billion

Equity R3.3 billion

High yield TL R1.9 billion

Senior Preference sharesR2.3 billion

NEW REGULATORY CAPITAL REQUIREMENTSWe have previously reported on the significant regulatory changes faced by the many regulated entities in our Group. This follows the introduction, during the year under review, of new capital adequacy requirements (CAR) prescribed by the Financial Services Board (FSB).

The introduction of the new CAR for insurers by the FSB took effect in June 2010. This is an interim measure in advance of the implementation of the Solvency Assessment and Management (SAM) framework expected to take effect in 2013. The new requirements significantly impacted on the level of capital required to be carried by our regulated entities, in particular by Investment Solutions, as the required capital is currently mainly a function of insurance-related liabilities. This requirement is applicable irrespective of whether such insurance liabilities are solely as a result of linked investment contracts (as in the case of Investment Solutions), where no underwriting risk is taken, or long-term insurance liabilities where actual underwriting risk is taken.

In addition, the introduction of the solvency requirements for financial advisory and intermediary (FAIS) registered businesses as of 31 december 2010 also had a significant impact on the level of cash required to be retained in the businesses to meet these capital requirements.

The necessary additional capital has been introduced as required in regulated entities throughout the Group and further introduction is being made in line with the phasing requirements agreed with the regulator. The net effect of these requirements in the current financial year is in excess of R300 million of additional capital injection across various entities. In most instances, the capital is required to be backed largely by cash or near-

| 86 |



31 march 2011

31 march 2010

borrowings rm rm movement

senior preference shares (2 337) (2 575) 237

Principal balance (2 312) (2 534) 222

Interest (accrual) (59) (76) 17

Capitalised costs 34 36 (2)

high Yield term loan (1 918) (1 710) (208)

Principal balance (1 387) (1 487) 100

Amendment fee (40) (34) (6)

Interest accrual (510) (214) (296)

Capitalised costs 19 25 (6)

pay-in-Kind (1 370) (1 163) (207)

Principal balance (750) (750) –

Interest accrual (620) (413) (207)

Put/call option accrual (191) (137) (54)

Other (12) (12) 0

total borrowings (5 828) (5 597) (232)

Balancing both sides of this equation

will ensure not only the long-term

sustainability of the Group by ultimately

achieving the level of top-line revenue

growth that we are targeting, but will

also deliver superior shareholder value

creation.

This will require significant cost

discipline in all parts of the business and

will also require very clear prioritisation

of investment spend. Periodically,

environmental and economic factors

outside of our control may dictate where

our emphasis should lie.

Our strategic growth areas and plans are

well defined and managing the pace of

transformation of our business in those

areas, without forfeiting our strong

position in the more mature areas of our

business, is of paramount importance.

deon viljoen Group Finance director

Sandton

24 June 2011

cash assets in terms of the regulatory

assets spreading requirements which

had, and will have, a significant impact

on the available free cash resources of

the Group. This impact was largely felt

in the financial year under review with

further, but less onerous, phasing-in

requirements over the next two years.

As a result of these higher than

expected capital requirements in the

past financial year, certain payments of

interest on the High Yield Term Loan

have been deferred, as is allowed under

the terms of the loan. It was, however,

considered more efficient to pay

R100 million of the R152 million

interest that became due on

18 december 2010 and to instead

defer the payment that will become due

on 18 June 2011. This more efficiently

aligns with the additional capital

phasing requirements of Investment

Solutions and in our view also results in

a better cash flow profile for investors in

the term loan.

As reported previously, although further impact is expected in future years, these impacts will be far less onerous than this introductory phase. We also do not anticipate materially increased requirements arriving from Solvency || in the EU, or our UK and Gibraltarian insurance entity.

Subsequent to the June 2011 deferral, we would anticipate resuming normal service of the High Yield Term Loan interest, subject to meeting the required financial distribution covenants.

In cOnclusIOnIn responding to these challenges, we will endeavour to continue to protect our profitability and our ability to produce the cash flow requirements necessary to service our capital structure while also driving investment in the growth areas of our business.

At 31 March 2011 the total liabilities in respect of the debt structure are as follows:

| 87 |

89

FIN

AN

CIA

L S

TATEM

EN

TS


FINANCIAL STATEMENTS

GrOup FINANCIAL STATEMENTSDirectors’ responsibility for financial reporting 90

Certificate by the Company Secretary 90

Independent auditor’s report 91

Directors’ report 92

Accounting policies 98

Critical accounting assumptions and judgements 120

Income statement 122

Statement of other comprehensive income 123

Statement of financial position 124

Statement of cash flows 125

Statement of changes in equity 126

Group segmental income and profit analysis 127

Notes to the Group financial statements 129

COMpANy FINANCIAL STATEMENTSIncome statement 216

Statement of comprehensive income 216

Statement of financial position 216

Statement of cash flows 217

Statement of changes in equity 217

Notes to the Company financial statements 218

ANNExurES

Annexure A – Material financial interests in subsidiaries, joint ventures and associates 222

Annexure B – Shareholding information 225

CONTENTS


CLIENTS | BrAND | INNOVATION | SALES & SErVICE | rETAIL | puBLIC-SECTOr | AFrICA | uK

| 90 | | 91 |

ALEXANDER FORBES EQUITY HOLDINGS PROPRIETARY LIMITED 2011

BACK TO MAIN CONTENTSBACK TO FINANCIAL CONTENTS

DIrECTOrS’ rESpONSIBILITy FOr FINANCIAL rEpOrTING

The South African Companies Act requires Directors to ensure that the Company maintains adequate accounting records and to be responsible for the content and integrity of the Group and Company annual financial statements of Alexander Forbes Equity Holdings (Proprietary) Limited and related financial information included in this report. It is their responsibility to ensure that the financial statements, for each financial year, fairly present the state of affairs of the Group and Company at the end of the financial year and the results of their operations and cash flows in conformity with International Financial Reporting Standards (IFRS).

The accounting policies, supported by judgments, estimates and assumptions which comply with IFRS, have been applied on a consistent and going concern basis.

It is the responsibility of the independent auditors to report on the fair presentation of the financial statements. Their unmodified audit report appears on page 95.

The Directors are ultimately responsible for the internal controls of the Group. To enable the Directors to meet these responsibilities, management designs and implements standards and systems of internal control to provide reasonable, but not absolute, assurance as to the integrity and reliability of the financial statements in accordance with IFRS and to adequately safeguard, verify and maintain accountability for Group assets. Systems and controls include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties.

Based on the information and explanations given by management and the internal and external auditors, the Directors are of the opinion that the system of internal controls provides reasonable assurance that the financial records may be relied on for the preparation of the Group and Company annual financial statements in accordance with IFRS. Nothing has come to the attention of the Directors to indicate that any breakdown in the functioning of the internal controls, resulting in a material loss to the Group, has occurred during the year and up to the date of this report.

The Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the Group and Company annual financial statements.

DIrECTOrS’ ApprOVAL OF ANNuAL FINANCIAL STATEMENTSThe Group and Company financial statements, prepared in accordance with IFRS, were approved by the Board of Directors on 9 June 2011 and are signed on their behalf by:

MS Moloko E Chr KieswetterChairman Group Chief Executive

14 June 2011 14 June 2011

CErTIFICATE By ThE COMpANy SECrETAry

In terms of section 268G (d) of the South African Companies Act No. 61 of South Africa 1973, as amended, I certify that, in respect of the year ended 31 March 2011, Alexander Forbes Equity Holdings (Proprietary) Limited has lodged all returns that are required of a public company, in terms of the Act, with the Registrar of Companies and that all such returns are true, correct and up to date.

JE SalvadoCompany secretary

14 June 2011

| 90 | | 91 |

INTEGRATED ANNUAL REPORT FINANCIAL STATEMENTS


INDEpENDENT AuDITOr’S rEpOrTTO ThE MEMBErS OF ALExANDEr FOrBES EquITy hOLDINGS (prOprIETAry) LIMITED

We have audited the Group annual financial statements and annual financial statements of Alexander Forbes Equity Holdings (Proprietary) Limited, which comprise the consolidated and separate statements of financial position as at 31 March 2011 and the consolidated and separate income statements and consolidated and separate statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes, and the Directors’ report, as set out on pages 92 to 221.

DIrECTOrS’ rESpONSIBILITy FOr ThE FINANCIAL STATEMENTSThe Company’s Directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.

AuDITOr’S rESpONSIBILITyOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpINIONIn our opinion, the financial statements present fairly, in all material respects, the consolidated and separate financial position of Alexander Forbes Equity Holdings (Proprietary) Limited as at 31 March 2011, and its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa.

PricewaterhouseCoopers Inc Director: Johannes GrosskopfRegistered AuditorJohannesburg14 June 2011.

| 92 | | 93 |



DIrECTOrS’ rEpOrTfor the year ended 31 March 2011

The Directors present their report, which forms part of the Group and Company annual financial statements of Alexander Forbes Equity Holdings (Proprietary) Limited for the year ended 31 March 2011.

NATurE OF BuSINESSThe Company is the ultimate holding Company of the Alexander Forbes Group of companies (“the Group”). The Company acquired

the entire issued share capital of Alexander Forbes Limited effective 26 July 2007 (“the effective date”) following the implementation

of a scheme of arrangement in terms of section 311 of the Companies Act No 61 of 1973, as amended (“the scheme of

arrangement”). Prior to the implementation of the scheme of arrangement, Alexander Forbes Limited was listed on the JSE Limited.

Details of the scheme of arrangement were provided in the circular to shareholders issued by Alexander Forbes Limited on

30 May 2007 and in the pre-listing statement issued by Alexander Forbes Preference Share Investments Limited on 10 July 2007.

Although the Company is a private Company, these financial statements are made public due to the undertakings given to the

shareholders of Alexander Forbes Preference Share Investments Limited in its prelisting statement.

rEVIEw OF ACTIVITIESAlexander Forbes Equity Holdings (Proprietary) Limited (“AFEH”) is the ultimate holding company of the Alexander Forbes Group of

companies and its financial results are made publicly available solely for purposes of further informing the financial results of the listed

Alexander Forbes Preference Share Investments Limited (“AF Pref”), which holds 26.5% of the issued ordinary shares of AFEH and

31.8% of the issued A preference shares of AFEH as well as certain debt instruments issued by subsidiaries of the Group.

On 1 April 2010, the Group, under the leadership of its new CEO, introduced a clear message that we exist to serve a higher purpose.

This meant that every employee has to become more aware of how the work that they do impacts on key stakeholders. In living up to

that higher purpose, we have taken steps to entrench a more client-focused and caring institutional culture, because we believe that

this is the best way to ensure the sustainability of our business. To this end, we have invested much time and resources in building

our leadership and relaunching our brand, in improving our employee engagement and performance management, in building our

reputation for innovative products and services, in addressing our legacy and reputation issues, and in entering the retail arena with

determination and acuity.

At the start of the financial year under review, we crystallised four key strategic themes that frame our plans:

• Increasingvalueforourclients;• Expandingourbrand;• Investingandinnovatingforgrowth;and• Extendingoursalesandservicecapacity.

In addition,fourprimarygrowthdrivers have been identified: being the Individual Client Market (Retail), Public Sector, Africa outside

of South Africa and the UK markets. The Group embarked on the significant challenge of not only implementing the above strategic

themes at a practical level but to instil these themes in all aspects of activity in the Group. This transition is significant and continues

to demand considerable management time as well as investment. Most notably, substantial investment was made during the year

and continues to be made in leadership development amongst the senior members of the management team in order to enhance

the capability within the organisation under a common “leadership brand”. The legacy issues faced by the Group such as bulking

and the Lifecare matter (that was the topic of negative press for many years) have all been dealt with and in Management’s view no

further risk remains in this regard. Major progress was also made with regard to performance management in the Group and to align

the rewards systems with the stated objectives for the Group and each business unit. With the interests of clients firmly in mind, we

have confirmed our brand promise, in this year when we have relaunched and revitalised the Alexander Forbes brand, as an unerring

mission to positively impact on the financial well-being of our clients. That means that we have a duty of care to our clients as well as

our shareholders, employees and other stakeholders.

rEVIEw OF rESuLTSIn addition to the progress made in respect of the intangible items mentioned above, the Group’s overall financial results for the

year ended 31 March 2011 were satisfactory and characterised by marginal growth in revenue, with stringent control of cost whilst

still continuing to make the necessary investments in its strategic growth areas as well as leadership development, marketing and

| 92 | | 93 |



branding. These investments and capacity building are important to drive the targeted level of growth in top line revenue in the

medium to long term. The successes and positive trends reflected in the retail (individual client) space in both Financial Services

and Risk Services are very encouraging and the turnaround brought about in the Financial Services business in the UK, to return to

profitability, was particularly pleasing. The recovery in equity markets supported the results in both Investment Solutions and certain

parts of the Financial Services businesses.

Gross income from operations of R5.2 billion increased by 3.6%, while income from operations, net of direct product costs of

R4.6 billion is 2.7% up on the previous financial year. The stronger Rand against the Sterling impacted negatively on this overall

growth rate in revenue. The Africa region’s net revenue (largely Rand-denominated) increased by 7% while the International region

delivered net revenue growth in Sterling terms of 4%.

Operating expenses of R3.4 billion increased by 1% in Rand terms compared to the previous year. Exchange rate impact aside, this

increase reflects the continued effort to balance disciplined cost management in the more established business areas with investment

in the strategic growth areas, particularly to support the expansion in the individual client market. Operating expenses in the Africa

region grew by 8%, reflecting some of the investments and capacity building mentioned, while in the International business, in

Sterling terms, expenses remained in line with that of the previous year.

Profit from operations before non-trading items and capital items increased by 8% to R1.11 billion compared to the R1.03 billion of

the previous year. The operating loss for the year after non-trading items, interest and taxation has reduced by 64% from a loss of

R78 million in the previous year to R28 million. Headline loss per ordinary share for the period of 14 cents has halved from the

29 cents loss per ordinary share in the prior year.

rEGuLATOry CApITAL ChANGES AND IMpACT ON ThE hIGh yIELD TErM LOAN INTErESTAs reported at half-year, the introduction of the new capital adequacy requirements for long-term insurers by the Financial Services

Board (FSB) took effect in June 2010. This is an interim measure in advance of the implementation of the Solvency Assessment and

Management framework expected to take effect in 2013. The new requirements significantly impacted on the level of capital required

to be carried by our regulated entities, in particular by Investment Solutions, as the required capital is currently mainly a function

of insurance-related liabilities. This requirement has to be met irrespective of whether or not those liabilities are solely as a result

of linked investment contracts (as in the case of Investment Solutions where no underwriting risk is taken) or long-term insurance

liabilities where actual underwriting risk is taken.

In addition, the new capital adequacy requirements for financial advisory and intermediary (FAIS) registered businesses as of

31 December 2010 also had a significant impact on the level of cash required to be retained in the businesses to meet these capital

requirements.

The necessary capital has been introduced as required in these regulated entities throughout the Group and further introduction is

being made in line with the phasing requirements agreed with the FSB. The net effect of these requirements in the current financial

year is in excess of R300 million of additional capital injection across various entities. In most instances, the capital is required to be

backed by cash or near cash assets in terms of the regulatory assets spreading requirements which had, and will have, a significant

impact on the available free cash resources of the Group. This impact was largely felt in the financial year under review with further,

but less onerous, phasing-in requirements over the next two years.

As a result of these higher than expected capital requirements in the past financial year, certain payments of interest on the High Yield

Term Loan have been deferred as is allowed under the terms of the loan. It was, however, considered more efficient to pay

R100 million of the R152 million interest that became due on 18 December 2010 and to instead defer the payment due on 18 June

2011. This more efficiently aligns with the additional capital phasing requirements of Investment Solutions and in our view also results

in a better cash flow profile for investors in the term loan.

As reported previously, although further impact is expected in future years, these impacts will be far less onerous than this

introductory phase. Subsequent to the June 2011 deferral, we would anticipate resuming normal service of the High Yield Term Loan

interest subject to meeting the required financial distribution covenants.

| 94 | | 95 |



prOSpECTSTo ensure a sustainable growth trajectory, the Group-wide initiatives we have launched are essential to strengthen our institutional

capability.

In response to these institutional initiatives, it is pleasing to report that many pockets of excellence continue to emerge throughout our

companies, here in Africa and in the UK.

During the 3rd Quarter of 2010/11, we undertook a further strategic assessment of the Group. The purpose of this was to evaluate

whether we were still on track to achieve our growth objectives. The result of this has produced a further enhancement to our strategic

plan:

Core to our strategy is aspiring to a higher purpose of the long-term enhancement of the lives of our clients through impactful service.

And it is only through investing in and delivering on our chosen strategies and our growth markets that we will achieve this. This is

where we will continue to focus.

In responding to these challenges, we will endeavour to continue to protect our profitability and our ability to produce the cash flow

requirements necessary to service our capital structure while also driving investment in the growth areas of our business. Balancing

both sides of this equation will ensure not only the long-term sustainability of the Group by ultimately achieving the level of top-

line revenue growth that we are targeting but will also deliver superior shareholder value creation. This will require significant cost

discipline in all parts of the business and will also require very clear prioritisation of investment spend. Periodically, environmental

and economic factors outside of our control may dictate where our emphasis should lie. Our strategic growth areas and plans are well

defined and managing the pace of transformation of our business in those areas, without forfeiting our strong position in the more

mature areas of our business, is of paramount importance.

DISTrIBuTION TO ShArEhOLDErSThe Company has not declared a distribution to shareholders in the current year nor is the Company likely to declare any dividends in

the foreseeable future, given that any surplus cash is more likely to be applied against capital repayment of senior preference shares

issued by Alexander Forbes Acquisition (Proprietary) Limited.

ShArE CApITALAuthorisedThe authorised share capital of the Company comprises 700 million ordinary shares, 600 million A preference shares and 45 million

B preference shares.

IssuedThe Company has not issued any shares during the current year. The issued share capital of the Company remains at 377 358 491

ordinary shares, 319 461 529 A preference shares and 21 161 113 B preference shares.

ShArEhOLDErSThe shareholders of the Company comprise a private equity consortium of investors, reinvestment shareholders through a publicly

listed special purpose entity, B-BBEE shareholders, including a community trust and a staff share trust, as well as a Management

Trust. Full details are provided in Annexure B to these financial statements.

ACquISITIONS AND DISpOSALSThere were no material acquisitions within the underlying Group during the year under review. Certain non-core business operations

described below were disposed of during the current year.

Our pension-backed lending business, Homeplan, was disposed of effective 31 October 2010.This was subsequent to the maturity

of the funding within a specific securitisation vehicle in July 2010. The business operated within Alexander Forbes Financial Services

South Africa.

COIDLink (Proprietary) Limited, a business which was operating within Alexander Forbes Risk and Insurance Services South Africa,

which provided claims facilitation services for injury on duty medical claims, was sold effective 12 April 2010.

| 94 | | 95 |



BOrrOwING pOwErSIn terms of the articles of association, the borrowing powers of the Company are unrestricted and the Directors may exercise all the powers of the Company to borrow money. However, most entities in the underlying Group have limited borrowing powers by virtue of an inter-creditor agreement with existing financing providers. In terms of the South African Long-Term Insurance Act, 1998 and the South African Short-Term Insurance Act, 1998, the insurance subsidiaries of the Group do not encumber their assets or directly or indirectly borrow funds.

SuBSIDIArIES, jOINT VENTurES AND ASSOCIATESDetails 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 Annexure A to these financial statements. SIGNIFICANT rESOLuTIONSNo special resolutions have been passed during the current year.

| 96 | | 97 |



DIrECTOrS’ rEpOrTfor the year ended 31 March 2011

DIrECTOrS The Directors at the date of approval of this report are:

Non-executive Directors

AC de Beer (alternate to A Roux)

JCE Douin * (alternate to LA Hall-Kimm)

LA Hall-Kimm **

NC Kolbe (resigned as alternate to JA van Wyk and appointed 9 June 2011)

D Konar

T Matiwaza

H Meyer (appointed 9 June 2011)

KA Mills***(resigned as alternate to PG Nkadimeng and appointed as alternate to T Matiwaza on

5 May 2010, resigned 1 April 2011)

M Mzimba (appointed alternate to JA van Wyk 9 June 2011)

VR Ngalwana

PG Nkadimeng (resigned 5 May 2010)

B Petersen ( appointed 10 June 2010)

MC Ramaphosa

A Roux

P Schmid (resigned 15 February 2011)

JA van Wyk

Executive DirectorsMS Moloko

E Chr Kieswetter

DM Viljoen

PositionChairmanGroup Chief ExecutiveGroup Finance Director

* French

** Canadian

*** American

DIrECTOrS’ INTErESTS IN CONTrACTSIn the previous financial year Directors, as shareholders of AFEH through the Management Incentive Trust, were given an opportunity

to invest along with all other shareholders, in the High Yield Term Loan and other relevant assets. The details of these transactions are

included in the related party note to these financial statements. There were no other material contracts entered into in which Directors

of the Company had an interest and which significantly affected the business of the Group. The Directors had no interest in any third

party or Company responsible for managing any of the business activities of the Group.

DIrECTOrS’ INTErESTS IN ShArESThe Executive Directors of the Company participate in the Management Trust and thereby indirectly hold shares in the Company.

The trust was formed as part of the private equity structure in order to align the interests of key Management to the private equity

shareholders. Details of these investments are provided in the related party note to these financial statements.

DIrECTOrS’ EMOLuMENTSDirectors’ emoluments are disclosed in the related party note to these financial statements.

| 96 | | 97 |



COMpANy SECrETAry The Company Secretary at the date of publication of this report is Mrs JE Salvado.

rEGISTErED OFFICEDetails of the registered office of the Company are as follows:

Physicaladdress:Alexander Forbes Place 61 Katherine StreetSandown, Sandton2196 South Africa

Postaladdress:PO Box 787240 Sandton 2146 South Africa

The Company’s registration number is 2006/025226/07.

EVENTS SuBSEquENT TO rEpOrTING DATESubsequent to year-end, the Group entered into discussions with an interested party regarding a potential transaction affecting a portion of its Risk Services business. Given the early stages of these discussions and the uncertainties involved as to the outcome of these deliberations, the Directors are of the opinion that the requirements of IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations have not been met and, as a result, the affected businesses have not been classified as a disposal Group. Shareholders will be advised of further developments in this regard as and when they occur.

CApITAL rEquIrEMENTSIn January 2010, the Financial Services Board issued a notice called the Notice on the Prescribed Requirements for the Calculation of the Value of Assets, Liabilities and Capital Adequacy Requirement (CAR) of long-term insurers, 2010. This notice has been gazetted with the effective date of 28 February 2010. The notice sets out additional requirements for the calculation of CAR for long-term insurers to be, at a minimum, the higher of:

a) R10 million;b) An amount representing operating expenses, multiplied by 13 and divided by 52 or, if different, the number of weeks included in

the reporting period; orc) An amount equal to 0.3% of its gross contingent liabilities under unmatured policies.

Point c) is a new requirement.

AuDITOrSPricewaterhouseCoopers Inc will continue in office in accordance with section 90(1) of the Companies Act, 2008 of South Africa.

| 98 | | 99 |



ACCOuNTING pOLICIESfor the year ended 31 March 2011

The principal accounting policies applied in the preparation of the Group and Company financial statements are set out below. These

policies are consistent with those applied in the previous year, except for the changes required by Standards and Interpretations

effective in 2011.

BASIS OF prEpArATIONThe Group and Company financial statements have been prepared in accordance with International Financial Reporting Standards

(IFRSs). They have been prepared in accordance with the going concern principle under the historical cost basis except for the

following:

• Derivative financial instruments are measured at fair value;

• Financial instruments at fair value through profit or loss are measured at fair value;

• Available-for-sale financial assets are measured at fair value; and

• The defined benefit asset is recognised as the net total of the plan assets, plus unrecognised past service cost and unrecognised

actuarial losses, less unrecognised actuarial gains and the present value of the defined benefit obligation.

The preparation of the consolidated financial statements in conformity with IFRSs requires management to make judgements,

estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income

and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the

period in which the estimates are revised and in any future periods affected.

The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the

consolidated financial statements, are disclosed in the notes to these financial statements.

ChANGES IN ACCOuNTING pOLICIESEffective 1 April 2010, the Group has made the following changes in accounting policies:

ACCOuNTING FOr BuSINESS COMBINATIONS From 1 April 2010 the Group has applied IFRS 3 Business Combinations (revised) in accounting for business combinations. The

change in accounting policy has been applied prospectively and has had no material impact on earnings per share.

The revised standard continues to apply the acquisition method to business combinations but with some significant changes

compared with the previous IFRS 3 Business Combinations. Control is the power to govern the financial and operating policies of an

entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that

currently are exercisable.

ACquISITIONS ON Or AFTEr 1 AprIL 2010For acquisitions on or after 1 April 2010, the Group measures goodwill at the acquisition date as:

• Thefairvalueoftheconsiderationtransferred;plus

• Therecognisedamountofanynon-controllinginterestsintheacquiree,whichismeasuredattheproportionateshareofthe

acquiree’s identifiable net assets; plus

• Thefairvalueoftheexistingequityinterestintheacquiree(ifthebusinesscombinationisachievedinstages);less

• Thenetrecognisedamount(generallyatfairvalue)oftheidentifiablenetassetsacquiredandliabilitiesassumed.

ACCOuNTING FOr ACquISITION OF NON-CONTrOLLING INTErESTSFrom 1 April 2010 the Group has applied IAS 27 Consolidated and Separate financial statements (revised) in accounting for

acquisition of non-controlling interest. The change in accounting policy shall be applied retrospectively (however, an exception to the

amended paragraphs on deficit balances; change in control and loss of control shall be prospectively applied) and has had no impact

on earnings per share.

| 98 | | 99 |



Under the new accounting policy, acquisitions of non-controlling interest are accounted for as transactions with owners in their

capacity as owners and therefore no goodwill or income is recognised as a result of such transactions. The adjustments to non-

controlling interest are based on a proportionate amount of the net assets of the subsidiary.

Previously, goodwill was recognised on the acquisition of non-controlling interest in a subsidiary, which represented the excess of the

cost of the additional investment over the carrying amount of the interest in the net assets acquired at the date of the transaction.

STANDArDS AND INTErprETATIONS EFFECTIVE IN 2011The following Standards and Interpretations have been issued with an effective date applicable to the current financial year of the

Group:

IFRS 2 – AmendmentS to IFRS 2 GRoup CASh-Settled ShARe-bASed pAymentSA share-based payment is a transaction in which an entity receives goods or services in exchange for a payment in equity instruments

or a payment based on price/value of an equity instrument.

The amendment clarifies which company in the Group needs to recognise the share-based payment when the goods or services are

received by a different company from the one settling the award.

This amendment is effective for annual periods commencing 1 April 2010 and it requires retrospective application. The impact of this

amendment is not considered to be relevant for the Group.

IFRS 3 – buSIneSS CombInAtIonS (RevISed) The revised IFRS 3 Business Combinations applies to all business combinations with an acquisition date on or after 1 July 2009.

The Group will adopt the revised IFRS 3 Business Combinations for acquisitions from 01 July 2009 onward. Refer to changes to

accounting policies above for impact to the Group.

IAS 21 – the eFFeCtS oF ChAnGeS In FoReIGn exChAnGe RAteSThe changes in this statement were issued in January 2010 and are applicable to the Group for the first time in the year ending

31 March 2011. The main objective of the changes is to provide additional guidance on the translation method and on determining

the functional and presentation currencies. The impact of the change is not considered to be significant to the Group.

IAS 27 – Amendment to ConSolIdAted And SepARAte FInAnCIAl StAtementSAmendments to IAS 27 were adopted for the first time for the financial reporting period ending 31 March 2011. Refer to changes to

accounting policies above for impact to the Group.

IAS 28 And IAS 31 – InveStmentS In ASSoCIAteS And InteReStS In JoInt ventuReSThe changes in this statement were issued in January 2010 and are applicable to the Group for the first time in the year ending

31 March 2011. The main objective was to reduce alternatives in the application of the equity method and in accounting for

investments in associates and interests in joint ventures in separate financial statements. The change will not have a significant impact

on how the Group accounts for investments in associates in the separate financial statements.

IAS 32 – FInAnCIAl InStRumentS: pReSentAtIon And IAS 1 – pReSentAtIon oF FInAnCIAl StAtementSThis amendment relates to accounting for rights issues (including rights, options or warrants) that are denominated in a currency

other than the functional currency of the issuer and is effective for annual periods commencing on or after 1 February 2010. The

impact of this amendment is considered not to be relevant to the Group.

IAS 39 – FInAnCIAl InStRumentS: ReCoGnItIon And meASuRementAmendments to IAS 39 will be adopted for the first time for the financial reporting period ending 31 March 2011. New application

guidance is added in IAS 39 to clarify the existing principles that determine whether specific risks or portions of cash flows are eligible

for designation in a hedge relationship. The amendments are to be applied retrospectively but are not expected to impact the Group’s

results.

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ACCOuNTING pOLICIES (CONTINUED)for the year ended 31 March 2011

IFRIC 17 – dIStRIbutIonS oF non-CASh ASSetS to owneRSIFRIC 17 provides guidance on when and how a liability for certain distributions of non-cash assets to owners, acting in their capacity as owners, are recognised and measured, and how to account for settlement of that liability.

This interpretation is effective for annual periods commencing on or after 1 July 2009 and is not considered to have a significant impact on the Group.

IFRIC 18 – tRAnSFeRS oF ASSetS FRom CuStomeRSIFRIC 18 provides guidance on transfers of property, plant and equipment (or cash to acquire it) for entities that receive such contributions from their customers.

This interpretation is effective for annual periods commencing on or after 1 July 2009 and is not considered to be relevant to the Group.

ANNuAL IMprOVEMENTS prOjECT (2010)The International Accounting Standards Board decided to initiate an annual improvements project in 2008. The annual improvements project provides a vehicle for making non-urgent but necessary amendments to IFRS.

The following improvements are effective; refer to effective dates as indicated below:

StAndARd oR InteRpRetAtIon SubJeCt oF ImpRovement eFFeCtIve dAte

IFRS 2 – Share-based Payment Scope of IFRS 2 and revised IFRS 3 1 July 2009IFRS 5 – Non-current Assets Held for Sale and

Discontinued Operations*Plan to sell the controlling interest in a subsidiary 1 July 2009

Disclosure of non-current assets (or disposal Groups) classified as held for sale or discontinued operations

1 January 2010

IFRS 8 – Operating Segments Disclosure of information about segment assets 1 January 2010IAS 1 – Presentation of financial statements Current/non-current classification of convertible

instruments1 January 2010

IAS 7 – Statement of Cash Flows Classification of expenditures in respect of unrecognised assets

1 January 2010

IAS 10 – Events after the Reporting Period Amendment resulting from the issue of IFRIC 17 1 July 2009

IAS 17 – Leases Classification of leases of land and buildings 1 January 2010

IAS 27 – Consolidated and Separate financial statements

Measurement of subsidiary held for sale in separate financial statements

1 January 2009

IAS 36 – Impairment of Assets Unit of accounting for goodwill impairment test 1 January 2010

IAS 38 – Intangible Assets Additional consequential amendments arising from revised IFRS 3

1 July 2009

Measuring the fair value of an intangible asset acquired in a business combination

IAS 39 – Financial Instruments: Recognition and Measurement

Treating loan prepayment penalties as closely related embedded derivatives

1 January 2010

Scope exemption for business combination contractsCash flow hedge accounting

IFRIC 9 – Reassessment of Embedded Derivatives

Scope of IFRIC 9 and revised IFRS 3 1 July 2009

IFRIC 16 – Hedges of a Net Investment in a Foreign Operation

Amendment to the restriction on the entity that can hold hedging instruments

1 July 2009

*Improvements to IFRS 5 – Non-current Assets held for Sale and Discontinued Operations have been early adopted since the 31 March 2010 financial year-end.

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STANDArDS AND INTErprETATIONS NOT yET EFFECTIVEThe following Standards and Interpretations have been issued but are not yet effective for the Group as at the reporting date of 31 March 2011.

IFRS 9 – FInAnCIAl InStRumentS – ReCoGnItIon And meASuRementThe IASB has introduced IFRS 9 – Financial Instruments – Recognition and Measurement as the new statement to replace IAS 39 Financial Instruments: Recognition and Measurement. The objective is to improve the decision-usefulness of financial statements by simplifying the classification and measurement requirements for financial instruments. IFRS 9 – Financial Instruments will be completed and issued in three phases. Phase one Recognition and Measurement has been completed, Phase two Impairment of financial assets and phase three Hedge accounting are expected to be completed by the end of the calendar year 2011.

The new IFRS 9 – Financial Instruments is effective for annual periods commencing on or after 1 January 2013.

The impact of the new standard is considered to be significant to the Group.

IAS 24 – RelAted pARty dISCloSuReSThe amendment relates to simplification of the disclosure requirements for government-related entities and clarification of the definition of a related party and is effective for annual periods commencing on or after 1 January 2011.

The amendment is not considered to be significant to the Group.

IFRIC 19 – extInGuIShInG FInAnCIAl lIAbIlItIeS wIth equIty InStRumentSIFRIC 19 provides guidance on the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability.

This interpretation is effective for annual periods commencing on or after 1 July 2010, i.e. for Alexander Forbes from 1 April 2011, and is not considered to have a significant impact on the Group.

IFRS 10 – ConSolIdAted FInAnCIAl StAtementSThis standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements. It also provides additional guidance to assist in determining control.

This standard will be effective for annual periods beginning on or after 1 January 2013.

The impact of the new standard may be significant to the Group.

IFRS 11 – JoInt ARRAnGementSThis standard provides for a more practical approach to joint arrangements by focusing on the rights and obligations, rather than legal form. There are two types of joint arrangements: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity-accounts for its interest. Proportional consolidation of joint ventures is no longer allowed.



IFRS 12 – dISCloSuRe oF InteReStS In otheR entItIeSThis new standard provides guidance on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other vehicles not included on the statement of financial position. This standard will be effective for annual periods beginning on or after 1 January 2013.


IAS 27 (RevISed) – SepARAte FInAnCIAl StAtementSThis standard now includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10.


The impact of the new standard may be significant to the Group.

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IAS 28 (RevISed) – InveStmentS In ASSoCIAteS And JoInt ventuReSThis standard now includes the requirements for joint ventures, as well as associates, to be equity-accounted following the issue of IFRS 11.



CONSOLIDATION(a) SubsidiariesSubsidiaries are entities, including special purpose entities, controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

All material intra-Group transactions, balances and unrealised gains on intra-Group transactions are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. Losses applicable to the non-controlling interest in a subsidiary are allocated to the non-controlling interest even if doing so causes the non-controlling interest to have a deficit balance. This treatment is done prospectively from 1 April 2010.

The Company financial statements account for subsidiaries at cost less any accumulated impairment losses.

(b) Non-controlling interestsNon-controlling interests in the net assets of subsidiaries are separately identified and presented from the Group’s equity therein. Non-controlling interests can initially be measured either at fair value or at the non-controlling interest’s proportionate share of the subsidiary’s identifiable net assets at the acquisition date. This is not an accounting policy election and the Group will apply the choice of measurement basis on an acquisition by acquisition basis.

Subsequently the non-controlling interest consists of the amount attributed to such interest at initial recognition and the non-controlling interest’s share of change in equity since the date of the combination.

Non-controlling interests are treated as equity participants of the subsidiary Company. The Group treats all acquisitions and disposals of its non-controlling interests in subsidiary companies, which do not result in a loss of control, as an equity transaction. The carrying amounts of the controlling and non-controlling interests are adjusted to reflect the change in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Group.

(c) Special purpose entitiesThe Group established special purpose entities (SPEs) for business purposes. The Group may or may not have any direct or indirect shareholdings in these entities. An SPE is consolidated if, based on an evaluation of the substance of its relationship with the Group and the Group’s exposure to the SPE’s risks and rewards, the Group concludes that it controls the SPE. SPEs controlled by the Group include those established under terms that impose strict limitations on the decision-making powers of the SPEs’ management and that results in the Group receiving the majority of the benefits related to the SPEs’ operations and net assets, being exposed to the majority of risks incident to the SPEs’ activities, and retaining the majority of the residual or ownership risks related to the SPEs or their assets.

(d) Joint venturesJoint ventures are all entities in which the Group holds a long-term interest and which are jointly controlled by the Group, and one or more other venturers, under a contractual arrangement. Joint ventures are accounted for using the proportionate consolidation method from the acquisition date until the disposal date. Under this method, the Group combines its share of the joint ventures’ individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the Group financial statements.

Unrealised gains and losses arising from transactions with joint ventures are eliminated to the extent of the Group’s interest in those entities.

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(e) AssociatesAssociates are entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity. Investments in associates are accounted for using the equity method of accounting and are recognised initially at cost. The Group’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment losses.

The consolidated financial statements include the Group’s share of its associates’ post-acquisition profits or losses and other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment.

When the Group’s share of losses in an associate equals or exceeds its interest in that associate, including any other unsecured receivables, the Group does not recognise any further losses, unless the Group has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated, unless the transaction provides evidence of an impairment of the asset transferred. Associates’ accounting policies have been changed where material and necessary to ensure consistency with the policies adopted by the Group.

The Company financial statements account for associates at cost less any accumulated impairment losses.

(f) Collective investment schemesCollective investment schemes (or unit trusts) managed by the Group, and for which the Group is considered to have control through its size of investment, mandates and voting rights, are consolidated applying the same principles used for the consolidation of subsidiary companies. The financial assets of the collective investment schemes attributable to unit holders are shown within “Financial assets held under multi-manager investment contracts” in the Group statement of financial position with a matching linked liability to the unit-holders shown within “Financial liabilities held under multi-manager investment contracts”.

Fair value adjustments to the financial assets and liabilities of collective investment schemes are recognised in profit or loss.

(g) Cell-captive facilities provided to third partiesThe Group provides Cell-captive insurance facilities (“Cells”) for clients through three licensed insurance companies.

The consolidation of the assets, liabilities and income statement items into the insurance companies depends on their nature and the contractual relationship with the Cell shareholder as follows:

• First party CellsThese Cells are classified as special purpose entities. The income statement items are consolidated in the Group financial statements. Assets and linked liabilities are consolidated to the extent that investment mandates provide control to the Group’s insurance companies.

• Third party CellsThe assets, liabilities and income statement items of these Cells are included in the Group financial statements. The Cell owners’ responsibility for the solvency of their Cell is recognised and accounted for as a reinsurance transaction.

• Other policyholder interestsThe assets, liabilities and income statement items attributable to other policyholder interests are consolidated into the Group’s results.

• Promoters’ (shareholders’) interestsAssets and liabilities attributable to the promoters’ interests are included in the same line items as other assets and liabilities of the Group, whereas all other assets of the Group’s insurance companies are shown separately in the Group statement of financial position with a corresponding separate linked liability to the Cell shareholders and policyholders.

FOrEIGN CurrENCy(a) Functional and presentation currencyItems included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates, i.e. its functional currency. The Group and Company financial statements are presented in

South African Rand, which is the Company’s functional and presentation currency and the Group’s presentation currency.

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(b) Foreign exchange gains and losses arising in entity accounts

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the

transactions. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in profit or loss.

Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the

exchange rates at that date. Foreign exchange gains and losses resulting from the translation of monetary assets and liabilities are

recognised in profit or loss, except when deferred in other comprehensive income for qualifying cash flow hedges.

Translation differences on monetary items, such as financial assets held at fair value through profit or loss, are reported as part

of the fair value gain or loss on such instruments. Non-monetary assets and liabilities denominated in foreign currencies that are

measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined.

Translation differences on non-monetary items, such as equities classified as available-for-sale financial assets, are included in other

comprehensive income.

(c) Foreign exchange gains and losses arising on consolidation The results and financial positions of all the Group entities that have a functional currency different from the presentation currency of

the Group are translated into South African Rand as follows:

• Allassetsandliabilitiesofitemsinthestatementoffinancialpositionaretranslatedatthereportingdateattheexchangerateat

that date.

• Allincomeandexpensesforeachincomestatementitemaretranslatedattheaverageexchangeratesfortherelevantfinancial

period (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction

dates, in which case income and expenses are translated using the applicable exchange rates at the dates of the transactions).

• Allresultingexchangedifferencesarerecognisedintheforeigncurrencytranslationreserveinothercomprehensiveincome.

Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation

reserve in equity. However, because of IFRS 3 (revised) consequential changes to IAS 21 are as follows:

• Onapartialdisposalthatdoesinvolvelossofcontrol,theGroupre-attributestheproportionateshareoftheforeigncurrency

translation reserve to the non-controlling interest.

• OnapartialorfulldisposalwheretheGrouplosescontrol,theGroupreclassifiesintoprofitorlosstheentireforeigncurrency

translation reserve relating to the foreign operations.

• OnapartialreductionintheGroup’sabsoluteeconomicinteresttheGrouphasanaccountingpolicyelectionthateither:

– absolute interest – a pro rata share of the foreign currency translation reserve is reclassified into profit or loss; or

– relative interest – such transactions are not viewed as partial disposals.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as the foreign entity’s assets and liabilities

and are translated at the reporting date at the exchange rate at that date.

prOpErTy AND EquIpMENTItems of property and equipment are measured at cost less any accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset.

Subsequent costs are included in the asset’s carrying amount only when it is probable that future economic benefits associated with

the items will flow to the Group and the cost of the item can be measured reliably. All day-to-day servicing of property and equipment

is recognised in profit or loss as incurred.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property

and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated. The

expected useful lives applied are as follows:


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Leasehold property and improvements Shorter of useful life or period of lease

Computer and network equipment 3 to 5 years

Motor vehicles 4 to 10 years

Furniture and fittings 4 to 10 years

Office equipment 4 to 7 years

Depreciation methods, residual values and useful lives are reviewed at each reporting date and adjusted if appropriate. If the carrying amount of the asset is greater than its estimated recoverable amount, the carrying amount is written down immediately to its recoverable amount.

Gains and losses on disposals of property and equipment are determined by comparing proceeds from the disposal with the carrying amount of the relevant asset and are recognised in profit or loss. When revalued assets are sold, the amounts included in the revaluation surplus are transferred to retained earnings.

GOODwILLGoodwill arises on the acquisition of subsidiaries, associates and joint ventures.

The Group measures goodwill at the acquisition date as:• Thefairvalueoftheconsiderationtransferred;plus• Theamountofanynon-controllinginterestintheacquireemeasuredattheproportionateshareoftheacquiree’sidentifiablenet

assets; plus• Thefairvalueoftheexistingequityinterestintheacquiree(ifthebusinesscombinationisachievedinstages);less• Thefairvalueoftheidentifiableassetsacquiredandliabilitiesassumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

Goodwill is measured at cost less accumulated impairment losses and is tested annually for impairment. In respect of equity-accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and an impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the equity-accounted investee. Gains and losses on the disposal of an entity are stated after deducting the carrying amount of goodwill relating to the entity sold.

INTANGIBLE ASSETSIntangible assets are measured at cost less accumulated amortisation and accumulated impairment losses.

(a) Purchased and developed computer softwarePurchased computer software and the direct costs associated with the customisation and installation thereof, are capitalised and amortised over the useful life of the asset.

Purchased computer software licences are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. These costs are amortised over the useful life of the asset.

Costs that are directly associated with the production of identifiable and unique software products, which will be controlled by the Group and generate economic benefits exceeding costs beyond one year, are recognised as intangible assets.

The directly associated costs include employee costs and an appropriate portion of relevant overheads of the system development team. All other costs associated with developing or maintaining computer software programmes are recognised in profit or loss as incurred.

Expenditure, which enhances and extends the benefits of computer software programmes beyond their original specifications and lives, is recognised as a capital improvement and added to the original cost of the software. Previously expensed costs are not subsequently capitalised.

Computer software development costs recognised as assets are amortised on a straight-line basis over their estimated useful lives of between three and five years.

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(b) Contractual customer relationships acquired as part of a business combinationContractual customer relationships acquired as part of a business combination are recognised as intangible assets. The initial recognition of the customer relationship is determined by estimating the net present value of future cash flows (after tax) from the contracts in force at the date of acquisition. These customer relationships are amortised on a straight-line basis over the estimated life of the acquired contracts.

(c) Deferred acquisition costs (“DAC”)Incremental costs directly attributable to securing rights to receive fees for multi-manager investment services sold with investment contracts are capitalised as intangible assets if they can be separately identified, measured reliably and it is probable that their value will be recovered. An incremental cost is one that would not have been incurred if the Group had not secured the investment contract.

The DAC represents the Group’s contractual right to benefit from providing multi-manager investment services and is amortised on a straight-line basis over the period in which the Group expects to recognise the related revenue, not exceeding five years. The costs of securing the right to provide these services do not include transaction costs relating to the origination of the investment contract.

The accounting policy in respect of DAC relating to insurance contracts is described in the relevant accounting policy on insurance contracts.

(d) Trademarks and licencesNo value is attributed to internally developed trademarks, patents and similar rights. Costs incurred on these items are recognised in profit and loss as incurred. Expenditure on the development and marketing of the Group’s brands is also recognised in profit and loss as incurred.

FINANCIAL ASSETSThe Group classifies its financial assets into the following categories: • Financial assets at fair value through profit or loss;• Loans and receivables;• Held-to-maturity financial assets; and• Available-for-sale financial assets.The classification depends on the purpose for which the financial assets were acquired.

All financial assets are initially recognised at fair value plus, in the case of financial assets not at fair value through profit or loss, any directly attributable transaction costs. The best evidence of fair value on initial recognition is the transaction price, unless the fair value is evidenced by comparison with other observable current market transactions in the same instrument or based on discounted cash flow models and option pricing valuation techniques of which variables include only data from observable markets.

The purchases and sales of financial assets that require delivery are recognised on trade date, being the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or where they have been transferred and the Group has also transferred the risks and rewards of ownership.

Subsequent to initial recognition, the fair values of financial assets are based on quoted bid prices, excluding transaction costs. If the market for a financial asset is not active or an instrument is an unlisted instrument, the fair value is estimated using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis and option pricing models.

When a discounted cash flow analysis is used to determine the value of financial assets, estimated future cash flows are based on Management’s best estimates and the discount rate is a market-related rate, at the reporting date, for a financial asset with similar terms and conditions. Where option pricing models are used, inputs are based on observable market indicators at the reporting date, and profits or losses are only recognised to the extent that they relate to changes in factors that market participants will consider in setting a price.

(a) Financial assets at fair value through profit or lossThis category has two sub-categories: financial assets held for trading and those designated at fair value through profit or loss at inception.


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A financial asset is classified as held for trading if acquired principally for the purpose of selling in the short term, or if it forms part of a portfolio of financial assets in which there is evidence of short-term profit-taking. Derivatives are also classified as held for trading, unless they are designated as hedges at inception. All classes of financial assets classified on the statement of financial position as “Financial assets held under multi-manager investment contracts” are designated at fair value through profit or loss.

A financial asset is designated as fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Under these criteria, the main classes of financial assets designated by the Group are preference shares, unit trusts and debt securities. All classes of financial assets classified on the statement of financial position as “Assets of Cell-captive insurance facilities” are designated at fair value through profit or loss. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss.

(b) Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and include purchased loans. This category does not include those loans and receivables that the Group intends to sell in the short term or that it has designated at fair value through profit or loss or available for sale. Origination transaction costs and origination fees are capitalised to the value of the loan.

Loans and receivables are carried at amortised cost using the effective interest method, less any impairment losses.

Receivables arising from insurance contracts are also classified into this category and are reviewed for impairment as part of the impairment review of loans and receivables.

Short-term trade receivables are carried at original invoice amount less an estimate made for impairment based on a review of all outstanding amounts at the end of each reporting period. The difference between the fair value of short-term receivables and the invoice amount is immaterial.

Long-term trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any impairment losses.

Impairment is recognised in profit or loss when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Objective evidence that receivables are impaired includes observable data that comes to the attention of the Company regarding the following events:• Significant financial difficulty of the debtor;• A breach of contract, such as default or delinquency in payments; and/or• It becoming probable that the debtor will enter bankruptcy or other financial reorganisation.

Other receivables include work-in-progress in respect of unbilled fee-based services, which is stated at net realisable value. Net realisable value is generally based on the unbilled time incurred to date at the expected charge rates and is the undiscounted value of the receivable.

(c) Held-to-maturity financial assetsHeld-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities

that Management has the positive intention and ability to hold to maturity, other than those that meet the definition of loans and

receivables. Any sale or reclassification of a more than an insignificant amount of held-to-maturity investments not close to their

maturity would result in the reclassification of all held-to-maturity investments as available for sale, and prevent the Group from

classifying investment securities as held-to-maturity for the current and the following two financial years.

The only class of financial asset classified as held-to-maturity is preference shares held for securitisation operations.

Held-to-maturity financial assets are carried at amortised cost using the effective interest method, less any impairment losses.

(d) Available-for-sale financial assetsAvailable-for-sale financial assets are those intended to be held for an indefinite period of time and may be sold in response to

liquidity needs or changes in interest rate, exchange rates or equity prices. Financial assets that are designated in this category or

not classified in any of the other categories are classified as available-for-sale financial assets. The main classes of financial assets

classified as available for sale are unlisted debt equity and property securities.

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Subsequent to initial recognition, available-for-sale financial assets are measured at fair value, and changes therein, other than impairment losses, and foreign currency differences on available-for-sale monetary items, are recognised directly in other comprehensive income and presented in the non-distributable reserve in equity. When an investment is derecognised, the cumulative gain or loss in equity is reclassified to profit or loss.

Interest income received on available-for-sale financial assets is recognised in profit or loss, using the effective interest rate method. Dividend income received on available-for-sale financial assets are recognised in profit or loss.

IMpAIrMENT OF FINANCIAL ASSETSA financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, or disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

(a) Financial assets carried at amortised costThe Group assesses whether there is objective evidence that a financial asset is impaired at each reporting date. A financial asset is impaired, and impairment losses are recognised in profit or loss only if there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated.

If there is objective evidence that an impairment loss has been incurred on loans and receivables or held-to-maturity investments carried at amortised cost, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the original effective interest rate of the financial asset. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If a held-to-maturity investment or a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, such as improved credit rating, the previously recognised impairment loss is reversed and is recognised in profit or loss.

IMpAIrMENT OF NON-FINANCIAL ASSETS(a) GoodwillGoodwill is assessed annually for impairment. For purposes of impairment testing, goodwill is allocated to cash-generating units, being the lowest component of the business measured in the management accounts which is expected to generate cash flows that are largely independent of any other business component. Each of those cash-generating units represents a grouping of assets no larger than an operating segment before aggregation as used for segmental reporting purposes in the Group financial statements. Impairment losses relating to goodwill are not reversed.

(b) Impairment of other non-financial assetsAssets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment at each reporting date. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of the fair value of the asset less costs to sell and value in use. Value in use is the present value of


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projected cash flows covering the remaining useful life of the asset. For the purposes of assessing impairment, assets are Grouped at

the lowest levels for which there are separately identifiable cash flows.

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased

or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable

amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that

would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

DErIVATIVE FINANCIAL INSTruMENTS AND hEDGINGDerivatives are initially recognised at fair value at the date on which a derivative contract is entered into and are subsequently re-

measured to fair value at each reporting date. Any attributable transaction costs are recognised in profit or loss as incurred. The fair

value of publicly-traded derivatives are based on quoted bid prices for assets held or liabilities to be issued and the current offer prices

for assets to be acquired and liabilities held. The fair value of non-traded derivatives is based on discounted cash flow analyses and

option pricing models as appropriate.

All derivative instruments of the Group are carried as assets when the fair value is positive and as liabilities when the fair value is

negative, subject to offsetting principles.

The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging

instrument and, if so, the nature of the item being hedged. The Group designates derivatives as hedges of the interest payable (cash

flow hedge) on the senior debt.

At the inception of the transaction the Group documents the relationship between hedging instruments and hedged items, as well as

its risk management objectives and strategy for undertaking various hedge transactions. The Group also documents its assessment,

both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are expected to be,

and have been, highly effective in offsetting changes in cash flows of hedged items. The fair values of derivative instruments used for

hedging purposes are disclosed in the notes to the financial statements.

(a) Cash flow hedgeThe effective portion of changes in the fair value of the derivatives that are designated and qualify as cash flow hedges is recognised

in other comprehensive income and presented in the cash flow hedge reserve in equity. The gain or loss relating to any ineffective

portion is recognised immediately in profit or loss. Amounts accumulated in equity are recycled to profit or loss in the periods in which

the hedged item affects profit or loss.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative

gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in

profit or loss.

(b) Derivatives that do not qualify for hedge accountingCertain derivative instruments do not qualify for hedge accounting. Changes in the fair value of all such derivative instruments are

recognised immediately in profit or loss.

CASh AND CASh EquIVALENTSCash and cash equivalents include the following:

• Cash on hand;

• Deposits held on call with banks;

• Other short-term highly liquid investments with original maturities of three months or less;

• Demand deposits; and

• Bank overdrafts offset against cash balances in terms of cash management arrangements.

Cash and cash equivalents backing financial liabilities held under multi-manager investment contracts and liabilities of Cell-captive

insurance facilities are included in the definition of cash and cash equivalents. However, given the restrictions involved in accessing

this cash, it is separately identified on the statement of cash flows. Cash and cash equivalents are carried at amortised cost in the

statement of financial position.

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EquITy(a) Share capitalOrdinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. Incremental costs directly attributable to the issue of ordinary shares and share options as consideration for the acquisition of a business are included in the cost of acquisition.

(b) Dividend distributionsDividend distributions on ordinary shares are recognised as a reduction in equity in the period in which they are approved by the Company’s shareholders. Distributions declared after the reporting date are not recognised but are disclosed in the financial statements.

CLASSIFICATION OF INSurANCE AND INVESTMENT CONTrACTSThe Group issues contracts that transfer insurance risk or financial risk or both. Insurance contracts are those contracts that transfer significant insurance risk. Such contracts may also transfer financial risk. As a general guideline, the Group defines a significant insurance risk as 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.

Investment contracts are those contracts that transfer financial risk with no significant insurance risk. Financial risk is 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 prices or rates, credit rating or credit index or other variable. Amounts received under investment contracts are recorded as deposits under investment contract liabilities. Amounts paid under investment contracts are recorded as deductions from investment contract liabilities.

INSurANCE CONTrACTSInsurance contracts are classified into two main categories, depending on the duration of risk and whether or not the terms and conditions are fixed.

(a) Short-term insurance contractsThese contracts are casualty, property and short duration life insurance contracts. For all these contracts, premiums are recognised as revenue (earned premiums) in profit or loss proportionally over the period of coverage. Premiums are shown gross of commission and reinsurance and exclude any taxes or duties levied on premiums. Claims and related claims adjustment expenses are charged to profit or loss as incurred based on the estimated liability for compensation owed to contract holders or third parties damaged by the contract holders.

(b) Short-term insurance liabilitiesThe following are classified as short-term insurance liabilities:

unearned premiumsShort-term insurance premiums are recognised in profit or loss proportionately over the period of cover. The portion of premium received on in-force contracts that relates to unexpired risks at the reporting date is reported as an unearned premium liability, which is included in insurance-related payables from underwriting activities.

outstanding claimsLiabilities for unpaid claims are estimated using the input of assessments for individual cases reported to the Group and statistical analyses of the claims incurred but not reported. Outstanding claims liabilities are recognised as liabilities and included in insurance- related payables from underwriting activities. The expense is recognised in profit or loss as a result of the liability being raised. The Group does not discount its liabilities for unpaid claims.

(c) Long-term insurance contractsThese contracts insure events associated with human life over a long duration. Premiums are recognised as revenue in profit or loss when they become payable by the contract holder. Premiums are shown gross of commission and exclude any taxes or duties levied on premiums. Benefits payable to beneficiaries are recorded as an expense in profit or loss when they are paid.


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(d) Long-term insurance liabilitiesIn terms of IFRS 4 – Insurance Contracts, insurance liabilities are permitted to be measured under existing local practice. The Long-Term Insurance Act of 1998, as amended, in South Africa requires long-term insurance liabilities to be valued in terms of the Financial Soundness Valuation (FSV) basis as described in Professional Guidance Note 104 (PGN 104) issued by the Actuarial Society of South Africa. The result of the valuation methodology and assumptions is that profits are released appropriately over the term of the policy to avoid the premature recognition of profits that may give rise to losses in future years.

The liability is valued using a discounted cash flow approach. This approach takes the sum of future expected benefit payments and administration expenses that are directly related to the contract, deducts the expected premiums that would be required to meet the benefits and administration expenses based on the valuation assumptions used and then discounts these resultant cash flows at market-related rates of interest. The liability is based on assumptions of the best estimates of future experience as to mortality, persistency, maintenance expenses and investment income.

Compulsory margins for adverse deviations (first tier margins) increase the liability as required in terms of PGN 104. Such margins are intended to provide a minimum level of prudence in the liabilities and to ensure that profits are not recognised prematurely. In addition, discretionary margins (second tier margins) may be added to the liability to ensure that profit and risk margins in the premiums are not capitalised prematurely and that profits are recognised in line with the risk profile inherent in the contracts and services provided.

Discretionary margins unwind as these risks are met over the term of each policy. Where insurance contracts have a single premium or a limited number of premium payments due over a significantly shorter period than the period during which benefits are provided, the excess of the premiums payable over the valuation premiums is deferred and recognised as income in line with the decrease of unexpired insurance risk of the contracts in force or, for annuities in force, in line with the decrease of the amount of future benefits expected to be paid.

The long-term insurance liabilities are recalculated annually by independent actuaries.

(e) Receivables and payables related to insurance contractsReceivables and payables are recognised when due. These include amounts due to and from agents, brokers and insurance contract holders. If there is objective evidence that the insurance receivable is impaired, the Group reduces the carrying amount of the insurance receivable accordingly and recognises the impairment loss in profit or loss. The Group gathers evidence that an insurance receivable is impaired using the same process adopted for loans and receivables.

(f) Contingency reserveA contingency reserve is provided in accordance with the Short-Term Insurance Act of 1998 in South Africa and is determined at a minimum of 10% of net written premium from short-term insurance contracts.

(g) Embedded derivativesThe Group does not separately measure embedded derivatives in an insurance contract if the embedded derivative itself qualifies for recognition as an insurance contract. Such an embedded derivative is measured as an insurance contract. All other embedded derivatives are separated and carried at fair value if they are not closely related to the host insurance contract and meet the definition of a derivative.

(h) Deferred policy acquisition costs (“DPAC”)Commissions and other acquisition costs arising from property and casualty short-term insurance contracts that vary with, and are related to, securing new contracts and renewing existing contracts are capitalised. All other costs are recognised in profit or loss when incurred. The DPAC is subsequently amortised and recognised in profit or loss over the life of the policies as premiums are earned.

For long-term insurance contracts, commissions and other acquisition costs are recognised in profit or loss when incurred. The portion of the premium which recoups these costs is included in the valuation of long-term insurance contract liabilities. The commission and other acquisition costs are therefore implicitly deferred over the period of the contract in the calculation of the liabilities under long-term insurance contracts.

(i) Value of business acquired (“VOBA”)On acquisition of a portfolio of contracts, either directly from another insurer or through the acquisition of a subsidiary Company, the Group recognises an intangible asset representing the VOBA.

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The VOBA represents the present value of future profits embedded in acquired insurance contracts. The Group amortises the VOBA

over the effective life of the acquired contracts on the same basis as DPAC. The Group assesses the value for impairment annually.

This amortisation and any impairment are recognised in profit or loss.

(j) Liability adequacy test

At each reporting date, for contracts measured on a retrospective basis, liability adequacy tests for insurance contracts are performed

to ensure the adequacy of the contract liabilities. In performing these tests, current best estimates of future contractual cash flows

and claims handling and administration expenses, as well as investment income from the assets backing such liabilities, are used.

For contracts measured on the financial soundness valuation basis, the financial soundness basis is a discounted cash flow method,

which meets the requirements of a liability adequacy test. Any deficiency is immediately charged to profit or loss.

(k) Reinsurance contracts held

Contracts entered into by the Group with reinsurers, under which the Group is compensated for losses on one or more contracts

issued by the Group and that meet the classification requirements for insurance contracts, are classified as reinsurance contracts

held. Contracts that do not meet these classification requirements are classified as financial assets. The benefits to which the Group

is entitled under its reinsurance contracts are recognised as reinsurance assets and are included in insurance-related receivables

from underwriting activities. These assets consist of short-term balances due from reinsurers, as well as longer-term receivables that

are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable

from, or due to, reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in

accordance with the terms of each reinsurance contract.

Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognised in profit or loss when due. The

Group assesses its reinsurance assets for impairment at each reporting date. If there is objective evidence that the reinsurance asset

is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises the impairment

loss in profit or loss. The Group gathers evidence that a reinsurance asset is impaired using the same process adopted for financial

assets held at amortised cost.

(l) Salvage and subrogation reimbursements

Some insurance contracts permit the Group to sell property acquired in settling a claim (i.e. salvage). Estimates of salvage recoveries

are included as an allowance in the measurement of the insurance liability for claims. Salvage property is recognised in assets when

the liability is settled. The allowance is the amount that can reasonably be recovered from the disposal of the property.

The Group may also have the right to pursue third parties for payment of some or all costs (i.e. subrogation). Subrogation

reimbursements are also considered as an allowance in the measurement of the insurance liability for claims and are recognised as

assets when the liability is settled. The allowance is based on an assessment of the amount that can be recovered from the action

against the liable third party.

INVESTMENT CONTrACTSThe Group issues investment contracts without fixed terms (unit-linked) and investment contracts with fixed and guaranteed terms

(capital guarantees). Investment contracts without fixed terms and investment contracts with fixed and guaranteed terms are financial

liabilities whose fair value is dependent on the fair value of underlying financial assets, derivatives or investment property (unit-linked)

and are designated at inception as financial assets at fair value through profit or loss.

Valuation techniques are used to establish the fair value at inception and at each reporting date. The Group’s main valuation

techniques incorporate all factors that market participants would consider and are based on observable market data. The fair value of

a unit-linked financial liability is determined using the current unit values that reflect the fair values of the financial assets contained

within the Group’s unitised investment funds linked to the financial liability, multiplied by the number of units attributed to the contract

holder at the reporting date. If the investment contract is subject to a put or surrender option, the fair value of the financial liability is

never less than the amount payable on surrender, discounted for the required notice period, where applicable.


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FINANCIAL LIABILITIESThe Group classifies its financial liabilities into the following categories:

• Financial liabilities at fair value through profit or loss; and

• Financial liabilities at amortised cost.

The classification depends on the purpose for which the financial liabilities were acquired. Management determines the classification

of financial liabilities at initial recognition.

Financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial liabilities are

initially recognised at fair value, net of transaction costs incurred in the case of financial liabilities not at fair value through profit or loss.

The best evidence of fair value on initial recognition is the transaction price, unless the fair value is evidenced by comparison with

other observable current market transactions in the same instrument or based on discounted cash flow models and option pricing

valuation techniques whose variables include only data from observable markets.

A substantial modification of the terms of an existing financial liability or a part of it shall be accounted for as an extinguishment of the

original financial liability and the recognition of a new financial liability.

(a) Financial liabilities at fair value through profit or loss

This category has two sub-categories:

• Financial liabilities held for trading; and

• Those designated at fair value through profit or loss at inception.

A financial liability is classified as held for trading if the linked financial asset associated with this liability is acquired principally for the

purpose of selling in the short term or if it forms part of a portfolio of financial assets in which there is evidence of short-term profit-

taking. Derivative liabilities are also classified as held for trading, unless they are designated as hedges at inception.

All classes of financial liabilities classified on the statement of financial position as “Financial liabilities held under multi-manager

investment contracts” are designated at fair value through profit or loss.

A financial liability is designated as fair value through profit or loss if the Group manages such investments and makes purchase

and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy.

All classes of financial liabilities classified on the statement of financial position as “Liabilities of Cell-captive insurance facilities” are

designated as fair value through profit or loss.

Financial liabilities at fair value through profit or loss are measured at fair value, with subsequent changes in fair value recognised in

profit or loss.

(b) Financial liabilities at amortised cost

Financial liabilities at amortised cost are non-derivative financial liabilities with fixed or determinable payments and fixed maturities.

Financial liabilities classified as financial liabilities at amortised cost comprise borrowings and trade and other payables.

Subsequent to initial recognition, these financial liabilities are measured at amortised cost and any difference between the proceeds,

net of transaction costs, and the redemption value is recognised in profit or loss over the period of the borrowings, using the effective

interest method.

DEFErrED TAxDeferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of

assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is not recognised for the following temporary differences:

• Temporary differences on the initial recognition of assets and liabilities in a transaction that is not a business combination and that

affects neither accounting nor taxable profit or loss;

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• Temporary differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and

• Taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax assets and liabilities on a net basis or their tax assets and liabilities will be settled simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax relating to fair value re-measurements of available-for-sale assets and cash flow hedges, which are recognised in other comprehensive income, is also taken to other comprehensive income and is subsequently recognised in profit or loss together with the deferred gain or loss.

EMpLOyEE BENEFITS(a) Pension obligationsGroup companies operate various pension schemes. The schemes are generally funded through trustee administered funds, determined by periodic actuarial calculations. The Group has both defined benefit and defined contribution plans. The pension plans are funded by payment from the relevant Group companies or by employees.

A defined contribution plan is a post-employment benefit plan under which the Group and/or employees pay fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to current or prior employee service. The Group pays contributions to the plan on a mandatory, contractual or voluntary basis. The Group has no further payment obligation once the contributions have been paid. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.

A defined benefit plan is a post-employment benefit plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The liability recognised in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the reporting date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs.

If the plan assets exceed the plan obligation, the Group measures the resulting asset at the lower of the calculated amount per IAS 19 paragraph 54 and the total of any accumulative unrecognised net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows. The discount rate is the yield at the reporting date on government bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity that approximate the terms of the Group’s obligation. In countries like South Africa where there is no deep market in corporate bonds, the Government bond rate is used. The calculation is performed annually by qualified actuaries using the projected unit credit method. The Group’s current service costs of the defined benefit plans are recognised in profit or loss in the current year. Past service costs and actuarial gains and losses arising from experience adjustments are recognised in profit or loss in the current year to the extent that they relate to retired employees or past service. For active employees, actuarial gains and


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losses arising from experience adjustments and changes in actuarial assumptions, which exceed the greater of 10% of the fair value of plan assets or 10% of the defined benefit obligation (the corridor limit), both measured at the beginning of the financial year, are recognised on a straight-line basis over the remaining working lives of participating employees. Actuarial gains and losses below the corridor limit are not recognised in the current year and are deferred to future periods.

When the calculation results in a benefit for the Group, i.e. plan assets exceed the defined benefit obligation, the recognised asset is limited to the total of unrecognised past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. The Group measures the economic benefits available to it in the form of refunds or reductions in future contributions at the maximum amount that is consistent with the terms and conditions of

the plan and any statutory requirements in the jurisdiction of the plan in accordance with IFRIC 14.

(b) Post-retirement medical obligationsIn terms of certain employment contracts, the Group provides post-retirement medical benefits to qualifying employees and retired

personnel by subsidising a portion of their medical aid contributions.

The entitlement to these benefits is based upon employment prior to a certain date and is conditional on employees remaining in

service up to retirement age. New employees are not entitled to this benefit. The expected costs of these benefits are accrued over the

period of employment, using an accounting methodology similar to that for defined benefit pension plans except for the actuarial gains

and losses which are required to be recognised immediately.

The post-retirement medical obligation has been partly funded through an insurance arrangement with a subsidiary company

of the Group.

(c) Leave pay provisionShort-term employee benefit obligations are measured on an undiscounted basis and are recognised in profit or loss as the related

service is provided. A liability is recognised for the amount that is expected to be paid in the form of annual leave entitlements if the

Group has a present legal or constructive obligation to pay this amount as a result of past services provided by the employee and the

obligation can be estimated reliably.

(d) Termination benefitsTermination benefits are payable when employment is terminated before the normal retirement date or whenever an employee

accepts voluntary redundancy in exchange for these benefits.

The Group recognises termination benefits in profit or loss when it is demonstrably committed, without realistic possibility of

withdrawal, to a detailed formal plan to either terminate employment before the normal retirement date, or to provide termination

benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are

recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and

the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting date, then they

are discounted to their present value.

prOVISIONSProvisions are recognised when the Group has a present legal or constructive obligation, as a result of past events, for which it is more likely than not that an outflow of resources will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax discount rate that reflects the current market assessment of the time value of money and, where appropriate, the risks specific to the liability. The unwinding of the discount is recognised as a finance cost.

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable costs of meeting the obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract.

A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided for. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of

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obligations as a whole. A provision is recognised even if the likelihood of an outflow, with respect to any one item included in the same

class of obligations, may be small.

Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as

a separate asset, but only when the reimbursement is virtually certain.

Provisions are reviewed at the end of each financial year and are adjusted to reflect current best estimates.

LEASES(a) Finance leasesAssets acquired under lease agreements that transfer substantially all the risks and rewards of ownership to the Group are accounted

for as finance leases. The asset is capitalised at the lower of the fair value of the asset or the present value of the minimum lease

payments upon initial recognition, with an equivalent amount being stated as a finance lease liability. The capitalised asset is

depreciated over the shorter of the useful life of the asset or the lease term. Lease payments are apportioned between finance costs

and capital repayments using the effective interest method.

Finance costs are allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining

balance of the liability. Finance costs are recognised in profit or loss over the lease period.

(b) Operating leasesOther leases are operating leases and the leased assets are not recognised on the Group’s statement of financial position. Payments

made under operating leases, net of any incentives received from the lessor, are recognised in profit or loss on a straight-line basis over

the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense over the term of the lease.

When an operating lease is terminated before the lease term has expired, any payment required to be made to the lessor by way of a

penalty is recognised as an expense in the period in which termination takes place.

CONTINGENCIES AND COMMITMENTSTransactions are classified as contingencies when the Group’s obligations depend on uncertain future events not within the Group’s

control. Items are classified as commitments when the Group commits itself to future transactions with external parties.

OFFSETTINGFinancial assets and liabilities are offset and the net amount reported on the statement of financial position, only when there is a

legally enforceable right to offset the assets and liabilities and there is an intention to settle on a net basis or to realise the asset and

settle the liability simultaneously. The offsetting is not done for significant financial assets and/or significant financial liabilities.

INCOME FrOM OpErATIONSIncome from operations, which excludes value added tax, comprises:

• Commission and fees in respect of brokerage, administration, management and consultancy services;

• Net underwriting profit from the risk-taking activities of insurance operations; and

• Net interest income from financing operations.

INCOME rECOGNITION – GENErAL OpErATIONS (a) Risk services• Insurance broking commission and fee income – comprise commission income and negotiated fees earned in respect of the

placement of insurance and servicing of clients under insurance programmes. Income is recorded on the effective commencement

or renewal dates of the related insurance programme. When further servicing is required to be rendered to the client, a portion of

the income is deferred. The amount deferred is that which will cover the expected future servicing costs, together with a reasonable

profit thereon, and is recognised as a liability. The deferred income is recognised in profit or loss over the servicing period on a

consistent basis reflecting the pattern of servicing activities.


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• Consulting fees – comprise negotiated fees for advisory services. Income is recognised based on the stage of completion as

the related services are rendered. The stage of completion is determined with reference to the services performed to date as a

percentage of total services to be performed.

• Claims facilitation fees – comprise fees earned in respect of the preparation, submission and collection of insurance claims.

Income is recognised based on the stage of completion determined with reference to the proportion that costs incurred to date

bear to the estimated total costs. Only costs that reflect services performed or to be performed are included in the estimated costs.

• Underwriting agency income – comprises commissions, fee income and profit shares earned from insurance binders and

underwriting agency agreements. Commission and fee income is recorded on the effective commencement or renewal dates of

the related insurance policy. When further servicing is required to be rendered, a portion of the income is deferred. The amount

deferred is that which will cover the expected future servicing costs, together with a reasonable profit thereon, and is recognised as

a liability. The deferred income is recognised in profit or loss over the servicing period on a consistent basis reflecting the pattern of

servicing activities. Income which is dependent on underwriting performance is recognised when it can be measured reliably.

• Operational interest income – comprises interest income earned from insurance broking operations and is recognised on a time

proportionate basis using the effective interest method.

(b) Financial services• Consulting fees – comprise fees earned in respect of actuarial and other advisory services. Income is recognised based on the

stage of completion as the related services are rendered. The stage of completion is determined with reference to the services

performed to date as a percentage of total services to be performed.

• Administration fees – comprise fees earned for the administration of retirement funds. Income is recognised as services are

provided.

• Commission income – comprises commissions earned in respect of insurance and investment products. Commission income

is recognised on the effective commencement or renewal date of the insurance or investment policy. A portion of the income

is deferred when further servicing is required to be rendered. The amount deferred is that which will cover the expected future

servicing costs, together with a reasonable profit thereon, and is recognised as a liability. Deferred income is recognised in profit

or loss evenly over the period of the policy. Where commission income is earned on an indemnity basis, provision is made for the

potential repayment of commissions.

• Healthcare commission income – comprises commissions earned in respect of healthcare products. Commission income is

recognised on the effective commencement or renewal date of the healthcare product.

• Fund annuity purchase fees – comprise fees earned on fund annuity purchases. Income is recognised based on the stage of

completion determined by reference to the value of the assets transferred.

(c) Multi-manager investment (Investment Solutions)• Multi-manager investment fees – comprise fees earned for multi-manager investment and administration. Initial administration

fees are brought to account upon inception of the investment contract and are recognised on a straight-line basis over the expected

period of the contract. Ongoing multi-manager investment and administration fees are calculated on a daily basis as a percentage

of assets under management. These fees are recognised as services are provided.

• Structured product fees – comprise fees earned on the structuring and administration of portfolios of financial instruments

designed to hedge specific financial risks. These fees are recognised in profit or loss evenly over the expected period of the

contract.

• Transition management fees – comprise fees earned for services provided in relation to the transfer of investment assets. Income

is recognised based on the stage of completion determined with reference to the value of the assets transferred.

(d) Direct marketing

• Commission income – comprises commissions earned on the direct marketing of insurance products. Income is recognised on

the effective commencement or renewal date of the insurance policy. Where commission income is earned on an indemnity basis,

provision is made for the potential repayment of commissions.

• Underwriting agency income – comprises commission and fee income earned from the direct marketing and administration of

insurance products under insurance binder agreements. Income is recognised on the effective commencement or renewal dates of

the related insurance policy. Upfront direct marketing costs are recognised in profit or loss immediately.

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INCOME rECOGNITION – FINANCING OpErATIONS Interest and other finance income received in the form of an interest margin are recognised in profit or loss on a time proportionate

basis using the effective interest method. Any directly related interest expense is recognised on the same basis.

INCOME rECOGNITION – INSurANCE OpErATIONS• Income from insurance activities – refers to the accounting policies on insurance contracts.

• Reinsurance commission income – comprises commissions earned in respect of insurance referred to reinsurers. Income is

recognised on the effective commencement or renewal date of the insurance policy. A portion of the income is deferred when

further servicing is required to be rendered. The amount deferred is that which will cover the expected future servicing costs,

together with a reasonable profit thereon, and is recognised as a liability. Deferred income is recognised in profit or loss evenly over

the period of the policy.

• Profit commission – comprises negotiated profit shares with reinsurers. Income is recognised when earned.

• Investment management fees on Cell-captive insurance facilities – income is calculated as a percentage of investment income.

These fees are recognised as services are provided.

• Management fees on Cell-captive insurance facilities – income is calculated as a percentage of premiums received. Income is

recognised on the effective commencement or renewal dates of the related insurance programme. A portion of the management

fees is deferred to cover the expected future servicing costs, together with a reasonable profit thereon, and is recognised as

a liability. The deferred income is recognised over the servicing period on a consistent basis reflecting the pattern of servicing

activities.

prOFIT FrOM OpErATIONS BEFOrE NON-TrADING AND CApITAL ITEMSThe profit from operations before non-trading and capital items is made up of trading activities of the Group. The trading activities

are those revenues and expenses generated by the business operations of the Group which are regularly reported to the Board of

Directors when making resource allocation decisions and assessing operational performance.

Items of an exceptional nature which are not considered to be fundamental to the resource allocation and performance of business

operations are thus disclosed separately as non-trading and capital items. The separate disclosure of these items consequently

achieves representative disclosure of activities normally regarded as operating in nature.

Non-trading activities relate to items such as the Group professional indemnity insurance Cell, adjustments arising due to business

combinations, non-recurring items linked to corporate finance activities, items related to historical client settlement, impairment

losses and recoveries and capital gains or losses on sale of non-current assets. Items of non-trading nature do not form part of

management’s consideration of the operational performance or allocation of resources of the Group.

INVESTMENT INCOME Investment income comprises interest income on funds invested, dividend income and fair value gains on financial assets at fair

value through profit or loss. Interest income is recognised on a time proportionate basis in profit or loss, using the effective interest

method. Dividend income earned on preference share investments held as money market investments is also recognised on a time

proportionate basis using the effective interest method. All other dividend income is recognised when the right to receive payment is

established, which is the ex-dividend date for equity securities.

FINANCE COSTSFinance costs comprise interest expense on borrowings and unwinding of discount on provisions and contingent consideration and

fair value losses on financial assets at fair value through profit or loss. All borrowing costs are recognised in profit or loss using the

effective interest method.

INCOME TAxIncome tax expense comprises current and deferred taxes, capital gains tax, as well as secondary tax on companies applicable in

South Africa. Due to the nature of indirect taxes, including non-recoverable value added tax, stamp duty, skills development levies,

these are included in operating expenses in profit or loss.


| 118 | | 119 |



Current tax and deferred tax is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.

(a) Current taxThe current income tax and capital gains tax charges are the expected tax payable or receivable on the taxable income or loss for the year, using applicable tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of prior years. Current tax payable also includes any tax liability arising from the declaration of dividends.

(b) Deferred taxDeferred tax is recognised in respect of all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes as detailed in the relevant accounting policy note.

(c) Secondary tax on companies (STC)South African resident companies are subject to a dual corporate tax system, one part of the tax being levied on taxable income and the other, a secondary tax (STC), on distributed income. A Company incurs STC charges on the declaration or deemed declaration of dividends (as defined under tax law) to its shareholders. STC is not a withholding tax on shareholders, but a tax on companies.

The STC tax consequence of dividends is recognised as a taxation charge in profit or loss in the same period that the related dividend has been declared and is accrued as a liability. The STC liability is reduced by dividends received during the dividend cycle. Where dividends declared exceed the dividends received during a cycle, STC is payable at the current STC rate on the net amount. Where dividends received exceed dividends declared within a cycle, there is no liability to pay STC. The potential tax benefit related to excess dividends received is carried forward to the next dividend cycle as an STC credit. Deferred tax assets are recognised on unutilised STC credits to the extent that it is probable that the Group will declare future dividends to utilise such STC credits.

SEGMENT rEpOrTINGAn operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components.

All operating segments’ operating results are reviewed regularly by the Group’s key decision-maker (which is the Board of Directors) to make decisions about resources to be allocated to the segments and assess its performance and for which discrete financial information is available.

Segment results that are reported to the key decision-maker include operating income net of direct expenses (“net revenue”) and profit from operations before non-trading and capital items (“trading result”) directly attributable to a segment.

NON-CurrENT ASSETS hELD FOr SALE Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. The assets, or disposal group, are measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and liabilities on a pro rata basis, except that no loss is allocated to financial assets, deferred tax assets, or employee benefit assets, which continue to be measured in accordance with the Group’s accounting policies. Impairment losses on initial classification as held for sale or distribution and subsequent gains and losses on re-measurement are recognised in profit or loss.

Gains are not recognised in excess of any cumulative impairment loss.

Intangible assets and property and equipment once classified as held for sale are not amortised or depreciated.

DISCONTINuED OpErATIONS A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative income statement and statement of other comprehensive income and statement of cash flows are represented as if the operation had been discontinued from the start of the comparative year.

| 120 | | 121 |



CrITICAL ACCOuNTING ASSuMpTIONS AND juDGEMENTSfor the year ended 31 March 2011

The following critical accounting assumptions and judgements have been applied when preparing these financial statements:

1. rETIrEMENT BENEFIT OBLIGATIONS The cost of the benefits and the present value of the defined benefit pension funds and post-retirement medical obligations depend

on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in

determining the charge to profit or loss arising from these obligations include the expected long-term rate of return on the relevant

plan assets, the discount rate and the expected salary and pension increase rates. Any changes in these assumptions will impact

the charge to profit or loss and may affect planned funding of the pension plans.

The assumptions relating to the expected return on plan assets are determined on a uniform basis, considering long-term historical

returns, asset allocation and future estimates of long-term investment returns. The Group determines the appropriate discount rate

at the end of each year, which represents the interest rate that should be used to determine the present value of the estimated

future cash outflows expected to be required to settle the pension and post-retirement medical obligations. In determining the

appropriate discount rate, the Group considers the interest rate on high-quality corporate bonds and government bonds that are

denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the

related pension liability. The expected salary and pension increase rates are based on inflation rates, adjusted for salary scales

and country-specific conditions. The inflation rate used is a rate within the government’s monetary policy target for inflation and

is calculated as the difference between the yields on portfolios of fixed interest government bonds and a portfolio of index-linked

bonds of a similar term.

Additional information is provided in the relevant note to these financial statements on retirement benefit obligations.

2. prOVISIONS Provisions are, by definition, liabilities of uncertain timing or amount. In order to establish a provision, Management makes

assessments of the expected amount of any future cash outflows and the estimated timing thereof. Where the effect of discounting

is material, provisions payable in more than one year are discounted using pre-tax discount rates that reflect the current market

assessment of the time value of money and, where appropriate, the risks specific to the liability.

3. TAxATION The Group is subject to income tax in numerous jurisdictions and has many transactions and calculations for which the ultimate

tax determination may be uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax

charges. Where the outcome of a transaction is different from the amounts that were initially recorded, such differences will impact

the tax provisions in the period in which such determination is made.

4. INVESTMENT IN ASSOCIATE The valuation of the associate is based on the Directors’ assessment of the expected amount of any future earnings and cash flows

from the underlying investment in the Alexander Forbes Group. The valuation is reassessed at each reporting date.

5. VALuATION OF pOLICyhOLDEr ASSETS AND LIABILITIES IN rESpECT OF LONG-TErM INSurANCE CONTrACTS

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 the actuarial guidance note PGN 104 of the Actuarial Society of South

Africa. The method requires a number of assumptions as inputs to the valuation model. The following process is followed to

determine the valuation assumptions:

• The best estimate for a particular assumption is determined.

• 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.

| 120 | | 121 |



Best estimate assumptions as to mortality and morbidity, expenses, investment income and tax are used which may vary at each reporting date. 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 the assumptions used are as follows:

• 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.

6. uLTIMATE LIABILITy ArISING FrOM CLAIMS uNDEr ShOrT-TErM INSurANCE CONTrACTS

The estimation of the ultimate liability arising from claims under short-term insurance contracts has several sources of uncertainty. The risk environment can change suddenly and unexpectedly owing to a wide range of events or influences. There is no absolute certainty in respect of identifying risks at an early stage, measuring them sufficiently or correctly estimating their real hazard potential.

7. ErrOrS AND OMISSIONS IN ThE 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 in the conduct of its ordinary course of business. As with any business with similar operations to the Group, the risk exists that new claims relating to past events and significant adverse developments in past claims could result in material changes to provisions made in respect of prior years.

8. GOODwILL The Group created significant goodwill and intangible assets upon its reorganisation in 2007 in terms of IFRS 3. These asset

balances are evaluated for impairment on an annual basis. This evaluation is based on the estimation of future cash flows and discount rates as further explained in note 15.

| 122 | | 123 |



GrOup INCOME STATEMENTfor the year ended 31 March 2011

2011 2010

Notes Rm Rm

Continuingoperations

Fee and commission income 2 4 846 4 726

Less: direct expenses attributable to fee and commission income 2 (647) (586)

Net income from insurance operations 3 368 309

Insurance premiums earned 4 462 3 481

Less: amounts ceded to reinsurers (3 132) (2 416)

Investment income from insurance operations 107 128

Less: insurance claims and withdrawals (2 834) (2 228)

Plus: insurance claims and benefits covered by reinsurance contracts 1 765 1 344

Operatingincomenetofdirectexpenses 4 567 4 449

Operating expenses 4 (3 454) (3 418)

Profitfromoperationsbeforenon-tradingandcapitalitems 1 113 1 031

Non-trading and capital items 5 (149) (179)

Operatingprofit 964 852

Investment income 6 68 80

Finance costs 7 (866) (841)

Share of net profit of associates (net of income tax) 18 3 2

Profitbeforetaxation 169 93

Income tax expense 8 (201) (174)

Lossfortheyearfromcontinuingoperations (32) (81)

Discontinuedoperations

Profit on discontinued operations (net of income tax) 23 4 3

Accumulatedlossfortheyear (28) (78)

Loss attributable to:

Equity holders (75) (129)

Non-controlling interest 9 47 51

(28) (78)

| 122 | | 123 |



2011 2010

Notes Rm Rm

Earningspersharefromcontinuingoperations

Basic loss per share (cents) (21) (35)

Earningspersharefromdiscontinuedoperations

Basic earnings per share (cents) 1 1

Earningspersharefromcontinuinganddiscontinuedoperations

Basic loss per share (cents) 10 (20) (34)

GrOup STATEMENT OF COMprEhENSIVE INCOMEfor the year ended 31 March 2011

2011 2010

Notes Rm Rm

Loss for the year (28) (78)

Foreign currency translation differences of foreign operations 10 (142)

Changes in fair value of cash flow hedges (19) (203)

Portion of cash flow hedge recycled to profit or loss (66) 60

Taxation effect on the fee income hedge – (3)

Other comprehensive income/(loss) for the year 57 (288)

Total comprehensive income/(loss) for the year 29 (366)

Total comprehensive income/(loss) attributable to:

Equity holders (29) (407)

Non-controlling interest 58 41

Total comprehensive income/(loss) for the year 29 (366)

GrOup INCOME STATEMENT (CONTINUED)for the year ended 31 March 2011

| 124 | | 125 |



GrOup STATEMENT OF FINANCIAL pOSITIONat 31 March 2011

2011 2010

Notes Rm Rm

Assets

Financial assets held under multi-manager investment contracts 11 183 483 161 660

Financial assets of Cell-captive insurance facilities 12 7 738 7 582

Property and equipment 13 201 205

Purchased and developed computer software 14 151 166

Goodwill 15 5 258 5 258

Intangible assets 16 1 728 1 900

Investment in associates 18 8 7

Deferred tax assets 29 145 158

Financial assets 19 426 285

Insurance receivables 20 713 528

Trade and other receivables 21 930 1 115

Cash and cash equivalents 22 3 093 2 480

Assets of disposal group classified as held for sale 23 25 944

Totalassets 203 899 182 288

Equityandliabilities

Share capital and premium 3 261 3 261

Accumulated loss (867) (777)

Other reserves (252) (313)

Equity holders' funds 24 2 142 2 171

Non-controlling interest 172 179

Totalequity 2 314 2 350

Financial liabilities held under multi-manager investment contracts 25 183 452 161 614

Liabilities of Cell-captive insurance facilities 26 7 738 7 582

Insurance liabilities of Cell-captive insurance facilities 4 759 4 609

Other liabilities of Cell-captive insurance facilities 2 979 2 973

Borrowings 27 5 828 5 597

Employee benefits 28 165 158

Deferred tax liabilities 29 574 615

Provisions 30 392 650

Operating lease liability 31 67 103

Deferred income 32 120 107

Insurance payables 33 2 148 1 610

Trade and other payables 34 1 101 1 074

Liabilities of disposal group classified as held for sale 23 – 828

Totalliabilities 201 585 179 938

Totalequityandliabilities 203 899 182 288

| 124 | | 125 |



GrOup STATEMENT OF CASh FLOwSfor the year ended 31 March 2011

2011 2010

Notes Rm Rm

Cashflowsfromoperatingactivities

Cash generated from operations 37 1 253 1 291

Interest received 68 80

Finance costs paid (383) (398)

Movement in working capital and insurance balances 38 382 (113)

Cash settlement of cash management claims (14) (31)

Cash settlement of retirement benefit obligations (2) (5)

Cash flows from policyholder investment contracts 38.1 845 (11 887)

Taxation paid 39 (236) (220)

Netcashinflow/(outflow)fromoperatingactivities 1 913 (11 283)

Cashflowsfrominvestingactivities

Proceeds from sale of subsidiaries, associates and businesses 40 69 45

Investment in financial assets (225) (53)

Disposal/redemption of financial assets 69 5

Capital expenditure incurred on property, equipment and computer software (95) (95)

Proceeds from sale of property, equipment and intangibles 2 58

Netcashoutflowfrominvestingactivities (180) (40)

Cashflowsfromfinancingactivities

Repayment of borrowings (239) (2 202)

Borrowings raised – 1 508

Proceeds on disposal of the cash flow hedge – 374

Payments made to non-controlling interests (25) (67)

Netcashoutflowfromfinancingactivities (264) (387)

Netcash(outflow)/inflowfromdiscontinuedoperations 23.3 (82) 48

Increase/(decrease) in cash and cash equivalents 1 387 (11 662)

Cash and cash equivalents at beginning of year 20 690 32 493

Foreign subsidiaries exchange differences (11) (141)

Cashandcashequivalentsatendofyear 22 066 20 690

Analysed as follows:

Cash and cash equivalents for discontinued operations 17 99

Cash and cash equivalents for continuing operations 3 093 2 480

Cash held under multi-manager investment contracts 18 469 17 393

Cash held under Cell-captive insurance facilities 487 718

22 066 20 690

| 126 | | 127 |



GrOup STATEMENT OF ChANGES IN EquITyfor the year ended 31 March 2011

Share capitaland

premium

Non- distributable

reservesAccumulated

loss

Totalequity

holders’funds

Non- controlling

interest Total

equity

Rm Rm Rm Rm Rm Rm

At 31 March 2009 3 261 (47) (636) 2 578 205 2 783

Loss for the year – – (129) (129) 51 (78)

Other comprehensive loss – (278) – (278) (10) (288)

Total comprehensive loss – (278) (129) (407) 41 (366)

Movement in contingency reserve for short-term insurance company – 12 (12) – – –

Other movements in non-controlling interest * – – – – (67) (67)

At 31 March 2010 3 261 (313) (777) 2 171 179 2 350

(Loss)/profit for the year – – (75) (75) 47 (28)

Other comprehensive income – 46 – 46 11 57

Total comprehensive income/(loss) – 46 (75) (29) 58 29

Movement in contingency reserve for short-term insurance company – 15 (15) – – –

Other movements in non-controlling interest * – – – – (65) (65)

At 31 March 2011 3 261 (252) (867) 2 142 172 2 314

* This amount includes the distributions paid to non-controlling interest holders and amortisation of the intangibles allocated to non-controlling interest holders at the time of the private equity transaction.

| 126 | | 127 |



GrOup SEGMENTAL INCOME AND prOFIT ANALySISfor the year ended 31 March 2011

OperatingIncomenetofdirect expenses

Profitfromoperationsbefore non-tradingandcapitalitems

2011 % 2010 2011 % 2010

Africa (Rm)

Risk & Insurance Services 1 120 8% 1 041 299 9% 275

Financial Services 1 339 5% 1 276 303 0.3% 302

Investment Solutions 484 11% 437 269 9% 247

AfriNet (excluding South Africa) 307 6% 290 69 (3%) 71

TotalAfrica(Rm) 3 250 7% 3 044 940 5% 895

International(£m)

Financial Services 115.0 3% 111.6 15.3 31% 11.7

Investment Solutions 3.4 21% 2.8 0.3 250% (0.2)

TotalInternational(£m) 118.4 4% 114.4 15.6 36% 11.5

TotalInternational(Rm) 1 317 (6%) 1 405 173 27% 136

TotalGroup(Rm) 4 567 3% 4 449 1 113 8% 1 031

Depreciationandamortisation Assets

Var Var

2011 % 2010 2011 % 2010

Africa (Rm)

Risk & Insurance Services 14 15 10 215 9 670

Financial Services 17 15 28 976 22 700

Investment Solutions 3 2 167 891 150 517

AfriNet (excluding South Africa) 6 6 2 013 1 656

TotalAfrica(Rm) 40 8% 38 209 095 13% 184 543

International(£m)

Financial Services 1.4 1.4 112 102

Investment Solutions - – 1 454 1 010

TotalInternational(£m) 1.4 – 1.4 1 566 41% 1 112

TotalInternational(Rm) 16 (11%) 18 17 027 38% 12 330

Unallocated:

Corporate Services 36 36 1 099 1 554

Goodwill – – 5 258 5 258

Consolidation elimination * – – (28 580) (21 397)

TotalGroup(Rm) 92 – 92 203 899 12% 182 288

*This amount relates to assets invested by Group companies with Investment Solutions.

| 128 | | 129 |



GrOup SEGMENTAL INCOME AND prOFIT ANALySIS (CONTINUED)

The Group has five reportable segments, as detailed above, which are the Group’s business units. The business units offer different products and services, and are managed separately because they require different technology and marketing strategies. For each of the business units, the Group’s chief operations decision-maker reviews internal management reports on a quarterly basis.

The following summary describes the operations in each of the Group’s reportable segments:

• RiskandInsuranceServices – is the largest corporate risk and insurance broker in South Africa with an extensive network in Africa. There are three main divisions, including: Risk Services, places insurance cover and offers claims management services, also offers loss prevention and risk management and consulting services; AF Insurance, provides motor and household insurance cover; Guardrisk, provides short-term and life Cell-captive insurance administration and facility management.

• FinancialServices – is the leading retirement funds consulting and administration provider and corporate health consulting business in South Africa. The divisions include Institutional, which provides retirement fund administration, consulting and actuarial services; Retail, which provides financial and wealth advice and solutions to individuals; Healthcare, which provides medical scheme and health-related advice and actuarial services.

• InvestmentSolutions – as a multi-manager investment manager, the Company selects appropriate asset managers and portfolios and monitors and reports on manager performance. The operations are currently in South Africa, Namibia and United Kingdom.

• AfriNet(AfricaexcludingSouthAfrica) – offers risk and financial services products, through our recently coordinated businesses in Africa (outside South Africa). It focuses on and meets the demands of each local market, as well as adapt business products to local legislation.

• InternationalFinancialServices – pan-European employee benefits consultants and actuaries, providing solutions across all aspects of employee benefits to trustees, employers and their employees, pensions, investments, healthcare and risk solutions, business analytics and the direct marketing of insurance products.

| 128 | | 129 |



NOTES TO ThE GrOup FINANCIAL STATEMENTSfor the year ended 31 March 2011

2011 2010

1. FoREIGN CuRRENCy ExChANGE RAtES

The income statements and statements of financial position of material foreign subsidiaries have been translated to Rands in line with IAS 21 The effect of changes in Foreign Exchange Rates, using the following exchange rates:

Rand:Sterling R: £ R : £



Swissfranc:Sterling CHF:£ CHF : £



Other less material foreign subsidiaries have been translated to Rands in line with IAS 21 The effect 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.

Certain transactions of the Group occur in foreign currencies. The most material of these currencies is the Euro. These trans-actions have been translated using the following exchange rates:

Rand:Euro R:€ R : €



2011 2010

Rm Rm

2. FEE AND CoMMISSIoN INCoME

Brokerage fees and commission income 600 600

Fee income from consulting and administration services 3 045 3 047

Fee income from investment activities 1 123 1 000

Interest income from lending operations 30 20

Operational interest income 30 37

Other income 18 22

4 846 4 726

The direct expenses related to fees and commission income relate to sub-agent expenses, commissions paid and asset management fees. (647) (586)

Operational interest income comprises interest earnings of insurance broking businesses, consisting primarily of interest income earned on premiums collected from clients on behalf of insurers.

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

| 130 | | 131 |



Long-terminsurance Short-term insurance Total

2011 2010 2011 2010 2011 2010

Rm Rm Rm Rm Rm Rm

3. NEt INCoME FRoM INSuRANCE oPERAtIoNS

Gross earned premiums 743 728 3 718 2 753 4 462 3 481

Gross written premiums 743 728 3 858 2 889 4 602 3 617

Less: Movement in unearned premium provision – – (140) (136) (140) (136)

Reinsurers’ share thereof (653) (626) (2 479) (1 790) (3 132) (2 416)

Net earned premiums 90 102 1 240 963 1 330 1 065

Net investment income from insurance operations 5 8 102 120 107 128

Net expenses of insurance contracts (10) (11) (298) (218) (308) (229)

Netpremiumandinvestmentincome 85 99 1 044 865 1 129 964

Gross claims and transfers to policyholders’ funds (301) (270) (2 225) (1 729) (2 526) (1 999)

Reinsurers’ share thereof 257 230 1 508 1 114 1 765 1 344

Netclaimsandtransferstopolicyholders’funds (44) (40) (717) (615) (761) (655)

Net income from insurance operations 41 59 327 250 368 309

NOTES TO ThE GrOup FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 March 2011

| 130 | | 131 |



2011 2010

Rm Rm

4. oPERAtING ExPENSES

Operating expenses classified by nature are as follows:

Amortisation (14) (14)

Purchased and developed computer software (refer note 14) (10) (10)

Intangible assets (refer note 16) (4) (4)

Computer and IT costs (209) (208)

Depreciation (refer note 13) (78) (78)

Leasehold property and improvements (11) (8)

Computer equipment (51) (51)

Furniture, fittings, office equipment and other assets (16) (19)

External auditors’ remuneration (33) (32)

Audit service (27) (26)

Non-audit service (6) (6)

Insurance costs (105) (114)

Operating lease charges (223) (216)

Premises (221) (214)

Equipment (2) (2)

Employee costs * (2 434) (2 442)

Salaries, wages and other benefits (2 380) (2 380)

Termination benefits (13) (9)

Retirement benefit contributions (41) (53)

Other operating expenses (358) (314)

Totaloperatingexpenses (3 454) (3 418)

* Employee costs include Executive Directors and Directors’ remuneration and are set out in detail in a note to these financial statements (refer to the related party note 41).

Total operating expense excludes non-trading and capital items which are disclosed in note 5.

Amortisationofintangibleassetsarisingfrombusinesscombination

Purchased and developed computer software (refer note 14) (19) (22)

Intangible assets (refer note 16) (169) (169)

(188) (191)

| 132 | | 133 |



2011 2010

Rm Rm

5. NoN-tRADING AND CAPItAl ItEMS

Non-trading:

Professional indemnity insurance Cell (26) 26

Amortisation of intangible assets arising from business combination (187) (191)

Legal and consulting fees on debt structuring transactions 3 (25)

Movements in provisions for client settlements net of insurance recoveries 87 70

Road Accident Fund receivable for legal fees written off – (26)

Other non-trading items (5) (14)

Capital items:

Goodwill impairment losses – (75)

Capital (loss)/gain on sale of subsidiary and other (21) 56

(149) (179)

6. INvEStMENt INCoME

General operations:

Interest income 34 27

Investment and dividend income 22 39

56 66

Multi-manager and unit trust investments:

Investment income – investment contracts 21 174 38 225

Fair value adjustment on financial liability linked to investment contracts (21 162) (38 211)

12 14

Total investment income 68 80

Investment income is derived from the following categories of financial assets:

Loans receivable 45 46

Financial assets designated at fair value 23 34

68 80


| 132 | | 133 |



2011 2010

Rm Rm

7. FINANCE CoStS

Finance costs derived from financial liabilities classified and carried at amortised cost:

Interest on term debt issued (774) (660)

Amortisation of debt raising fees capitalised to borrowings (13) (12)

Write-off of debt raising fees capitalised – (65)

Interest on proposed client settlements (6) (20)

Capacity fee revolving credit facility (2) (14)

Interest on other borrowings (17) (11)

(812) (782)

Finance cost derived from financial liabilities designated as fair value through profit or loss:

Fair value adjustment on put and call option (54) (59)

(866) (841)

8. INCoME tAx ExPENSE

South African income tax

Current tax (153) (206)

Current year (173) (170)

Prior years 20 (36)

Deferred tax 51 148

Current year 63 56

Prior years (12) 92

Foreignincometax

Current tax (45) (65)


Prior years – (28)

Deferred tax (16) (6)


Prior years – 1

Foreignwithholdingtax (4) (6)

Taxattributabletopolicyholders (14) (13)

SouthAfricansecondarytaxoncompanies (20) (26)

(201) (174)

No material capital gains tax was incurred by the Group in the current or previous years.

| 134 | | 135 |



2011 2010

Rm Rm

8. INCoME tAx ExPENSE (CoNtINuED)

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 1.2% 6.7%

South African secondary tax on companies 12.4% 28.4%

Policyholder tax 8.0% 13.8%

Unutilised tax losses (net of prior year assessment loss utilised) * 25.7% 62.8%

Exempt income net of disallowed expenditure 22.7% (15.6%)

Foreign tax rates (7.6%) (21.8%)

Prior year underprovision (net of prior year overprovision) (4.9%) (13.7%)

Impairment charges and other capital gains and losses with no material tax effects 0.5% 19.7%

Non-deductible finance cost 32.9% 78.9%

Effective tax rate per income statement 118.9% 187.2%

* Unutilised tax losses for the current year amounted to R43 million (2010: R60 million).

9. PRoFIt AttRIbutAblE to NoN-CoNtRollING INtERESt

Profit attributable to non-controlling interest * 47 51

* The profits attributable to non-controlling interest result mainly from the non-controlling interest in Lane Clark & Peacock (in the United Kingdom, Belgium and Switzerland) and in Media Insurance Services (the UK direct marketing entity). Details of non-wholly owned subsidiaries are provided in Annexure A to these financial statements.


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2011 2010

Rm Rm

10. EARNINGS PER ShARE

10.1 Basiclosspershare

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

10.2 Headlinelossperordinaryshare

Headline loss per ordinary share is calculated by excluding all impairment charges, and capital gains and losses, from the loss attributable to equity holders and dividing the resultant headline loss by the weighted average number of ordinary shares in issue during the year.

Headline earnings are defined in Circular 8/2007 issued by the South African Institute of Chartered Accountants.

10.3 Calculatedlosspershareforordinaryshareholders

Loss attributable to equity holders (a) (75) (129)

Adjusted for:

Impairment charges, losses and reversal of impairment losses – 75

Capital gains and losses 21 (56)

Headline loss (b) (54) (110)

Weighted average number of ordinary shares in issue (calculated from effective date) (millions) (c) 377 377

Earningspersharefromcontinuinganddiscontinuedoperations

Basic loss per share (cents) (a)/(c) (20) (34)

Headline loss per share (cents) (b)/(c) (14) (29)

Earningspersharefromcontinuingoperations

Basic loss per share (cents) (21) (35)

Headline loss per share (cents) (15) (30)

Earningspersharefromdiscontinuedoperations

Basic profit per share (cents) 1 1

Headline profit per share (cents) 1 1

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2011 2010

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11. FINANCIAl ASSEtS hElD uNDER MultI-MANAGER INvEStMENt CoNtRACtS

The policyholder assets held by the Group’s multi-manager investment subsidiaries in South Africa, Namibia and the United Kingdom are analysed below. These policyholder assets are directly matched by linked obligations to policyholders.

Financial assets held in collective investment schemes managed by the Group’s multi-manager investment subsidiaries in South Africa and the United Kingdom are also included in the consolidated statement of financial position of the Group where such collective investment schemes are deemed to be controlled by the Group. These financial assets are directly matched to linked obligations to unit-holders.

11.1 Movementinmulti-managerandunittrustinvestmentcontractsassets

A reconciliation between financial assets held under multi-manager and unit trust investment contracts:

Opening balance 161 660 134 718

Movement during the year: *

Premium inflow 41 408 30 558

Withdrawals (31 707) (31 884)

Investment returns after tax 21 174 38 225

Effect of movements in exchange rates (1 721) (4 101)

Other (7 331) (5 856)

Closing balance 183 483 161 660

* This amount is offset by a corresponding movement in multi-manager and unit trust investment contract liabilities (refer note 25).


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2011 2010

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11. FINANCIAl ASSEtS hElD uNDER MultI-MANAGER INvEStMENt CoNtRACtS (CoNtINuED)

11.2 Analysisofmulti-managerandunittrustinvestmentcontractassets

An analysis of the aggregate financial assets of multi-manager and unit trust investment contracts is set out below:

Financial assets classified as “fair value through profit or loss”

Equity securities – listed 45 703 46 676

Equity securities – unlisted 17 377

Preference shares – listed 713 673

Collective investment schemes 45 903 34 890

Debt securities – listed 17 570 12 267

Debt securities – government stock 9 187 7 890

Debentures – listed 2 421 1 979

Policy of insurance 30 729 23 784

Derivative financial instruments 1 373 625

Receivables – 6

Cash and cash equivalents

Money market 11 398 15 100

Cash 18 469 17 393

Total financial assets held under multi-manager investment contracts 183 483 161 660

A reconciliation of the assets held under multi-manager investment contracts with the linked liabilities under such contracts is as follows:

Total financial assets held under multi-manager investment contracts 183 483 161 660

Adjusted for:

Tax on policyholder assets included in deferred tax liability of the Group (31) (46)

Adjusted total financial assets held for policyholders under multi-manager investment contracts matched with the linked liability under such contracts * 183 452 161 614

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

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2011 2010

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12. FINANCIAl ASSEtS oF CEll-CAPtIvE INSuRANCE FACIlItIES

All financial assets held by Guardrisk Insurance and Guardrisk Life in South Africa, Namibia and Mauritius and Euroguard Insurance in Gibraltar are included in the consolidated statement of financial position of the Group. An analysis of the finan-cial 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 Cell (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”


Preference shares – unlisted 350 365

Collective investment schemes 94 70

Debt securities – listed 733 740

Receivables 703 826


Money market 4 065 3 805

Cash 487 718

Reinsurance assets

Reinsurers’ share of unearned premium provision 332 273

Reinsurers’ share of outstanding claims provision 233 135

Reinsurers’ share of IBNR provision 23 12

Total financial assets attributable to policyholders and Cell shareholders’ interests in Cell-captive insurance companies * 7 738 7 582

* Financial asset disclosure on maturity and currency is not provided as these Cell-captive insurance facility assets are directly matched to linked obligations.


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Leaseholdimprovements

Computer equipment

Furnitureandfittings,office

equipmentandother assets Total

Rm Rm Rm Rm

13. PRoPERty AND EquIPMENt

2011

Carryingvalue

Cost 84 228 200 512

Accumulated depreciation and accumulated impairment losses (44) (126) (141) (311)

Carrying value at 31 March 2011 40 102 59 201

Cost

Balance at 1 April 2010 88 204 197 489

Additions to enhance existing operations 7 55 16 78

Disposals (9) (31) (10) (50)

Foreign subsidiaries’ exchange differences (2) – (3) (5)

Balance at 31 March 2011 84 228 200 512

Accumulateddepreciationandaccumulatedimpairmentlosses

Balance at 1 April 2010 (43) (105) (136) (284)

Depreciation charge for the year (11) (51) (16) (78)

Depreciation on disposals 8 29 9 46

Foreign subsidiaries’ exchange differences 2 1 2 5

Balance at 31 March 2011 (44) (126) (141) (311)

2010

Carryingvalue

Cost 88 204 197 489

Accumulated depreciation and accumulated impairment losses (43) (105) (136) (284)

Carrying value at 31 March 2010 45 99 61 205

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Leaseholdimprovements

Computer equipment

Furnitureandfittings,office

equipmentandother assets Total

Rm Rm Rm Rm

13. PRoPERty AND EquIPMENt (CoNtINuED)

2010(continued)

Cost

Balance at 1 April 2009 99 254 200 553

Additions to enhance existing operations 8 61 17 86

Disposals as a result of business combination (4) (95) (9) (108)

Disposals (15) (16) (15) (46)

Foreign subsidiaries’ exchange differences – – 4 4

Balance at 31 March 2010 88 204 197 489

Accumulateddepreciationandaccumulatedimpairmentlosses

Balance at 1 April 2009 (48) (162) (135) (345)

Depreciation charge for the year (8) (51) (19) (78)

Disposals 3 94 8 105

Foreign subsidiaries’ exchange differences 10 14 10 34

Balance at 31 March 2010 (43) (105) (136) (284)

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 (2010: R10 million). A register of freehold land and buildings is available for inspection by authorised representatives at the registered office of the Company.


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2011 2010

Rm Rm

14. PuRChASED AND DEvEloPED CoMPutER SoFtwARE

Carryingvalue

Cost 281 275

Accumulated amortisation and accumulated impairment losses (130) (109)

Balance at 31 March 2011 151 166

Cost

Opening balance 275 358

Movement during the year:

Additions to enhance existing operations 14 8

Disposals (8) (63)

Disposal as a result of business combination – (17)

Foreign subsidiaries’ exchange differences – (11)

Closing balance 281 275

Accumulatedamortisationandaccumulatedimpairmentlosses

Opening balance (109) (148)


Amortisation charge for the year (10) (10)

Amortisation charge arising from business combination (19) (22)

Disposals 8 63

Foreign subsidiaries’ exchange differences – 8

Closing balance (130) (109)

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2011 2010

Rm Rm

15. GooDwIll

15.1 Carryingvalue

Cost 5 687 5 687

Accumulated impairment losses (429) (429)

Balanceat31March2011 5 258 5 258

15.2 Reconciliationofmovementincarryingvalue



Disposal – (2)

Impairment charge through income statement – (75)


15.3 Analysisofgoodwillbalancespercash-generatingunit

SA Risk and Insurance Services

Risk Services 406 406

Personal Services 445 445

Guardrisk Allied Products and Services 84 84

Alexander Forbes Compensation Technologies 95 95

Guardrisk Insurance 300 300

SA Financial Services

Financial Services 1 131 1 131

AF Life 317 317

SA Investment Solutions 1 392 1 392

AfriNet 294 294

International Financial Services

Lane Clark and Peacock 555 555

Financial Services 208 208

Direct Marketing 31 31

5 258 5 258


| 142 | | 143 |



15. GooDwIll (CoNtINuED)

15.4 Valuationofgoodwillbalances

Goodwill is allocated to cash-generating units (“CGUs”) in accordance with the Group’s accounting policies. The recoverable amount of a CGU is determined primarily 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 three 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. Terminal growth rates of 1.7% (2010: 3.5%) have been applied to the International businesses and rates of between 4.5% and 6% (2010: 4.5% and 6%) have been applied to the South African and AfriNet businesses.

The discount rate used was the weighted average cost of capital for the specific segment, adjusted for specific risks relating to that segment. Discount rates, before adjustment for specific risks relating to the segment, of between 10.1% and 15.9% (2010: 11.5% and 15.1%), have been applied in the valuations of the United Kingdom and South African businesses respectively.

The valuation of the goodwill balances resulted in a goodwill impairment loss of Rnil (2010:R75 million) for the year. The prior year charge relates mainly to a write-off of goodwill balances from certain CGUs in the United Kingdom and South Africa. It should be noted that accounting standards prohibit the recognition of reversal of impairment losses for goodwill where valuations might have improved.

15.5 Allocationofgoodwillbalancestocash-generatingunits

Factors which are not considered separable from the business of Alexander Forbes, and which contributed to the cost of the acquisition of Alexander Forbes Limited by the Company and resulted in the recognition of goodwill, include the following:

– Assembled workforce, including specific technical expertise and training expertise;

– Distribution channels;

– Training and recruitment programmes;

– Customer service capability and service support;

– Effective marketing programmes and product cross-selling opportunities;

– Leading market position; and

– Finance-raising capabilities.

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2011 2010

Rm Rm

16. INtANGIblE ASSEtS

Intangible assets comprise values attributed to contractual customer relationships and market-related intangible assets. All intangible assets are non-current in nature.

16.1 Carryingvalue

Cost 2 357 2 364

Accumulated amortisation and accumulated impairment losses (629) (464)

Balance at 31 March 1 728 1 900

16.2 Analysisofintangibleassets

Customer lists 1 386 1 540

Trade names 342 360

1 728 1 900

16.3 Reconciliationofmovementincarryingvalue



Amortisation charge for the year (4) (4)

Amortisation charge arising from IFRS 3 Business Combinations (168) (169)

Disposal – (16)

Additions 4 –

Impairment on disposal (4) –




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2011 2010

Rm Rm

17. JoINt vENtuRES

17.1 Proportionateconsolidation

The Group’s proportionate share of the income statement, statement of financial position and cash flow effects of joint ventures are included under the appropriate captions in the financial statements using the proportionate con-solidation method of accounting.

17.2 Aggregatesummarisedincomestatementsofjointventures(Group’sshare):

Income from operations 19 31

Operating expenses (10) (8)

Profit before tax 9 23

Taxation (3) (7)

Profit for the year 6 16

17.3 Aggregatesummarisedstatementsoffinancialpositionofjointventures(Group’sshare):

Assets

Non-current assets 1 1

Current assets 23 34

Total assets 24 35


Equity 22 22

Non-current liabilities - 1

Current liabilities 2 12

Total equity and liabilities 24 35

At 31 March 2011, the Group had a financial interest in Alexander Forbes UK Direct Limited, an unlisted joint venture. Details are provided in Annexure A to these financial statements.

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2011 2010

Rm Rm

18. INvEStMENt IN ASSoCIAtES

18.1 Equity-accountedcarryingvalue

Cost 7 6

Share of cumulative post-acquisition reserves 1 1

8 7

Directors’valuationofassociates 23 24

The valuation of associates is determined using the approach of deriving a multiple by referencing to a market-based multiple by identifying companies that are similar in terms of risk attributes and earnings growth prospects to the companies being valued.

No such companies are available in the South African market. The approach taken was therefore to start with an appropriate industry multiple.

The Financial 15 Index of 11.8 was used and a number of adjustments made for non-marketability, political risk and growth rate. The final adjusted multiple used is 4.8.

18.2 Reconciliationofmovementinequity-accountedcarryingvalue

Opening balance 7 7


Additions as a result of business acquired 1 –

Dividends received from associates (3) (2)

Share of profits of associates 3 2

– Profit before tax 3 2

– Taxation – –

Closing balance 8 7

18.3 Aggregatesummarisedincomestatementsofassociates(Group’sshare):



Trading results 3 2

Net finance income – –

Profit before tax 3 2

Income tax expense – –

Profit for the year 3 2


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2011 2010

Rm Rm

18. INvEStMENt IN ASSoCIAtES (CoNtINuED)

18.4 Aggregatesummarisedstatementsoffinancialpositionofassociate(Group’sshare):

Assets

Non-current assets 12 5

Current assets 74 26

Total assets 86 31


Equity 20 9

Non-current liabilities 1 22

Current liabilities 65 –

Total equity and liabilities 86 31

At 31 March 2011, the Group had a financial interest in four unlisted associates, Tibiyo Insurance Brokers (Proprietary) Limited (“Tibiyo”), Alexander Forbes Insurance Brokers Kenya (“Kenya Insurance Brokers”), Alexander Forbes Health Care Kenya (“Kenya Health Care”) and Alexander Forbes Zambia Limited (“AF Zambia”). The companies operate as short-term insurance brokers exclusively in their country of incorporation, the details of which are provided in Annexure A to these financial statements.

19. FINANCIAl ASSEtS

19.1 Totalfinancialassets

Non-current financial assets 341 137

Current financial assets 85 148

426 285

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2011 2010

Rm Rm

19. FINANCIAl ASSEtS (CoNtINuED)

19.2 Analysisoffinancialassets

Financial assets classified as available-for-sale


Financial assets designated as fair value through profit or loss 282 80

Preference shares 44 44

Collective investment schemes 26 27

Bonds 212 9

Financial assets classified as held-to-maturity

Preference shares – 75

Financial assets classified as loans and receivables 126 121

Premium finance receivables 56 51

Loan note held from sale of a UK business – 14

Equity release housing loans 48 39

Loans to participants of the employee share purchase trusts 5 1

Shareholders’ loan 14 14

Other loans (mainly staff loans) 3 2

426 285

20. INSuRANCE RECEIvAblES

Insurance brokerage income receivable and other insurance balances 50 46

Reinsurance brokerage income receivables 76 71

Receivables from short-term insurance contracts 308 206

Premium debtors 65 38

Reinsurers’ share of unearned premium provision 67 41

Reinsurers’ share of outstanding claims provision 139 111

Reinsurers’ share of IBNR provision 37 16

Receivable from long-term insurance contracts 258 187

Premium debtors 36 19

Reinsurers’ share of policyholder liability 204 155

Policyholder asset under long-term insurance contract (individual life) 18 13

Other insurance-related receivables 21 18

713 528

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.


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2011 2010

Rm Rm

21. tRADE AND othER RECEIvAblES

Financial assets:

Trade receivables 480 494

Accrued and not billed balances 214 185

Receivable from associated company – 5

Claim receivable from insurance underwriters – 220

Other receivables 195 149

889 1 053

Non-financial assets:

Accrued income and prepayments 32 44

Prepaid taxation 9 18

930 1 115

22. CASh AND CASh EquIvAlENtS

22.1 Totalcashandcashequivalents

Cash and bank balances 2 478 1 924

Short-term deposits 615 564

Bank overdraft under cash management arrangements – (8)

3 093 2 480

22.2 Analysisofcashresources

Total cash and cash equivalents 3 093 2 480

Less: “Fiduciary” cash balances linked to:

Insurance-related payables and policyholder and securitisation payables included in other payables (1 575) (1 103)

Less: Capital adequacy and regulatory requirements (613) (360)

Less: Cash held against current payables of insurance and other regulated entities (160) (138)

Less: Restricted cash balances held within Group insurance facilities (184) (240)

Availablecashresources 561 639

22.3 CashandcashequivalentsincludedinpolicyholderandCellownerassetsareasfollows:

Multi-manager and unit trust investment contracts 18 469 17 393

Cell-captive insurance facilities 487 718

18 956 18 111

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2011 2010

Rm Rm

23. ASSEtS AND lIAbIlItIES oF DISPoSAl GRouP ClASSIFIED AS hElD FoR SAlE AND DISCoNtINuED oPERAtIoNS

The assets and liabilities related to the discontinued operations have been classified as held for sale. An analysis of the assets and liabilities is shown below:

23.1 Assetsandliabilitiesofdisposalgroupclassifiedasheldforsale

Housing loans secured by retirement fund assets – 720

Financial assets – 92

Loans to Group companies 4 –

Trade and other receivables 4 28

Cash and cash equivalents 17 99

Other current assets – 5

Totalassets 25 944

Securitisation funding for housing loans – 750

Deferred income – 13

Trade and other payables – 64

Other current liabilities – 1

Totalliabilities – 828

The sale of the Homeplan business was concluded effective 31 October 2010, however the Company is still running off the assets listed above.The transaction comprised of two components, the transfer of the employees employed by the Homeplan division of Alexander Forbes Financial Services (Pty) Ltd and the sale of the loan book in the Homeplan JV.

The COIDLink sale was completed on 12 April 2010 with various conditions precedent. The proceeds on sale were R61 million which has resulted in a loss of R10 million. This was recognised in profit and loss in the year ended 31 March 2010 based on the fair value of assets held for sale.


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2011 2010

Rm Rm

23. ASSEtS AND lIAbIlItIES oF DISPoSAl GRouP ClASSIFIED AS hElD FoR SAlE AND DISCoNtINuED oPERAtIoNS (CoNtINuED)

23.2 Netprofitofbusinessunitsdiscontinueduptoeffectivedateofdisposal



Operating profit before non-trading and capital items 4 14

Net interest income – –

Impairment charges and other capital gains and losses – –

Profit before taxation 4 14

Taxation credit – (11)

Profit before non-controlling interests 4 3

Net profit for the year 4 3

Includedinoperatingexpensesabovearethefollowingdisclosableitems:

Amortisation of purchased and developed computer software (refer note 14) – (2)

Depreciation (refer to note 13) – –

23.3 Cashflowsofdiscontinuedoperations

Cash generated in trading operations 2 48

Net interest cost 1 –

Movement in working capital (refer note 38) (39) 139

Movement in taxation 3 –

Net cash (outflow)/inflow from operating activities (33) 187

Net cash inflow from investing activities 54 8

Net cash outflow from financing activities (103) (147)

Net cash (outflow)/inflow from discontinued operations (82) 48

24. EqUITyHOLDERS’FUNDS

24.1 Totalequityholders’funds

Ordinary share capital (note 24.2) 4 4

Preference share capital (note 24.3) 3 3

Share premium (note 24.4) 3 254 3 254

Non-distributable reserves (252) (313)

Cash flow hedge reserve (note 24.5) (83) (130)

Other reserves (note 24.6) (169) (183)

Accumulated loss (867) (777)

2 142 2 171

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2011 2010

Numberofshares

Sharecapitalat par

Numberofshares

Sharecapitalat par

‘000 Rm ‘000 Rm

24. EqUITyHOLDERS’FUNDS(CONTINUED)

24.2 Analysisofordinarysharecapital

Authorised

Ordinary shares of 1 cent each 700 000 7 700 000 7

Issued

Ordinary shares of 1 cent each

– At 31 March 377 358 4 377 358 4

24.3 Analysisofpreferencesharecapital

Authorised:

Non-convertible redeemable “A” preference shares of 1 cent each 600 000 6 600 000 6

Non-convertible redeemable “B” preference shares of 1 cent each 45 000 * 45 000 *

Issued:


Non-convertible redeemable “B” preference shares of 1 cent each 21 161 ** 21 161 **

At 31 March 340 623 3 340 623 3

* The authorised non-convertible redeemable “B” preference shares of 1 cent each amounted to R450 000 at year-end.

** The issued non-convertible redeemable “B” preference shares of 1 cent each amounted to R211 610 at year-end.


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Ordinaryshare

premium

Preferenceshare

premium 2011 2010

Rm Rm Rm Rm

24.4 Share premium

Balance at 31 March 561 2 693 3 254 3 254

2011 2010

Rm Rm

24.5 Cashflowhedgereserve

Opening balance (130) 16


Raised/(released) during the year from

foreign currency swap – (102)

interest rate swap (19) (95)

fee income hedge – (9)

Less: amounts recycled to income statement to match income statement effect of hedged item 66 60


Interest rate swap

The senior preference shares in Alexander Forbes Acquisition (Proprietary) Limited (“AF Acquisition”) bear interest at a variable interest rate linked to the prime overdraft lending rate in South Africa (“prime rate”), thus exposing the Group to interest rate risk. In 2007, an interest rate hedge was taken out with the senior lenders (Rand Merchant Bank (a division of FirstRand Bank Limited), Nedbank Limited and Investec Bank Limited) to protect AF Acquisition against adverse interest rate risk on the expected dividend payments.

The original hedge profile is on a sliding scale basis commencing at 100% of the expected exposure hedged for 2.5 years from July 2007 and thereafter reducing to 75% for the following year and reducing to 50% for the next year. During 2009 an additional interest rate hedge was entered into with the senior lenders to extend the hedge position on the previously unhedged exposure. The combined hedge profile is on a sliding scale basis commencing at 100% of the expected exposure hedged from 30 November 2009, reducing to 75% for the following year and reducing again to 50% in the next year.

The hedging instrument is a prime-linked floating interest rate to fixed interest rate swap with a notional value of R2 363 million (2010: R1 908 million ). The fair value of the hedge is R111 million (2010: R130 million) in favour of the counterparty.

The details of the hedged instrument are disclosed in note 27.4.

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24.5 Cashflowhedgereserve(continued)

Feeincomehedge

The South African multi-manager investment subsidiary of the Group, Investment Solutions Holdings Limited, previously entered into a hedge arrangement to protect future fee income earned on local equities against a deterioration of the markets.

A hedge was taken out with a local financial institution to cover a rolling 12-month period, covering approximately 85% of the expected fee income from local equities included in assets under management and administration for the first 12 months and approximately 75% for the second 12 months. The contracts covered successive months over the hedge period and expired one month apart. Settlement under the hedge occurred monthly at the maturity of each contract. The hedging instruments were monthly zero coupon spot forward contracts on the SWIX40, settled monthly.

No fee income hedge was in place during the current year.

2011 2010

Rm Rm

24.6 other reserves

Available-for-sale financial assets reserve 4 4

Foreign currency translation reserve (200) (210)

Contingency reserve 27 23

(169) (183)

ContingencyreserveAll short-term insurers are required, in terms of the provisions of the Short-Term Insurance Act 53 of 1998, to maintain a contingency reserve for adverse claims development. This reserve is determined at a minimum of 10% of net written premium as prescribed by the legislation. No distribution of this reserve may be made without the prior consent of the Registrar of Short-Term Insurance.


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2011 2010

Rm Rm

25. FINANCIAl lIAbIlItIES hElD uNDER MultI-MANAGER INvEStMENt CoNtRACtS

25.1 Movementofliabilitiesundermulti-managerandunittrustinvestmentcontracts


Movement during the year: *

Premium inflows 41 408 30 558

Withdrawals (31 707) (31 884)

Investment return net of taxation 21 162 38 211

Effect of movements in exchange rates (6 401) (4 101)

Other (2 624) (5 856)


* This amount is off-set by a corresponding movement in multi-manager and unit trust investment contract assets (refer note 11).

25.2 Discountedmaturityanalysisofliabilitiesundermulti-managerandunittrustinvestmentcontracts

Due within one year 583 2 353

Due between one and five years 141 40

Due after five years – –

Open-ended 182 728 159 221

183 452 161 614

These policyholder liabilities arise from multi-manager and unit trust investment contracts issued by the Group’s multi-manager investment subsidiaries in South Africa, Namibia and the United Kingdom. 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 183 311 161 574

Financial liabilities linked to investment contracts – non-current 141 40

183 452 161 614

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2011 2010

Rm Rm

26. lIAbIlItIES oF CEll-CAPtIvE INSuRANCE FACIlItIES

Under IFRS, all financial liabilities of Guardrisk Insurance and Guardrisk Life in South Africa, Namibia and Mauritius and Euroguard Insurance in Gibraltar 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 are included in the relevant line item in the Group statement of financial position.

Short-term insurance technical liabilities 3 434 3 335

Gross unearned premium provision 1 877 1 804

Gross outstanding claims provision 1 129 1 087

Gross IBNR provision 428 444

Long-term insurance technical liabilities

Policyholder liability 1 325 1 274

Insurance liabilities of Cell-captive insurance facilities 4 759 4 609

Other liabilities attributable to policyholders and Cell owners * 2 979 2 973

Cell owners’ equity 2 157 1 998

Payables 814 934

Taxation payable 8 41

7 738 7 582

* These are designated as financial liabilities at fair value through profit or loss.


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2011 2010

Rm Rm

27. boRRowINGS

27.1 Analysisofborrowings

Senior preference shares issued to three local banks bearing dividends at 85% of the South African prime rate. The preference shares are repayable over 4 years. (note 27.4) 2 337 2 575

Capital advanced (net of redemption during the period) 2 300 2 527

Debt raising costs capitalised (net of amortisation) (22) (28)

Dividend accrued 59 76

High Yield Term Loan issued to a consortium of investors bearing interest at a fixed rate of 16.8%. The term loan is repayable in seven years, maturing in July 2015. (note 27.5) 1 918 1 710

Capital advanced 1 427 1 521

Debt raising cost capitalised (net of amortisation cost) (19) (25)

Interest accrued 510 214

Pay-in-Kind (PIK) debentures bearing interest at 17% per annum compounded semi-annually. The PIK debentures have a term of 10 years from the date of issue. (note 27.7) 1 370 1 163

Capital advanced 750 750

Interest accrued 620 413

Put and call option – at fair value (note 27.6) 191 137

Total interest-bearing borrowings 5 816 5 585

Equity holders’ loan 12 12

5 828 5 597

Borrowing costs are stated at amortised cost except for the High Yield Term loan put and call options which are carried at fair value. The amortised cost approximates fair value.

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27. boRRowINGS (CoNtINuED)

27.2 Reconciliationofmovementsinborrowings

Seniorpreference

sharesHighyieldterm loan

Putandcall

option

PIK deben-

ture other

2011

Total

2010

Total

Opening balance 2 575 1 710 137 1 163 12 5 597 5 857

Movements for the year:

Interest accrued 265 302 – 207 – 774 643

Interest paid (283) (100) – – – (383) (318)

Redemptions paid (227) – – – – (227) (2 026)

Borrowings repaid – – – – – – 1 508

Fair value movement – – 54 – – 54 59

Exchange revaluation – – – – – – (203)

Amendment fee levied – – – – – – 30

Movement in capitalised costs 7 6 – – – 13 47

Closing balance 2 337 1 918 191 1 370 12 5 828 5 597

2011 2010

Rm Rm

27.3 Discountedmaturityanalysisofborrowings

Payable on demand 12 12

Due within one year 268 227

Due between one and five years 3 608 2 348

Due after five years 1 370 3 010

5 828 5 597

| 158 | | 159 |




27.4 Seniordebtpreferenceshares

A subsidiary company, Alexander Forbes Acquisition (Proprietary) Limited (“AF Acquisition”), has issued preference shares in equal proportion to three South African banks.

The preference shares pay semi-annual dividends at a dividend rate of 85% of the South African prime rate with the first payment made on 30 November 2007.

The preference shares are redeemed on a semi-annual basis after the third year from issue date. If the full 2 900 000 preference shares are issued, the redemption schedule is as follows:

– R471 million redeemable on 30 November 2010;– R127 million redeemable on 31 May 2011;– R141 million redeemable on 30 November 2011;– R141 million redeemable on 31 May 2012;– R164 million redeemable on 30 November 2012;– R164 million redeemable on 31 May 2013;– R846 million redeemable on 30 November 2013; and– Final amount of R846 million redeemable on 31 May 2014

AF Acquisition is entitled to make one voluntary early redemption per calendar month in the minimum amount of 25 000 preference shares. If, during a period, AF Acquisition should have excess cash flows (as defined in the Preference Share Subscription Agreement), then the preference shareholders are entitled to require AF Acquisition to redeem the eligible number of preference shares. If, during such a period, AF Acquisition disposes of the whole or a major portion of its assets, business or undertaking or where such a disposal realises net proceeds in excess of R15 million, then AF Acquisition is required to offer to use the net proceeds to redeem the eligible number of preference shares.

The preference share facility is subject to certain early redemption events and certain mandatory redemption events customary for senior financings, the occurrence of which would require the redemption of all of the preference shares.

The preference shares are subject to certain undertakings that, without the prior consent of the preference share agent and subject to certain customary and other agreed exceptions, limit the ability of AF Acquisition to, among other things:

•Enterintoamalgamations,mergers,consolidationorcorporatetransactions;

•Changethescopeofitsbusiness;

•Incurcapitalexpenditureinexcessof20%oftheprojectedcapitalexpenditure,unlesstheprojectedcapitalexpenditurehasnot been completely used in the financial year, in which case the unused amount can be used in addition to the projected capital expenditure for the following financial year only;

•Incuranyfinancialindebtednessexceptintheordinarycourseofbusinessandforspecialpermittedpurposes;

•Giveanyguaranteeorsecurityinterestexceptforpermittedguaranteesandsecurityinterests;and

•Issueadditionalequityinstrumentsexceptforthepermitteddistributionsorgrantanyloansotherthanpermittedloans.

The preference share facility also requires AF Acquisition to observe certain positive undertakings subject to materiality and other customary and agreed upon exceptions. These positive undertakings include, but are not limited to, obtaining and maintaining all necessary consents, filings and authorisations; effecting insurance; effecting intellectual property rights; ensuring the composition of the management team and finalising the strategic management incentives; declaring dividends and implementing the daily cash management system.

The preference shares receive a first-ranking guarantee and the repurchase obligation is effectively secured over the assets of each of AF Acquisition, Alexander Forbes Limited (“AFL”) and various security entities.

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27.5 HighyieldTermLoan

On 2 June 2009 a consortium of investors consisting mainly of shareholders acquired the term loan from the original lenders (JPMorgan Chase Bank N.A. and Goldman Sachs Credit Partners L). As a result the terms of the High Yield Term Loan were amended (key changes include the redenomination of the loan from Euro to ZAR, amendment to interest rate and additional flexibility in terms of payment of interest provisions). Due to the magnitude of the changes in the terms of the agreement (as required in terms of IAS 39) the financial liability was derecognised and a new financial liability was recognised. A profit of R40 million was recognised (gain of R374 million on the cash out of the related foreign currency swap and a loss of R334 million on the revaluation of the term loan).

A subsidiary company, Alexander Forbes Funding (Proprietary) Limited (“AF Funding”) obtained the High Yield Term Loan (“term loan”) amounting to R1 487 million from a consortium of investors consisting mainly of shareholders.

The interest on the term loan may be deferred at the election of the majority lenders. In the event that the interest is deferred, penalty interest of 100 basis points will arise on the deferred interest portion.

The term loan may be prepaid at any time, in whole or in part, which would include the capital plus any accrued and unpaid interest to the prepayment date. The term loan has a maturity date of 18 September 2015.

The term loan is subject to certain mandatory repayment events. These include, but are not limited to (i) any direct or indirect public offering or private placement of any debt or equity securities of the Group (not including the facility in respect of the preference shares, the term loan facility and the revolving credit facilities); (ii) any future bank borrowings by AF Funding or its subsidiaries, other than indebtedness incurred under the preference shares, the term loan facility and the PIK finance documents as in effect at the acquisition closing date, the revolving credit facilities, any permanent securities used to refinance the term loans, the exchange notes and any permitted financial indebtedness and (iii) certain disposals (e.g. asset sales or leases) that are not otherwise permitted by the term loan agreement after the acquisition closing date, subject, in the case of clauses (ii) and (iii) only, to the required prior repayment of any amount outstanding under the preference shares to the extent such payment is required.

In addition, all amounts outstanding on the term loan, together with accrued and unpaid interest, shall 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. Finally, AF Funding must repay or prepay the term loan 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.

The term loan is guaranteed by a senior first-ranking guarantee from Alexander Forbes PIK Funding (Proprietary) Limited (“AF PIK”) secured only by a pledge over AF PIK’s shares in AF Funding, claims against AF Funding under reorganisation loans and acquisition debt and any other and future claims of AF PIK against AF Funding. The term loan also benefits from subordinated guarantees from AF Acquisition, Alexander Forbes Limited and various Group subsidiaries.

The term loan is the senior debt of AF Funding and senior subordinated debt of each guarantor, subordinated in right of payment to the indebtedness of each guarantor under the revolving credit facilities, the preference shares and certain hedging obligations and pari passu or senior in right of payment to all other indebtedness of the borrower and the guarantors.


| 160 | | 161 |




27.6 Putandcallagreement

Additional amounts are payable on the term loan in terms of a put and call option agreement. Under this agreement, AF Funding issued preference shares to a security agent on behalf of the term loan lenders. The shares vest in accordance with a schedule set forth in the put and call option agreement and redemption of these shares occurs if AF Funding repays or prepays any portion of the term loan. The put or call price payable on redemption of these shares is calculated with reference to capital of the term loan and is capped to a maximum of 3.3%. The put or call price is payable in Rands and is unhedged.

27.7 Pay-in-Kind(“PIK”)debenture

A subsidiary company, AF PIK, has issued 100 000 000 unsecured debentures for a principal amount of R7.50 each. The debentures bear interest at 17% per annum compounded semi-annually on 31 May and 30 November each year. This interest together with the capital amount is redeemable on the 10th anniversary from the date of issue, namely on 26 July 2017.

AF PIK may at any time purchase any debentures from any debenture holder at such price or consideration as may be agreed upon between it and the debenture holder concerned (provided that the price so mutually agreed upon may not exceed the then market price thereof if the debentures are listed on a recognised exchange at that time).

The capital and accrued interest unpaid on the debentures shall become immediately repayable if one of the following occurs, without the prior approval by way of an extraordinary resolution of the debenture holders or without the prior consent in writing of debenture holders holding not less than 75% in aggregate principal amount of the debentures then outstanding:

– There is a change of control. Change of control is defined (in the PIK Debenture Trust Deed) as (a) the effective equity interest of Actis in AF PIK

falling below 10%; (b) the effective equity interest of the consortium investors in AF PIK falling below 50% plus one ordinary share; (c) the consortium investors cease to have the right to appoint or remove a majority of AF PIK’s Board of Directors or the members of the body that controls the management of AF PIK (as the case may be); (d) AF PIK ceases to hold 100% of the ordinary shares of its subsidiary, AF Funding as the direct registered holder; or (e) AF Funding ceases to hold 100% of the ordinary shares of AF Acquisition as the direct registered holder; provided that any effective equity interest that a consortium investor holds in AF PIK by virtue of any share capital or other equity instruments that such consortium investor holds in the company, if any, shall be excluded in determining whether a change of control has occurred pursuant to (a) through (e) (inclusive) of this definition;

– There is a disposal of all or substantially all of the assets or business of AF PIK and its subsidiaries (“the PIK Group”) other than a disposal of any asset by any member of the Group to another member of the PIK Group or any disposal pursuant to a permitted reorganisation. “Substantially all of the assets or business of the Group” means more than 50% by value of the total assets or business of the PIK Group as reflected in the latest audited annual consolidated financial statements of the PIK Group at the time of such disposal.

| 162 | | 163 |




27.8 Financialcovenants

Preference shares

The preference share facility sets out certain financial covenants that must be maintained until all of the preference shares have been redeemed. The financial covenants are customary for senior financings of this magnitude, and include, among other things:

Maintenance covenants

These financial covenants define the level at which the debt will be in default and are based on:

– The EBITDA to total funding cost ratio is not less than such ratio as the preference share agent may determine in writing prior to the Completion Date and in consultation with AF Acquisitions;

– The total net debt to EBITDA ratio is not greater than such ratio calculated as the preference share agent may determine in writing prior to the Completion Date and in consultation with AF Acquisitions.

Distribution covenants

These financial covenants define the level at which the interest servicing of the second tier debt (high yield term loan) must be discontinued. These covenants are based on:

– The EBITDA to total funding cost ratio is not less than such ratio as the preference share agent may determine in writing prior to the Completion Date and in consultation with AF Acquisitions;

– The ratio of EBITDA (accounting for capital expenditure, taxes, net working capital, unrealised gains and losses, dividends, and regulatory capital) to scheduled payments is not less than 1:1;

– The ratio of EBITDA (accounting for capital expenditure, taxes, net working capital, unrealised gains and losses, dividends, and regulatory capital) to senior debt costs ratio is not less than 1.2:1; and

– The total net debt to EBITDA ratio is not greater than such ratio calculated as the preference share agent may determine in writing prior to the Completion Date and in consultation with AF Acquisitions.

High Yield Term Loan

The financial covenants relating to the High Yield Term Loan are based on those of the preference shares.

The term loan is also subject to certain general covenants, including a customary “go-to-market” covenant with respect to the preparation, marketing, offering and issuance of any debt securities, discount debt securities, convertible securities, equity securities or preferred stock for the purposes of refinancing the term loan. The “go-to-market” covenant in this case is a covenant requiring that the term loan is refinanced with a public listed bond, with the co-operation of the Company with regard to the marketing, offering and issuance of the bond.


| 162 | | 163 |



2011 2010

Rm Rm

28. EMPloyEE bENEFItS

28.1 Totalemployeebenefits

Defined benefit pension fund obligation – South Africa (note 28.2) – –

Defined benefit pension fund obligation – LCP Libera (note 28.3) – –

Post-retirement medical benefit obligation – South Africa (note 28.4) 103 98

Provision for leave pay (note 28.5) 62 60

165 158

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.

28.2 Definedbenefitpensionfundobligation–SouthAfrica

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 2011. 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 2011 comprised 30 active members and 71 pensioners.

A portion of fund assets are invested with our subsidiary, Investment Solutions, and the total value is R155m (2010: R140m).

| 164 | | 165 |



2011 2010

Rm Rm

28. EMPloyEE bENEFItS (CoNtINuED)

28.2 Definedbenefitpensionfundobligation–SouthAfrica(continued)

The latest actuarial valuation reflected the following:

Defined benefit obligation 117 111

Fair market value of fund assets (175) (158)

Funded status – surplus (58) (47)

Less: Unrecognised amount * 58 47

Amount recognised in the statement of financial position – –

* In terms of paragraph 58 of IAS 19 Employee Benefits, ownership of the surplus in the defined benefit pension fund cannot be recognised by, nor is it currently available, to the Group.

The nil surplus position for the pension fund at the surplus apportionment date, being 1 March 2004, was recorded by the South African Financial Services Board.

The use of any future surplus has not yet been decided but will be agreed after consultation between the Company and the fund trustees.

A reconciliation of the movement in the pension fund obligation is as follows:

Opening unrecognised asset – –


Charge per income statement 3 3

Contribution paid* (3) (3)

Closing unrecognised asset – –

*Expected contributions to be paid for the 2012 financial year are R2 million.

A reconciliation of the movement in fair market value of fund assets is as follows:



Expected return on plan assets 15 13

Contributions 3 3

Risk premiums (1) (1)

Benefits paid (5) (6)

Actuarial gain 5 8



| 164 | | 165 |



2011 2010

Rm Rm



A reconciliation of the movement of the present value of the defined benefit obligation is as follows:



Current service cost 3 2

Member contributions – –

Interest cost 10 8

Actuarial (gain)/loss (1) 20


Risk premiums (1) (1)


The charge per the income statement is made up as follows:


Interest cost 10 8

Expected return on plan assets (15) (13)

Amortisation charge in terms of paragraph 58 of IAS 19 5 6


The principal actuarial assumptions applied are as follows:

Discount rate 9.25% 9.00%

Inflation rate 6.00% 5.25%

Salary increase rate 7.00% 6.25%

Pension increase allowance 4.05% 3.81%

Expected rate of return on assets 9.25% 9.25%

The mortality rates are assumed as follows:

Pre-retirement: SA85-90 (Light) table

Post-retirement: PA(90) ultimate table rated down 2 years plus 1% improvement per annum from 28 February 2004.

ExpectedreturnonassetsThe fund’s expected long-term return is a function of the expected long-term returns on equities, cash and bonds. In setting these assumptions, the Group made use of the asset split as at 28 February 2011 . The expected long-term rate of the return on bonds was set at the same level as the discount rate. This implies a yield on government bonds of 9.25% (2010: 9%) per annum as at 31 March. The expected long-term rate of return on equities was set at a level of 3% (2010: 3%) above the bond rate, whilst the expected long-term rate of return on cash was set at a level of 1% (2010: 2%) below the bond rate. Adjustments are made to reflect the effect of expenses.

| 166 | | 167 |



2011 2010



The plan assets of AF Staff Pension Fund were invested as follows:

Cash 9.42% 9.70%

Equity 26.66% 26.91%

Bonds 52.88% 40.76%

Property 1.54% 2.07%

International 9.50% 7.04%

Other 0.00% 13.52%

100% 100%

2011 2010

ChF m CHF m

28.3 Definedbenefitpensionfundobligation–LCPLibera

The employees of LCP Libera (Switzerland) contribute to a defined contribution pension fund which provides a minimum pension fund obligation based on the Pensionskasse ATAG Treuhand (PK ATAG). There are 79 active members in this fund.

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. At 31 March 2011 and 31 March 2010, all pension fund assets were invested in money market instruments.

The fund is valued by a statutory actuary on a tri-annual basis, with the last full actuarial assessment being completed on 31 December 2010. For accounting reporting, the projected unit credit method is used to value the liability. This is based on an actuarial projection of the statutory valuation updated to 31 March 2011 taking into account market conditions and the fund’s experience to date.


Defined benefit obligation 26 24

Fair market value of fund assets (24) (22)

Funded status deficit/(surplus) 2 2

Less: Unrecognised actuarial deficit (2) (2)

Amount recognised in the statement of financial position – –

A reconciliation of the movement in the pension fund obligation is as follows:

Opening unrecognised asset - -



Contribution paid* (1) (1)

Closing unrecognised asset – –

* Expected contributions to be paid for the 2012 financial year are CHF 1.4 million.


| 166 | | 167 |



2011 2010

ChF m CHF m


28.3 Definedbenefitpensionfundobligation–LCPLibera(continued)

A reconciliation of the movement in fair market value of fund assets is as follows:



Expected return on plan assets 1 1

Contributions paid by employer 2 2

Contributions paid by employees 1 1


Actuarial loss (1) (1)




Interest cost 1 1

Expected return on plan assets (1) (1)

Expense recognised in profit and loss 1 1



Salary increase rate 1.50% 1.50%

Pension increase allowance 0.00% 0.00%

Expected rate of return on assets 4.00% 4.00%

2011 2010

Rm Rm

28.4 Post-retirementmedicalbenefitobligation–SouthAfricaIn South Africa, certain employees, who joined the Group prior to 1 March 1997, are entitled to a post-retirement medical aid subsidy. At 31 March 2011, this applies to a total of 354 people (2010: 367) and comprises 93 active employees (2010: 107) and 261 pensioners (2010: 260). Employees who joined the Group after 1 March 1997 are not eligible for post-retirement medical aid subsidies.

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 post-retirement medical aid subsidy paid to pensioners is linked to the inflation (CPI) rate. In order to compensate for the subsidy increase being different to medical aid inflation, a hardship fund was established by the Group in 2004 to provide assistance to specifically identified pensioners in financial need.

The obligation is valued every three years by actuaries using the projected unit credit method. The date of the last actuarial valuation was 31 March 2009. The post-retirement medical obligation is partly funded through a Cell-captive insurance arrangement with a subsidiary company of the Group, the assets of the insurance Cell totaled R75 million at 31 March 2011 (2010: R75 million).

| 168 | | 169 |



2011 2010

Rm Rm


28.4 Post-retirementmedicalbenefitobligation–SouthAfrica(continued)


Medical benefit obligation 96 82

Hardship fund liability 12 12

Current service cost (5) 4

Recognised liability in the statement of financial position 103 98

A reconciliation of the movement in the post-retirement medical benefit obligation in South Africa is as follows:




Additional provision 3 6

Contributions paid* (6) (5)


* Expected contributions to be paid for the 2012 financial year are R6 million.



Interest cost 7 7




Health care cost inflation 8.00% 7.25%

Inflation (CPI) rate 6.00% 5.25%

Retirement age 60/65 yrs 60/65 yrs

Withdrawal and mortality rates

Withdrawal rates are assumed to be as follows:


2011 2010

AgeAnnualrateof

withdrawal AgeAnnual rate of

withdrawal

20 15% 20 15%

25 10% 25 10%

30 7% 30 7%

35 4% 35 4%

40 2% 40 2%

45+ 0% 45+ 0%

| 168 | | 169 |




28.4 Post-retirementmedicalbenefitobligation–SouthAfrica(continued)

Mortality rates are assumed as follows:

During employment: SA85-90 (Light) ultimate table

Post-employment:PA (90) ultimate table rated down 2 years plus 1% improvement per annum (from a base year of 2006)

HealthcarecostinflationandCPI

-1%Centralassumption 8.00%&6.00% +1%

The effects of a (decrease)/increase of a one percent change in the assumed medical cost trend rates on:

Accrued liability 31 March 2011 – Rm 86 96 109

Accrued liability 31 March 2011 – % change -10.5% – +12.8%

Current service cost and interest cost 2011/12 – Rm 9 10 12

Current service cost and interest cost 2011/12 – % change -8.9% – 201%

The trend information, for the current annual period and the previous four annual periods, is presented as follows:

2011 2010 2009 2008 2007

Rm Rm Rm Rm Rm

Present value of obligations 96 82 86 86 88

Fair value of plan assets – – – – –

Deficit in the plan 96 82 86 86 88

Experience adjustments:

Present value of obligations (8) 6 (3) 3 (5)

Fair value of plan assets – – – – –

(8) 6 (3) 3 (5)

28.5 Provisionforleavepay



Increase in provision 12 8

Decrease in provision (10) (12)


Closingbalance 62 60

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

| 170 | | 171 |



2011 2010

Rm Rm

29. DEFERRED tAxAtIoN

29.1 Netdeferredtaxliabilitybalance

Deferred tax assets (note 29.3) 145 158

Deferred tax liabilities (note 29.4) (574) (615)

(429) (457)

29.2 Reconciliationofmovementinthenetdeferredtaxliabilitybalance

Opening balance (457) (571)


Credit per income statement 27 125

Charged directly to equity – (3)

Degrouping tax charge resulting from the sale of IRS business (4) –

Foreign subsidiaries exchange differences 5 (8)


29.3 Analysisofdeferredtaxassets

Retirement benefit obligations 27 25

Deferred income 52 59

Calculated tax losses 51 49

Provisions 75 51

Other items (60) (26)

Total deferred tax assets 145 158

29.4 Analysisofdeferredtaxliabilities

Accrued and not billed balances (27) (18)

Deferred tax on policyholder assets (31) (46)

Accelerated tax allowances, provisions and other items (11) 15

Deferred tax recognised in terms of IFRS 3 Business Combinations * (505) (566)

Total deferred tax liabilities (574) (615)

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


| 170 | | 171 |



Proposedclientsettlements

Provision for errorsand

omissionsclaims other Total

Rm Rm Rm Rm

30. PRovISIoNS

30.1 Analysisandreconciliationofmovementinprovisions

Balanceat31March2010 404 138 108 650


Increase in provision – 64 60 124

Interest accrued 6 – – 6

Decrease in provision and payments made (356) (10) (18) (384)

Foreign subsidiaries exchange differences – (4) – (4)

Balanceat31March2011 54 188 150 392

Balanceat31March2009 285 219 104 608


Increase in provision 275 3 43 321

Interest accrued 20 – – 20

Decrease in provision and payments made (176) (54) (21) (251)

Foreign subsidiaries exchange differences – (30) (18) (48)

Balanceat31March2010 404 138 108 650

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.

30.2 Provisionforclientsettlementsandotherlegalclaims

In the past, the Group voluntarily appointed independent legal advisors to conduct a full review of past and current business practices across all of the South African operations. The results of the review were fully disclosed to the regulator and published on the Group’s website. Following this review in 2006, the provision for proposed client settlements for historical business practices, including the practice referred to as “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 regarding bulking, with the vast majority of all retirement funds who received offers having accepted the settlement offer. The settlement offers are made in full and final settlement of the matter, however, a contingent liability will remain in respect of any clients who do not accept the settlement offer.

Alexander Forbes Financial Services (Proprietary) Limited, resolved its liability in respect of the Lifecare civil claim by the curators/liquidators. The proposed settlement amount, was provided for in full in prior year and was substantially covered through professional indemnity insurance. The liability was settled in full in the current financial year.

| 172 | | 173 |



30. PRovISIoNS (CoNtINuED)

30.3 Provisionforerrorsandomissionsclaims

The Group’s professional indemnity risk is insured in the London market with a limit of £100 million for each claim and in the annual aggregate in excess of £7.5 million. The first £7.5 million of each claim (subject to a deductible of £100,000/R1.5 million per claim and in the annual aggregate) is insured with a third party Cell-captive insurer, Mannequin Insurance PCC Limited (“the Mannequin policy”). In the event that the £7.5 million is utilised in any one year, a deductible of £250,000 per claim will be applied by the international market.

The international market policy covers all subsidiary and associate companies, except for Lane Clark & Peacock. The Mannequin policy excludes associates and non-wholly-owned operations, with some exceptions. Such operations are required to insure their own risk up to a limit of £1,25 million, after which they are included in the Group’s London market policy up to an additional limit of £8,75 million, providing them total cover of £10 million. Lane Clark & Peacock effect their own cover with a limit of £50 million.

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 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.

30.4 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 sub-lease arrangements in respect of unoccupied office space.

NOTES TO ThE GrOup FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 March 2011

| 172 | | 173 |



2011 2010

Rm Rm

31. oPERAtING lEASE lIAbIlIty

Premises lease deferral: 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 67 103

The significant leases to which this deferral relates are the leases for Alexander Forbes Place, 61 Katherine Street, Sandton and Alexander Forbes Place, 90 Rivonia Road, Sandton. The combined lease commitments for these two buildings are currently R8,548,296 per month with annual escalation clauses of 12% and 11.5% respectively and running until September 2012 and August 2012 respectively.

32. DEFERRED INCoME

RiskServices:Insurance broking commission and fee income - income deferred to cover future servicing costs, together with a reasonable margin thereon 90 70

RiskServices: Underwriting agency income - income deferred to cover future servicing costs, together with a reasonable margin thereon 10 17

FinancialServices: Commission income on insurance and investment products – income deferred to cover future servicing costs, together with a reasonable margin thereon 17 19

Multi-managerInvestmentandFinancialServices: Structured product fees spread evenly over the expected period of the contract 3 1

120 107

33. INSuRANCE PAyAblES

33.1 Totalinsurancepayables

Insurance payables from broking activities 414 423

Reinsurance creditors 231 163

Claims float held for insurance operations 28 18

Payables from short-term insurance contracts 417 279

Gross unearned premium provision 109 66

Gross outstanding claims provision 251 185


Payables from long-term insurance contracts

Policyholder liability under long-term insurance contracts 439 181

Payables from umbrella fund activities* 619 546

2 148 1 610

*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.

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2011 2010

Rm Rm

33. INSuRANCE PAyAblES (CoNtINuED)

33.2 Policyholderliabilityunderlong-terminsurancecontracts

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

Gross policyholder liability (refer note 33.1 above) 439 181

Less: Reinsurance assets relating to the policyholder liability (refer note 20) (204) (155)

Net liability to policyholders 235 26

A reconciliation of the movement in the net policyholder liability is as follows:



Net increase in claims experience 209 11

Benefit payments and withdrawals – (4)

Investment income – 1


33.3 Netpayablesfromshort-terminsurancecontracts

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 note 33.1 above) 417 279

Less: Receivables from short-term insurance contracts (refer note 20) (308) (206)

Net payables from short-term insurance contracts 109 73

A reconciliation of the movement in the net payables is as follows:



Net claims incurred 36 28

Other movements – (39)



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2011 2010

Rm Rm

34. tRADE AND othER PAyAblES

Financial liabilities:

Trade payables 208 196

Accrued expenses 123 186

Payable under cash flow hedge contract * – 130

Other payables 369 152

700 664

Non-financial liabilities:

Employee-based accruals 335 308

Taxation payable 66 102

1 101 1 074

* The payable under cash flow hedge contract is a derivative liability which is fully described in note 24.5.

Premises

Furniture&fittings,office

equipment andother

assetsTotal

2011Total2010

Rm Rm Rm Rm

35. CoMMItMENtS

35.1 Operatingleasecommitments

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

Due within one year 173 22 195 192

Due between one and five years 373 40 413 354

Due after five years 1 385 – 1 385 147

1 931 62 1 993 693

The funds to meet these commitments will be provided from internal cash resources generated by operations. In addition to operating lease commitments disclosed in note 31, there is also a significant commitment in respect of the lease of the new building at 115 West Street, Sandton commencing in October 2012.

2011 2010

Rm Rm

35.2 Capitalcommitments

Commitments in respect of capital expenditure approved by Directors:

Contracted for – 7

Not contracted for 6 3

6 10

The funds to meet these commitments will be provided from internal cash resources generated by operations.

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35. CoMMItMENtS (CoNtINuED)

35.3 RevolvingcreditfacilityAlexander Forbes International Ltd (“AFIL”) and AF Acquisition, the direct holding Company of Alexander Forbes Limited, entered into revolving credit facility with FirstRand Group of companies for a maximum aggregate amount of R200 million. Until 2010, the maximum sterling amount available to AFIL was GBP 7 million with the Rand equivalent of the remaining aggregate balance available to AF Acquisition. During the current financial year, the entire facility was transferred to AF Acquisitions and is now denominated only in Rand.

This Rand denominated facility to AF Acquisition bears interest at a variable rate equal to the Rand overnight deposit rate plus an applicable margin and accrues on a daily basis. The revolving credit facility is available for drawing until July 2014 and drawings are permitted as and when required during the availability period, upon satisfaction of certain conditions.

Under the revolving credit facility, a commitment fee is payable to the lender in respect of each calendar quarter until the final payment date. The commitment fee is calculated as 0.9% of the average amount available for draw-down during the quarter, calculated daily and payable in arrears on 31 May and 30 November each calendar year.

The outstanding balance on the revolving credit facility is obliged to be repaid upon a “mandatory redemption event” or “early redemption event”, both as defined in the preference share agreement. The repayment must occur within 30 days of demand of such repayment.

This facility ranks pari passu with senior debt preference shares issued by AF Acquisition as set out in the Intercreditor agreement (defined below).

35.4 IntercreditoragreementTo establish the relative rights of certain of the creditors within the Group under the financing arrangement, various companies within the Group entered into an Intercreditor agreement with the debt funders, including the funders of the preference share, revolving credit facility, High Yield Term Loan and Pay-in-Kind debentures. The Intercreditor agreement sets out the relative ranking of the financing obtained and of the security granted within the subsidiary companies of the Group. The Intercreditor agreement also sets out when payments can be made in respect of the debt, when enforcement action can be taken in respect of the debt, the terms pursuant to which certain of the debt will be subordinated upon the occurrence of certain insolvency events, turnover provisions and when security and guarantees can be released to permit an enforcement sale.

35.5 GuarantorsundertheHighyieldTermLoanagreementVarious subsidiary companies within the Group are guarantors under the High Yield Term Loan agreement. As such, these subsidiary companies have absolutely, unconditionally and irrevocably guaranteed the full and punctual payment of the principal and interest, fees and premium (if any) on the term loan and any other obligation under this agreement.

36. CoNtINGENCIES

36.1 overviewIn 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 program is explained in note 30.3 to these financial statements.


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36. CoNtINGENCIES (CoNtINuED)

36.2 Clientsettlementsarisingfromhistoricalbusinesspractices

‘‘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. The results of this review were fully disclosed to the Regulator and published on the Group’s website. 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. Although provisions made are considered to be adequate, a contingent liability remains in this regard.

During the year an amount of R100 million was received from SARS in respect of taxation settlement relating to the matter. In accordance with our undertaking to clients this amount is being paid to affected clients. The Directors are of the opinion that no further liability exists in this regard and the provisions made are considered adequate.

36.3 lifecare matterIn previous years the Group disclosed a contingent liability in respect of a civil application brought by the curators of certain retirement funds against a subsidiary company for its alleged role in transactions that took place during the period 1992 to 1997. There was no allegation and no evidence that either the Group or any of its employees or former employees received any of the surpluses that allegedly left these funds.

In respect of the civil matter, a without admission of liability settlement agreement has been entered into with the curator of the relevant funds. This settlement offer was accepted by the curator and the cost to the Group was substantially covered through insurance. In addition the related pending criminal matter was also settled. There are no further liabilities that will arise from this issue.

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2011 2010

Rm Rm

37. CASh GENERAtED FRoM oPERAtIoNS

Profit before taxation from continuing operations 169 93

Cash items:

Net interest paid 315 318

Dividend received – associates 3 2

Non-cash items:

Share of net profits of associates (3) (2)

Depreciation of property and equipment 78 78

Amortisation of intangible assets 200 205

Impairment losses and recoveries - 75

Capital gains/(loss) 21 (56)

Income statement charge for retirement benefit obligations 7 14

Movement in borrowings 458 740

Movement in provisions (30) (101)

Movement in other non-cash items 35 (75)

1 253 1 291

38. MovEMENt IN woRKING CAPItAl AND INSuRANCE bAlANCES

Continuing operations:

Movement in working capital balances

Trade and other receivables (45) 102

Trade and other payables 70 (196)

Movement in insurance balances

Insurance receivables (185) (198)

Insurance payables 538 227

Foreign subsidiaries exchange differences 4 (48)

382 (113)

Discontinued operations:


Trade and other receivables 20 103

Trade and other payables (54) 32

Movement in insurance balances

Insurance receivables 1 (2)

Insurance payables (6) 6

Foreign subsidiaries exchange differences - –

(39) 139

343 26


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2011 2010

Rm Rm

38.1 CASh FlowS FRoM PolICyholDER INvEStMENt CoNtRACtS

Premium inflows 41 408 30 558

Investments made net of disinvestments (8 625) (10 537)

Movement in insurance liabilities (231) (24)

Investment withdrawals (31 707) (31 884)

845 (11 887)

39. tAxAtIoN PAID

Taxation payable at beginning of year (102) (60)

Prepaid tax at beginning of year 18 49

Charge in income statement (201) (174)

Adjusted for:

Tax attributable to policyholders 14 13

Deferred tax charge per income statement (35) (142)

Reclassification of degrouping tax charge – –

Foreign subsidiaries exchange differences (3) (4)

Tax payable in UK partnership 13 14

Prepaid taxation at end of year (12) (18)

Taxation payable at end of year 66 102

(236) (220)

40. DISPOSALOFSUBSIDIARIES,ASSOCIATESANDBUSINESSES

The Homeplan disposal was concluded effective 31 October 2010.The transaction comprised of two components, the transfer of the employees employed by the Homeplan division of AFFS (Pty) Ltd and the sale of the loan book in the Homeplan JV. The proceeds below include R8 million relating to the disposal of FIHRST Management Services (Pty) Ltd.

Fair value of net assets sold 89 17

Consideration received in cash 80 59

Cash and cash equivalents disposed of (11) (14)

Net cash inflow 69 45

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41. RElAtED PARty DISCloSuREListofrelatedpartyrelationships

41.1 MajorshareholdersThe equity holders of the Company are detailed in Annexure B to these financial statements.

The private equity consortium investors together have a 50.1% interest in the Company; however, no single member of the consortium or any other shareholder has an effective equity interest of more than 17% in the Company.

41.2 Subsidiaries,jointventuresandassociatesDetails 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 Annexure A to these financial statements.

41.3 Post-employmentbenefitplansDetails of retirement benefit plans are provided in the relevant note to these financial statements.

41.4 DirectorsDetails of the Directors of the Company are provided in the Directors’ Report.

41.5 KeymanagementpersonnelKey management personnel are defined as the Group Executive Committee of the Alexander Forbes Limited Group, and the Board of Directors of Alexander Forbes Equity Holdings (Proprietary) Limited.

SuMMARy oF RElAtED PARty tRANSACtIoNS

41.6 TransactionswithshareholdersFees paid to Non-Executive Directors, during the year, of R1.7 million (2010: R1.6 million) are paid to the shareholder company that the Non-Executive Directors represent.

41.7 TransactionswithsubsidiariesandjointventuresDetails 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.

41.8 transactions with associatesDetails of dividends received from associates are provided in the relevant notes to these financial statements.

41.9 Transactionswithpost-employmentbenefitplansContributions to retirement benefit plans amounted to R3 million (2010: R4 million) to the defined benefit fund and R7 million (2010: R5 million) to the post-retirement medical obligation plan, as detailed in the relevant note to these financial statements. There are no amounts outstanding at year-end. Assets of the retirement benefit plans are invested through Investment Solutions Limited, these assets amount to R977 million (2010: R941 million).

The retirement benefit plans of the Group are compulsory funds and as such key management are participants in the fund. At 31 March 2011, the investments held through the retirement benefit plans by key management are R14.4 million (2010: R12.6 million).


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41. RElAtED PARty DISCloSuRE (CoNtINuED)

41.10 transactions with DirectorsThe remuneration of Executive Directors is determined and approved by the Remuneration Committee. The remuneration of Non-executive Directors, in the form of fees, is approved by shareholders at each annual general meeting.

The Remuneration Committee consists entirely 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 officeholders during the year are detailed below. In addition bonuses amounting to R10.6 million (2010: R6.8 million) for the current period under review were accrued and have not yet been paid.

Salariesand

bonusesBenefitsandallowances

Retirement fund

contributions

Sign-onandotheronce-off

payments Total

R‘000 R‘000 R‘000 R‘000 R‘000

2011:

MSMoloko(Chairman) 3 930 41 274 – 4 245

E Chr Kieswetter (Chief Executive officer)(1) 5 487 55 418 – 5 960

DMViljoen(GroupFinanceDirector) 5 965 61 427 – 6 453

2010:

MS Moloko (Chairman) 4 205 43 241 – 4 489

E Chr Kieswetter (Chief Executive Officer)(2) 950 33 100 2 333 3 416

DM Viljoen (Group Finance Director) 5 526 57 365 – 5 948

B Campbell (past Chief Executive Officer) 7 086 131 340 7 900 15 457

(1) “Salaries and bonuses” in respect of the 2011 financial year include 12 months’ salary and bonus paid in respect of 3 months relating to previous financial year.

(2) “Salaries and bonuses” in respect of the 2010 financial year include 3 months’ salary only.

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Non-executive Directors’ fees accrued during the financial year are as follows:

2011 2010

Name Representing R’000 R’000

ShareholderCompany

T Matiwaza Shanduka Advisors (Proprietary) Limited 278 281

MC Ramaphosa Shanduka Advisors (Proprietary) Limited 278 281

A Roux Ethos Capital v GP (SA) Limited 278 281

P Schmid Actis AF Holdings Limited 278 281

JA van Wyk Actis AF Holdings Limited 278 281

1 390 1 405

IndependentDirectors

D Konar Independent Director 800 800

VR Ngalwana Independent Director 600 600

B Petersen Independent Director 300 –

1 700 1 400

3 090 2 805

ShareholdingintheGroup

The Directors’ indirect shareholding of Alexander Forbes Equity Holdings (Proprietary) Limited is through the Alexander Forbes Management Trust (“the trust”), which was formed for senior executives of the Alexander Forbes Group. These Directors do not directly own shares in the Company, however, the Trust holds shares in the Company for the benefit of the participants in the Trust. Each Director made a contribution of capital to the Trust. The equivalent beneficial interest of the Directors is detailed below.


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41. RElAtED PARty DISCloSuRE (CoNtINuED)

41.10 TransactionswithDirectors(continued)

2011Beneficialinterest

2010Beneficial interest

Rm Rm

MS Moloko 1.6 1.3

E Chr Kieswetter 3.2 2.8

DM Viljoen 1.7 1.5

There are various conditions placed on the investments in the trust deed including valuation provisions for early withdrawal and tag along /drag along clauses in order to align this shareholding with the majority shareholders.

41.11 Transactionswithkeymanagementpersonnel

The amounts presented below exclude compensation paid to Directors of the Company who are members of the Group Executive Committee whose compensation has been presented above in note 41.10.

2011 2010

Rm Rm

Short-term employee benefits (salary, bonus and other benefits) 31 24

Post-employment benefits 2 2

33 26

Shareholding through the Alexander Forbes Management Trust

Certain levels of management participate in the Alexander Forbes Management Trust and the Alexander Forbes Management Co-Investment Trust. Both trusts hold shares amounting to 8.7% of the ordinary share capital of the Company. The amounts invested into the Management Trust and the Co-Investment Trust by key management is R15.7 million or 2.4%.

Transactions with Group companiesIn addition to the transactions above, members of the Executive Committee also have personal investments in Investment Solutions amounting to R13 million (2010: R5 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.

Investments in the High Yield Term LoanAs part of the debt restructure in the previous financial year, key Management were afforded the opportunity to invest in the High Yield Term Loan in line with their shareholding through the Management Trust. Key Management has invested R4.1 million directly into the loan and the relevant assets associated, on the same terms and conditions as the rights offer applicable to all shareholders at the time. In addition, those members who did not follow their rights are beneficiaries of the High Yield Investment Trust which was incorporated for Management for the purposes of this transaction and whereby a portion of the return may ultimately be received depending on returns achieved by the bank which took up the remaining rights. Key Management will benefit with 34.4% of the distribution from this trust in the event that any amounts are received by the trust.

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42. INSuRANCE RISK

42.1 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, Guardrisk Insurance, Guardrisk Life, Guardrisk International Limited, Guardrisk Life International Limited, Euroguard Insurance, 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 underwriting 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.

Five of the Group’s insurance subsidiaries, namely Guardrisk Insurance, Guardrisk Life, Guardrisk International Limited, Guardrisk Life International Limited and Euroguard Insurance, provide Cell-captive insurance facilities for clients. These facilities are classified as special purpose entities, mainly as a result of the Cell shareholder’s rights to obtain the majority of the future economic benefits of the Cell’s insurance activities. The recognition of transactions relating to these facilities in the financial statements depends on the nature of the Cell-captive insurance arrangement. The insurance companies participate with some of the Cell shareholders in the underwriting risks of the business written in the Cells. The assets and liabilities relating to these risk-taking activities are included in the relevant line items in the Group financial statements and are included in the insurance-related liabilities shown below. Surplus funds in the Cells are invested in investment portfolios and are separately reflected in the Group statement of financial position as “Financial assets of Cell-captive insurance facilities” with a corresponding liability reflected as “Liabilities of Cell-captive insurance facilities”.

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.

NameofsubsidiaryCompany(andcountryofincorporation)

Nature of insurance operations

Guardrisk Insurance Company Limited (South Africa), Guardrisk International Limited (Mauritius)

Cell-captive and contingency short-term insurance

Guardrisk Life Limited (South Africa), Guardrisk Life International Limited (Mauritius) and Guardrisk Namibia Insurance Company Limited

Cell-captive and promoter long-term insurance

Euroguard Insurance Company PCC Limited (Gibraltar) Cell-captive short-term insurance

Alexander Forbes Insurance Company Limited (South Africa) Personal lines short-term insurance

Alexander Forbes Life Limited (South Africa) Long-term insurance


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2011 2010

Rm Rm

42. INSuRANCE RISK (CoNtINuED)

42.2 Insurancecontractliabilitiesofinsurancesubsidiariesincludedinthestate-mentoffinancialposition(bynatureofliability)

Net unearned premium provision from short-term insurance contracts 42 25

Gross unearned premium provision 109 66

Less: Reinsurers’ share of unearned premium provision (67) (41)

Net outstanding claims provision from short-term insurance contracts 112 74

Gross outstanding claims provision 251 185

Less: Reinsurers’ share of outstanding claims provision (139) (111)

Net IBNR provision from short-term insurance contracts 20 12


Less: Reinsurers’ share of IBNR provision (37) (16)

Policyholder liability under long-term insurance contracts (Group life) 235 26

Gross policyholder liability 439 181

Less: Reinsurers’ share of policyholder liability (204) (155)

Policyholder asset under long-term insurance contracts (individual life) (18) (13)

Net liabilities under insurance contracts 391 124

42.3 Generalmanagementofinsurancerisk

In addition to the management of insurance risk by each subsidiary (as detailed in the sections below), the Group has the following general insurance risk management controls:

– Underwriting Committees

The Group has Underwriting Committees which consider both underwriting and counterparty exposures of short-term and long-term insurance contracts in order to minimise risks of non-performance on portfolios as well as to clarify risk obligations with clients. These Committees review the underwriting processes of the insurance subsidiaries, including the pricing and acceptance criteria, underwriting limits and monitor the emerging trends and issues, and the appropriateness and results of the reinsurance programmes relevant to the insurance contracts and the matching of assets and liabilities arising from the insurance contracts. These Committees also review counter-party exposures and the appropriateness and viability of major product development initiatives to confirm regulatory, legal, tax and accounting standards, where necessary.

These Committees include Non-executive Directors of the insurance subsidiaries with appropriate industry expertise, Independent Directors and independent specialists.

The Underwriting Committees and the operational Boards of the insurance subsidiaries monitor compliance by the insurance subsidiaries with their limited risk-taking mandates.

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42.3 Generalmanagementofinsurancerisk(continued)

– 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 four Non-executive Directors, including a Chairman. The Committee meetings are attended by the external and internal auditors and are held at least three times a year.

– 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 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 held within each insurance subsidiary to meet the regulatory capital adequacy requirements. For the long-term insurance subsidiaries, the capital adequacy requirement (“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. As at 31 March 2011, the CAR held by the long-term insurance companies amounted to R37 million (2010: R31 million) for Guardrisk Life and R92 million (2010: R40 million) for Alexander Forbes Life Limited. On a times cover to shareholders funds, the two long-term insurance subsidiaries are covered as follows: Guardrisk Life is covered 3.8 times (2010: 4.9 times) by the shareholders’ funds and Alexander Forbes Life Limited is covered 1.37 times (2010: 1.86 times).

Capital adequacy risk is the risk that there are insufficient 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 affecting the subsidiary’s business.

The short-term insurance subsidiary companies are required by statute to create a contingency reserve for adverse claims developments. This reserve is calculated at ten percent of net written premiums as defined by the relevant legislation and no distribution can be made from this reserve without the prior approval of the Registrar of Short-Term Insurance. As at 31 March 2011, the contingency reserve held by the short-term insurance companies for all their lines of business written amounted to R334 million (2010: R299 million) for Guardrisk Insurance. In addition to the contingency reserve, the short-term insurance companies are required by statute to maintain a solvency margin of 15% of net written premiums.

Two of the insurance subsidiaries, Guardrisk Insurance and Guardrisk Life, are rated by an international rating agency, Global Credit Rating, and have a claims paying ability rating of AA for Guardrisk Insurance and a financial strength rating of AA- for Guardrisk Life.


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42.3 Generalmanagementofinsurancerisk(continued)

– 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 Market Security 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 whereby the objective is to entrench 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.

42.4 Cell-captivearrangements

– Contractual terms of Cell-captive insurance policiesA Cell-captive is a contractual arrangement entered into between the Company and the Cell shareholder whereby the risks and rewards associated with certain insurance activities accrue to the Cell shareholder. Cell-captives allow clients to purchase separate classes of shares (or a “Cell”) in the registered insurance company which undertakes the professional insurance and financial management of the Cell including underwriting, reinsurance, claims management, actuarial and statistical analyses and investment and accounting services.

The terms and conditions of the Cell are governed by the shareholders’ agreements. There are currently two distinct types of Cell-captive arrangements, being:

“First party” where the risks that are being insured relate to the Cell shareholder’s or its Group’s own operations; and

“Third party” where the Cell shareholder is provided the opportunity to sell branded insurance products into its own customer base. The insurance companies are the principals to the insurance contract, although the business is underwritten on behalf of the Cell shareholder.

– Contingency or rent-a-captive policiesA policy contract structured to provide entry-level insurance cover for first party risks without capitalising a Cell. The policy provides for payment of a performance bonus to the insured based on the underwriting results at the end of the policy period.

– Contractual terms of promoter policiesThe Company participates with several of the Cell shareholders in the underwriting risks of their business. The Company carefully evaluates all retention of risks in terms of statistical and underwriting disciplines, as well as specific and limited Board mandates for each insurance programme.

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42.4 Cell-captivearrangements(continued)

– Classification for accounting purposes

In terms of IFRS, Cell-captive arrangements are classified as special purpose entities and the recognition of the Cells in the financial statements of the Group depends on the nature and contractual conditions of the consolidated Cell-captives’ facilities. First party Cell-owners are regarded as having the right to obtain the majority of the future economic benefits of the Cell’s insurance activities and, for this reason, first party Cells are not consolidated in the Group accounts. The assets and liabilities of these Cells are accounted for under the Cell owner assets and liabilities. In the case of third party Cells, the insurance subsidiary is regarded as the principal to the insurance transaction. The insurance subsidiary, however, in substance, reinsures this business to the Cell shareholder as the Cell shareholder remains responsible for the solvency of the Cell. Such Cells are included in the financial statements but are accounted for as reinsurance ceded to the Cell shareholders. Contingency facilities and promoter policies are fully recognised in the consolidated financial statements.

– Risks that arise from insurance contracts

Contracts underwritten in Cell structures are considered to be the primary responsibility of the Cell shareholders. The primary risk that the Group is exposed to relating to its Cell-captive insurance business is the credit risk of the Cell shareholders. This exposure is dealt with under the note on credit risk. In the case of third party Cell-captive arrangements, the Group is also exposed to insurance risk on policies issued to the Cell shareholders’ customer base (to the extent that there is reinsurance failure, if present, and failure to recapitalise by the Cell shareholders). The Cell shareholders are allocated the economic benefits from the underwriting and investment activities in its Cell. Conversely, the Cell shareholders are accountable for any losses to the extent that funds are available to offset against the losses as well as any future profits that arise in the Cell or recapitalisation will be required to offset losses in excess of the funds available.

In respect of the contingency policies, the risks underwritten are mainly in respect of primary layers of an insurance programme. In these facilities, as opposed to traditional insurance models, the premium partially funds the risk exposure.

Some of the subsidiaries participate with several of their Cell shareholders in the underwriting risks of their business (promoter policies). These Cells typically have a risk profile of high volume, low severity. Euroguard Insurance does not take any underwriting risk.

The principle risk that the Cell shareholder and ultimately the Company faces under its insurance contracts is that the actual claims payments exceed the amount of the insurance liabilities. This could occur because the frequency or severity of claims is greater than estimated. Insurance events are random and the actual number and amounts of claims will vary from year to year from the estimate determined using statistical techniques.

Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the Board by a change in any subset of the portfolio. As each of the Cell shareholders operates independently from the other, the Company’s total insurance risk profile is well diversified.

42.5 Cell-captivearrangements–mitigationofinsurancerisk

Insurance risk

In respect of third party Cell-captive arrangements, the insurance risks are mitigated through the reinsurance of elements of the risk to reinsurance markets and/or the Cell shareholders through the Cell shareholder agreements. The risks are further reduced by the requirement for the first and third party Cells to hold minimum levels of capital. The “A” shareholders’ agreement protects the subsidiary from losses arising from business conducted in Cells due to the recapitalisation clause. The subsidiary’s exposure to risk, with respect to third party Cell arrangements, on this business is limited to the credit risk of the Cell owner if a Cell owner does not recapitalise in terms of the “A” shareholders’ agreement,

In respect of contingency policies, policyholders share in the underwriting result if there is favourable claims experience.


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42.5 Cell-captivearrangements–mitigationofinsurancerisk(continued)

The underwriting strategy attempts to ensure that the underwritten risks are well diversified in terms of risk, industry and geography.

Underwriting limits are in place to enforce appropriate risk selection criteria. For example, the subsidiary has the right not to renew individual policies, it can impose deductibles and it has the right to reject the payment of a fraudulent claim. Insurance contracts also entitle the subsidiary to pursue third parties for payment of some or all costs (e.g. subrogation).

For each Cell or policy accepted by the subsidiary an actuarial analysis is undertaken to determine the subsidiary’s major exposures to insurance risk. This analysis includes stochastic modelling of past claims and the projection, at different confidence levels, of future scenarios.

Original structures (excesses and limits) are suggested based on this analysis at the 75th percent level of confidence.

Each new risk is considered by the underwriting and actuarial teams and where necessary to adjust the theoretical premium to take into account competition, the underwriting cycle, reinsurance and capital requirements.

The insurance subsidiaries limit their exposure to unfavourable claims experience by performing actuarial analyses to establish suitable policy and cover limits as well as attachment points for reinsurance where applicable.

Reinsurance strategyThe insurance subsidiaries manage the insurance risks through their underwriting strategies and reinsurance arrangements. The key objective when placing reinsurance is access to capital and protection of the retained lines of both the subsidiary and the Cell owners.

The reinsurers selected are in accordance with the subsidiary’s reinsurance vetting procedures, which is a combination of the Alexander Forbes selection criteria and the subsidiary’s own assessment.

Other than sourcing capacity for both first and third party business, reinsurance is arranged to protect the net retention as agreed on both a proportional and non-proportional basis. The net retention of both the subsidiary and the Cells will determine the non-proportional programmes whereas estimated premium income and loss ratios determine retention on proportional programmes. The reinsurance arrangements include excess, stop-loss and catastrophe coverage.

In respect of contingency policies, reinsurance is generally structured above the layer provided by the contingency policy. There is an aggregate excess of loss treaty that is in place. All losses above R1 million (each and every loss) and R5 million in the annual aggregate are reinsured 100% in terms of this treat. Certain of the reinsurance contracts in the Cell-captive arrangements, have “pay-as-paid” clauses which stipulate that reinsurance claims will only be paid once the reinsurers have settled their liability. The risk retained in the insurance subsidiaries under the current contracts is low.

42.6 Cell-captivearrangements–sensitivityanalysisAs a result of the nature of the business written by the subsidiary and the reinsurance programmes in place, there is little sensitivity to deviations in assumptions.

Where the subsidiary takes underwriting risk, significant risk mitigators are put in place which results in a scenario where potential loss would be immaterial to the subsidiary. Risk mitigating factors include but are not limited to strict selection criteria, reinsurance, reinsurer’s selection and vetting of Cell owners. Theoretically, the subsidiary is exposed to risk in the event of reinsurer’s failure or failure of the Cell owner to recapitalise its Cell. However, in the history of the subsidiary, there have never been any incidents of Cell owner’s or reinsurer’s failure.

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42.7 Personallinesshort-terminsurance

Terms and conditions of insurance contractsPersonal 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 the subsidiary include property, casualty, personal accident and motor.

Risks that arise from insurance contracts

This business activity relates to the assumption of the risk of loss from events involving persons. 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 estimated 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 comprise less than 0.1% of an average year’s claims cost and are not considered to be a major risk to the Group.

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.

The subsidiary calculates its exposure to catastrophe risk by studying the spread of risk nationwide in Rand terms and identifying the concentration per certain territories in the event of a natural catastrophe. The subsidiary’s concentration exposure for its personal lines book is considered to be in the Western Cape area and the event has been identified as a possible earthquake. 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 exposure is R5 million (2010: R5 million).

Mitigation of insurance risks

Insurance risk is managed by centralised control of pricing and acceptance criteria, underwriting limits, reinsurance and continual monitoring of emerging issues.

There is proportional reinsurance in place for between 87.5% and 90% of the property and motor personal lines insurance book. Hence the net retention on personal lines products is no more than 12.5% of the risk on the book. There is also non-proportional reinsurance providing protection on a per risk catastrophe basis, capping the net exposure in the event of a single large loss or loss occurrence constituting a catastrophe.

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.

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.

42.8 Long-terminsurance

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, disability and impairment contingencies. There are no surrender values or investment components inherent in any of these policies.


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42.8 Long-terminsurance(continued)

Risks that arise from insurance contracts

These contracts insure events associated with human life (for example, death or survival) over a long duration. The group assurance 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 due to withdrawals is limited.

An individual assurance product was launched during the 2006 financial year. As at 31 March 2011, 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 assurance 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 assurance business due to the current low level of business transacted.

As of 31 March 2011, the Group had exposure with the supporting actuarial reserves of approximately R26.5 million (2010: R17.1 million) in group assurance business. The individual life business has no exposure and reflects a negative actuarial reserves asset of R18.4 million (2010: R13.4 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 so allowing the management of 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 R3 million (2010: R2 million). The sensitivity to assumptions on negative liabilities arising from the individual insurance contracts is currently insignificant.

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43. FINANCIAl RISK MANAGEMENt

IntroductionThe 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:

CreditriskCredit 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.

LiquidityriskLiquidity risk is the risk that the Group will not be able to raise funds to meet commitments associated with a financial instrument.

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

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

other price riskOther 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 can be split into various operations of the Group that reflect the risk profiles of these operations. The operations are: multi-manager investment operations, conducted through the Investment Solutions subsidiary companies; Cell-captive insurance facilities, conducted through the subsidiary companies Guardrisk Insurance, Guardrisk Life and Euroguard Insurance; pension-backed lending operations; and general operations conducted 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.

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 held for trading and are carried at fair value. No assets held under multi-manger investment operations have been pledged as collateral.


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43. FINANCIAl RISK MANAGEMENt (CoNtINuED)

Cell-captive insurance facilities

The financial assets of Cell-captive insurance facilities are assets attributable to policyholders and Cell owners in the Group’s Cell-captive insurance companies and are directly matched by linked obligations to policyholders and 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.

Pension-backed lending operations

The financial assets arising from pension-backed lending operations comprised housing loans granted to members of retirement funds which were secured by their retirement fund assets. The housing loans were classified as loans and receivables. The funding of these housing loans was provided through securitised funding which directly matches the assets provided and is classified as financial liabilities held at amortised cost.This business was sold during the current financial year.

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.

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The following table reflects the financial assets of the Group including their respective IAS 39 classifications:

2011 2010

Rm Rm

Assets

Financial assets held under multi-manager investment contracts– Fair value through profit or loss – held for trading 183 483 161 660

Financial assets of Cell-captive insurance facilities– Fair value through profit or loss – held for trading 7 738 7 582

Generaloperations

Financial assets– Available for sale 18 9

– Fair value through profit or loss – designated upon initial recognition 282 80

– Held to maturity investments – 75

– Loans and receivables 126 121

Insurance receivables– Loans and receivables 713 528

Trade and other receivables– Loans and receivables 889 1 053

Cash and cash equivalents 3 093 2 480

Totalfinancialassets 196 342 173 588

Liabilities

Financial liabilities held under multi-manager investment contracts– Fair value through profit or loss – held for trading 183 452 161 614

Liabilities of Cell-captive insurance facilities– Fair value through profit or loss – held for trading 7 738 7 582

Generaloperations 5 637 5 460

Borrowings– Financial liabilities held at amortised cost– Financial liabilities held at fair value – designated upon initial recognition 191 137

Insurance payables– Financial liabilities held at amortised cost 2 148 1 610

Trade and other payables– Financial liabilities held at amortised cost 700 664

Totalfinancialliabilities* 199 866 177 067

* There are no differences between the carrying amount and the amount contractually required at maturity.

NOTES TO ThE GrOup FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 March 2011

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43.1 Creditrisk

43.1.1 Objectives,policiesandprocesstomanagecreditrisk

(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 No 24 of 1956.

(ii) Cell-captive insurance facilities

The risk is managed by a detailed assessment of potential Cell owners’ creditworthiness based on the ability to meet the responsibilities and obligations in terms of the shareholders’ agreement. Impairment is assessed at each reporting date. Credit risk is further managed by each Cell being required to maintain a regulated level of capital adequacy. This is monitored by Management on a monthly basis.

The management of the Cell-captive insurance facilities assets is performed 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 panels of investment managers are invited to the quarterly meetings. Certain Cells have reinsurance arrangements and the creditworthiness of these reinsurers is managed as part of the insurance risk programme.

(iii) Pension-backed lending operations

Credit risk on the housing loans was managed by ensuring that, on inception, all home loans granted were for amounts not exceeding 80% of the lowest benefits which the retirement fund member would receive from the retirement fund upon exist, net of income tax. The loans were secured by the member’s retirement fund asset.

(iv) General operations

Financial assets

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.

Premium finance receivables of R56 million (2010: R51 million) are monitored as part of the credit process. The Group is substantially protected from credit risk on the receivables as there is recourse against the insurer on non-payment from the client. For certain receivables the Group has legally enforceable rights to offset them with financial liabilities.

Discounted debtors relate to injury on duty claims ceded from medical service providers. The Group credit risk is with the Compensation Commissioner for Occupational Injuries On Duty. In addition, amounts not paid by the commissioner are reclaimed from the medical service provider.

Credit risk on equity housing loans is managed through established lending criteria and credit underwriting or insurance designed to minimise losses from “negative equity”. Loans are extended nationally (categorised by the district municipality) and borrower age bands range from 65 and above. In order to minimise the “negative equity” risk, certain thresholds pertaining to district municipalities and age bands are followed.This business was sold during the current financial year.

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43.1 Creditrisk(continued)

43.1.1 Objectives,policiesandprocesstomanagecreditrisk(continued)

Insurance-related receivables

The Group has specific reinsurer mandates established by the various risk and underwriting committees which stipulate the minimum security rating required of a reinsurer for business to be placed with them. The Group monitors the financial condition of reinsurers and reviews its reinsurance arrangement periodically. Various Market Security and Underwriting Committees are in place to evaluate and approve recommendations. The Committees’ decisions are supported by both local and international professional rating agencies. The Group also has reinsurance vetting procedures in place. These procedures include limiting individual cessions and accumulations per reinsurer in accordance with their rating. The financial condition of the reinsurers and intermediaries in relation to their credit standing is evaluated each time they are rated by an external rating agency. The Group limits the level of credit risk it accepts by placing limits on its exposures to a single counterparty. The exposure limits of each reinsurer vary depending on their credit rating.

Receivables from insurance contracts, whether from intermediaries or policyholders, are monitored as part of the credit process. The Group is protected by guarantees issued by the Intermediary Guarantee Facility for the non-payment of premiums, collected by intermediaries as provided in the Short-term Insurance Act. Non-payment from policyholders over the specified time period results in the cancellation of the insurance cover and there is no material risk to the Group.

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.


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, as determined by external credit rating agencies Fitch and Standard & Poor’s, of between AA and BBB.

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

43.1.2 Exposuretocreditrisk


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.

An analysis of financial assets held under multi-manager investment contracts indicates that R20 834 million of the assets are with institutions rated between AAA and A- (19%) of the assets, R11 334 million of the assets are with institutions rated between BBB and B- (8%), and the remainder which include listed equity and preference share securities are unrated.


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43.1.2 Exposuretocreditrisk(continued)


There is no direct significant credit risk to the Group on these assets as they are directly matched to policyholders’ and Cell owners’ liabilities. The Group is, however, exposed to credit risk in relation to Cell owners’ obligation to restore solvency of Cells when required by the Group. The relationship between the Group and Cell owners is governed by each Cell owner’s participation in a shareholders’ agreement, which specifies that the Cell owner has the obligation to restore a deficit in a Cell on receipt of such a demand from the Group.

An analysis of financial assets of Cell-captive insurance facilities indicates that R1 218 million of the assets are with institutions rated between AAA and A- (22%) of the assets, R2 982 million of the assets are with institutions rated between BBB and B- (53%), and the remainder which include listed equity securities and technical insurance assets are unrated.

(iii) 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.

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

Maximum exposure

2011 2010

Rm Rm

Financial assets classified as available for sale – Preference shares 18 9

Financial assets designated at fair value through profit or loss– Preference Shares 44 44

– Collective investment schemes 26 27

– Bonds 212 9

Financial assets held to maturity– Preference shares – 75

Financial assets classified as loans and receivables

– Premium finance receivables 56 51

– Loan notes – 14

– Equity housing loans 48 39

– Other loans 22 17

426 285

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There is no concentration of credit risk on premium finance receivables and discounted debtors as the receivables have been advanced to a large number of clients with no significant concentration to a single client. The carrying amounts of these receivables approximate the fair values at each reporting date and represent the Group’s maximum exposure to credit risk in relation to these assets.

Other loans are amounts owing by staff and shareholders; the credit risk is assessed against the relationship with these parties.

Insurance-related receivables

Reinsurers are utilised in the Group’s underwriting activities conducted in the insurance-licensed subsidiary companies. Under the terms of the reinsurance agreements, reinsurers agree to reimburse the ceded amount in the event that a claim is paid. However, the Group remains liable to its policyholders regardless of whether the reinsurer meets the obligations it has assumed. Consequently, the Group is exposed to credit risk. The carrying amounts of insurance-related receivables reflected on the statement of financial position approximate the fair values 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 reinsurers or other receivables from insurance contracts which had not been adequately provided for.

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. Trade and other receivables comprise amounts due spread across a large number of clients. The Group’s top 20 clients overall represent only approximately 5% of income from operations and no single client contributes more than 0.4% of the Group’s income from operations.


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Maximum exposure and age analysis of financial assets including those that are past due but not impaired.

Current Pastdue Pastdue Pastdue Total

0-30days 30-60days 60-90days 90+days

Rm Rm Rm Rm Rm

31 March 2011

Insurancereceivables 479 99 30 105 713

Tradereceivables 513 94 29 80 716

Accruedandnotbilledbalances 214 – – – 214

1 206 193 59 185 1 643

31 March 2010

Insurance receivables 440 37 10 41 528

Trade receivables 381 70 21 84 556

Accrued and not billed balances 559 – – – 559

1 380 107 31 125 1 643

None of the trade receivables reflected above are impaired. The majority of the trade receivables fall within 90 days.


Cash and cash equivalents 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 equivalents balances other than cash balances which are placed with one of the four large South African banking institutions as approved by the operational Board of Directors.

The financial institutions used in the current and prior financial year had ratings, as determined by external credit rating agencies Fitch and Standard & Poor’s, of between AA and BBB.

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

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43.2 Liquidityrisk

43.2.1 Objectives,policiesandprocesstomanageliquidityrisk


The multi-manager investment operations are conducted through long-term insurance subsidiary companies who 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, the FSB in South Africa and the FSA in the United Kingdom, are regulatory authorities that regularly review 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 25.2.

(i) Cell-captive insurance facilities

The Cell-captive insurance operations are conducted through long-term and short-term insurance subsidiary companies. These insurance companies are registered financial institutions and are required to hold minimum solvency capital to, inter alia, reduce policyholders’ and Cell owners’ exposure to the Group’s liquidity risk. The regulator of insurance companies, the FSB in South Africa and the FSA in Gibraltar, are regulatory authorities that regularly review compliance with these minimum capital requirements. Management continually manages and monitors compliance with these minimum capital requirements.

The rights and obligations of the Cell owners are set out in the shareholders’ agreement which states that such a Cell owner cannot terminate the agreement within the first three years after inception. The Group has a practice to settle amounts due if there is a request to terminate prior to the three-year period. The Cell owner shares are issued for an indefinite period and have no fixed redemption date. However, the Cell owners have an option to cancel these shares and as such liabilities of Cell-captive insurance facilities are considered to be repayable on demand.

Except in special circumstances approved by Management, claims will not be paid when regulated capital adequacy requirements are not met by a Cell facility.


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43.2 Liquidityrisk(continued)

43.2.1 Objectives,policiesandprocesstomanageliquidityrisk(continued)


Liquidity risk management implies maintaining sufficient cash and ensuring the availability of funding through an adequate amount of cash resources and credit facilities. The Group has a revolving credit facility of R200 million, which can be used for general corporate working capital purposes. 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. Compliance with debt covenants is monitored by the Group and divisional Boards.

During the prior year the terms and conditions of the high yield term loan were amended as part of the debt restructuring disclosed in note 27.5. The changes to these terms included flexibility with respect to the payment of interest. Future liquidity requirements of the business operations are assessed by the Board and the majority lenders of the High Yield Term Loan. In the event that the requirements for liquid resources necessitates, the interest payments may be withheld.

The Group sets limits on the minimum proportion of maturing funds available to meet claims arising from short-term insurance contracts and unexpected levels of demands. Similarly the majority of the assets held to match long-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 insurance contracts can be made when requested. Long-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.

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

43.2.2 Exposuretoliquidityrisk


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.


Liquidity risk arises from unexpected lapses and withdrawals by Cell owners. The Group is able in such cases to transfer ownership of the underlying assets within the Cell-captive facility to the Cell owner in order to extinguish its liability.

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43.2.2 Exposuretoliquidityrisk(continued)

(iii) General operationsIncluded in borrowings are senior debt preference shares issued in the prior period by a subsidiary of the Group, Alexander Forbes Acquisition (Proprietary) Limited, to three South African banks for a principal amount of R2 527 million. Details of the redemption profile are provided in the borrowings note to these financial statements. Also included in borrowings is a high yield term loan provided by various shareholder of the Group to a subsidiary company, Alexander Forbes Funding (Proprietary) Limited, for a principal amount of R1 487 million. The term loan matures on 18 September 2015. Details of the High Yield Term Loan are provided in the borrowings note to these financial statements. The other significant borrowing is Pay-in-Kind (“PIK”) debentures issued by a subsidiary of the Group, Alexander Forbes PIK Funding (Proprietary) Limited, for a principal amount of R750 million. The capital and interest on the PIK debentures are redeemable on the 10th anniversary from the date of issue, namely redeemable on 26 July 2017. Details of the PIK debentures are provided in the borrowings note to these financial statements.

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

LiquidityanalysisforassetsandliabilitiesataGrouplevel

All liabilities are presented on a contractual cash flow basis except for the insurance liabilities, which are presented with their expected cash flows.

2011 Contractualcashflows(undiscounted)

0-1 year1-3

years3-5

years >5 yearsUndated/

Linked Total

Rm Rm Rm Rm Rm Rm

AssetsFinancial assets held under multi-manager investment contracts 1 569 – – – 181 914 183 483

Financial assets of Cell-captive insurance facilities 752 357 – – 6 629 7 738

Financial assets 378 – – – 48 426

Insurance receivables 713 – – – – 713

Trade and other receivables 861 – – – – 861

Cash and cash equivalents 3 093 – – – – 3 093

Totalfinancialassets 7 366 357 – – 188 591 196 314

Financial liabilities held under multi-manager investment contract 1 569 – – – 181 883 183 452

Liabilities of Cell-captive insurance facilities – – – – 7 738 7 738

Borrowings 832 2 296 3 086 3 844 12 10 070

Insurance payable 2 148 – – – – 2 148

Trade and other payables 700 – – – – 700

Totalfinancialliabilities 5 249 2 296 3 086 3 844 189 633 204 108


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*Although these financial liabilities are payable on demand, they can be settled in cash or by delivery of the underlying assets.

The Directors of the Group are confident that the future liquidity requirements of the Group will be met through the future cash flows generated.

2010 Contractualcashflows(undiscounted)

0-1 year1-3

years3-5

years >5 yearsUndated/

Linked Total

Rm Rm Rm Rm Rm Rm

AssetsFinancial assets held under multi-manager investment contracts 1 224 – – – 160 436 161 660

Financial assets of Cell-captive insurance facilities 965 – – – 6 617 7 582

Financial assets 232 – – – 53 285

Insurance receivables 528 – – – – 528

Trade and other receivables 1 053 – – – – 1 053

Cash and cash equivalents 2 480 – – – – 2 480

Totalfinancialassets 6 482 – – – 167 106 173 588

Financial liabilities held under multi-manager investment contracts 1 224 – – – 160 390 161 614

Liabilities of Cell-captive insurance facilities 214 – – – 7 368 7 582

Borrowings 597 1 652 2 521 5 886 12 10 668

Insurance payable 1 610 – – – – 1 610

Trade and other payables 664 – – – – 664

Totalfinancialliabilities 4 309 1 652 2 521 5 886 167 770 182 138

The Directors of the Group are confident that the future liquidity requirements of the Group will be met through the future cash flows generated.

43.3 Market risk

43.3.1 Objectives,policiesandprocessestomanagemarketrisk

(i) Multi-manager investment operationsThe 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.

Investment Solutions 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 Investment Solutions 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) Cell-captive insurance facilitiesThe objective is to earn competitive relative returns by investing in a diverse portfolio of high quality, liquid securities. Portfolio characteristics are analysed regularly and other price risk is managed by placing the equity portfolio under the management of specialised and reputable asset managers.



43.2.2 Exposuretoliquidityrisk(continued)

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43.3 Marketrisk(continued)

43.3.1 Objectives,policiesandprocessestomanagemarketrisk(continued)


Interest rate riskThe Group does not hedge against the interest rate exposure of fee income derived by the Group 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 on the value of debt securities and cash balances included in assets from multi-manager investment contracts.

The interest rate risk on borrowings is actively managed by the Group. The variable preference rate risk was substantially swapped into a fixed rate at the time of issuing the preference shares. Details of the swap are provided in the cash flow hedge note to these financial statements. At reporting date, the interest rate swap had a value of R83 million (2010: R130 million) in favour of the hedge counterparty.

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.

43.3.2 Exposure to market risk


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.


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43.3.2 Exposuretomarketrisk(continued)

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.


The structure of investment portfolios within the Cell-captive insurance facilities are based on a unitised portfolio and consists primarily of cash and money market balances, preference shares and unlisted equity securities.

There is no direct significant market risk, either by interest rate, currency or other price risk, to the Group on assets of Cell-captive insurance facilities as the effect of any changes in these market risks is directly attributable to policyholders and Cell owners and these assets are directly matched by policyholder and Cell owner liabilities.

The Group earns fee income on assets of Cell-captive insurance facilities which are exposed to fluctuations in interest rates but no fee income on assets that are exposed to currency or equity price movements. The impact of changes in market risk is not significant to the Group’s profit before tax.


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 substantially fixed and as such the Group is not materially exposed to cash flow interest rate risk on these funds.

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.

The dividend rate payable on the senior debt preference shares is linked to prime overdraft lending rates in South Africa.

The high yield bridge loan bears interest at a pre-determined fixed rate of 16.8% per annum, compounded semi-annually, and therefore the Group is not exposed to changes in interest rates.

The PIK debentures bear interest at a fixed rate of 17% per annum, compounded semi-annually, and therefore the Group is not exposed to changes in interest rates.

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43.3.2 Exposuretomarketrisk(continued)

Currency risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures. As reflected in segmental profit analysis contained in these financial statements, the Group derives a portion of its operating profit before non trading and capital items in foreign currencies. Approximately 16% (2010: 13%) of the Group’s trading results from operations is derived from its international operations, primarily in the United Kingdom, and 6% (2010: 6%) from operations in Africa outside of 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.

Approximately 8% (2010: 8%) of commission and fee income earned by the insurance broking activities is linked to US Dollar policies.

The senior debt preference shares included in borrowings are Rand denominated and thus not exposed to currency risk.

The PIK debentures are Rand denominated and thus not exposed to currency 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.


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43.4 Fairvaluehierarchy

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.

A summary of the financial assets and liabilities measured at fair value for the Group, split per financial instrument, is presented in the introduction to this note and shown in summary below:

2011 2010

Fairvalue Bookvalue Rm Rm

Assets

Financial assets held under multi-manager investment contracts 183 483 – 183 483 161 660

Financial assets of Cell-captive insurance facilities 7 738 – 7 738 7 582

Generaloperations

Financial assets 300 126 426 285

Insurance receivables – 713 713 528

Trade and other receivables – 889 889 1 053

Cash and cash equivalents – 3 093 3 093 2 480

Totalfinancialassets 191 521 4 821 196 342 173 588

Liabilities

Financial liabilities held under multi-manager investment contracts 183 452 – 183 452 161 614

Liabilities of Cell-captive insurance facilities 7 738 – 7 738 7 582

Generaloperations

Borrowings 191 5 637 5 828 5 597

Insurance payables – 2 148 2 148 1 610

Trade and other payables – 700 700 664

Totalfinancialliabilities 191 381 8 485 199 866 177 067

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43.4 Fairvaluehierarchy(continued)

43.4.1 Valuationmethodsandassumptionsforvaluationtechniques

At 31 March 2011, financial assets classified as Level 1 comprise approximately 68% of financial assets measured at fair value on a recurring basis. Fair value measurements classified as Level 1 include exchange-traded prices of fixed maturities, equity securities and derivative contracts.

At 31 March 2011, financial assets classified as Level 2 comprise approximately 31% of financial assets measured at fair value on a recurring basis. They 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 utilising 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.

As disclosed in Note 11, the net fair value of derivative positions is approximately R477 million at 31 March 2011. 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.

At 31 March 2011, investments classified as Level 3 comprise approximately 1% of financial assets measured at fair value on a recurring basis. They 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.


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43.4.1 Valuationmethodsandassumptionsforvaluationtechniques(continued)

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 2011, investments classified at Level 3 primarily included suspended listed equities, community property Company assets and infrastructure and development assets, which comprise approximately 98% of Level 3 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 Valuationtechnique Significantinputs

Suspended listed equities Exchange trade price Last exchange traded price

Community property Company assets Discounted cash flow model Capitalisation rates and discounts rates

Infrastructure and development assets

EquityDistribution discount model, Cost, Mark to market, Price earnings multiple and liquidation valuedebtDiscounted cash flow

EquityInterest rates and exchange traded pricesDebt 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.

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43.4.2 Financialassetsandliabilitiesatfairvalue

Financial assets and liabilities measured at fair value at 31 March 2011

2011 Fairvalue Totalfairvalue

Level1 Level2 Level3

Rm Rm Rm Rm

FinancIalassetsheldundermultimanagerinvestmentcontracts

Equity securities – listed 43 909 672 1 122 45 703

Equity securities – unlisted – – 17 17

Preference shares – listed 713 – – 713

Collective investment schemes 31 177 14 726 – 45 903

Debt securities – listed 17 306 264 – 17 570

Debt securities – government stock 9 187 – – 9 187

Debentures – listed 2 318 103 – 2 421

Derivative financial instruments 246 1 127 – 1 373

Unit-linked investment contracts 971 29 758 – 30 729

Cash and cash equivalents 18 469 – – 18 469

Money market instruments – listed 803 10 595 – 11 398

125 099 57 245 1 139 183 483

FinancialassetsofCell-captiveinsurancefacilities

Equity securities – unlisted 651 67 – 718

Receivables – 1 291 – 1 291

Preference shares – unlisted 69 281 – 350

Collective investment schemes 94 – – 94

Debt securities – listed 733 – 733

Cash and cash equivalents – 487 – 487

Money market instruments – listed – 4 065 – 4 065

1 547 6 191 7 738

GeneralOperations

Financial assets:

Equity securities – unlisted - - 18 18

Preference shares – listed 44 - - 44

Collective investment schemes 221 - - 221

Debt securities – listed 17 - - 17

282 - 18 300

Totalfinancialassetsmeasuredatfairvalue 126 928 63 436 1 157 191 521


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2010 Fairvalue Totalfairvalue


Rm Rm Rm Rm

Financialassetsheldundermulti-managerinvestmentcontracts

Equity securities – listed 66 975 649 85 67 709



Collective investment schemes 22 573 11 738 579 34 890

Debt securities – listed 12 266 - – 12 266

Debt securities – government stock 7 888 2 – 7 890

Debentures – listed 1 882 97 – 1 979

Derivative financial instruments 72 554 – 626

Unit-linked investment contracts – 2 750 2 750

Loans and receivables 6 – 6

Cash and cash equivalents 7 232 10 226 – 17 458

Money market instruments – listed 1 228 13 808 – 15 036

120 795 39 824 1 041 161 660

FinancialassetsofCell-captiveinsurancefacilities

Equity securities – unlisted – 638 – 638

Receivables – 1 246 – 1 246

Preference shares – unlisted – 365 – 365


Debt securities – listed 740 – – 740

Cash and cash equivalents 1 4 457 – 4 458

Money market instruments – listed 65 – – 65

876 6 706 – 7 582

Generaloperations

Financial assets:




Debt securities – listed 9 – – 9

80 – 9 89

Totalfinancialassetsmeasuredatfairvalue 121 751 46 530 1 050 169 331




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43.4.2 Financialassetsandliabilitiesatfairvalue(continued)

2011 FairvalueTotalfairvalue


Rm Rm Rm Rm

Financialliabilitiesmeasuredatfairvalue

Financial liabilities held under multi-manager investment contracts – 182 313 1 139 183 452

Liabilities of Cell-captive insurance facilities – – 7 738 7 738

Borrowing at fair value – 191 – 191

Totalfinancialliabilitiesmeasuredatfairvalue – 182 504 8 877 191 381

There are no significant transfers between Level 1 and Level 2 that have an impact on the Group’s profit or loss.

2010 FairvalueTotalfairvalue


Rm Rm Rm Rm

Financialliabilitiesmeasuredatfairvalue

Financial liabilities held under multi-manager investment contracts – 160 573 1 041 161 614

Liabilities of Cell-captive insurance facilities – – 7 582 7 582

Borrowing at fair value – 137 – 137

Totalfinancialliabilitiesmeasuredatfairvalue – 160 710 8 623 169 333

There are no significant transfers between Level 1 and Level 2 that have an impact on the Group’s profit or loss.


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ChangesinLevel3instrumentsfortheyearended31March2011

Financialassets

2011

Financialassetsunder

multi-managerassets

FinancialassetsofCell

insurance facilities

Generaloperations Total

Rm Rm Rm Rm

Openingbalanceat1April2010 1 032 – 9 1 041

Total gains and losses recognised in profit or loss –

Fair value gains and losses 105 – – 105

Profit on sale of business – – – –

Transfer from loans and receivables (4) – – (4)

Purchases 1 049 – 9 1 058

Sales (1 043) – – (1 043)

Closingbalanceat31March2011 1 139 – 18 1 157

2010

Financialassetsunder

multi-managerassets

FinancialassetsofCell

insurance facilities


Rm Rm Rm Rm

Openingbalanceat1April2009 581 – 8 589

Total gains and losses recognised in profit or loss

Fair value gains and losses 210 1 211

Profit on sale of business – – (25) (25)

Transfer from loans and receivables – – 25 25

Purchases 286 286

Sales (45) (45)

Closingbalanceat31March2010 1 032 – 9 1 041




| 214 | | 215 |






43.4.2 Financialassetsandliabilitiesatfairvalue(continued)

Financialliabilities

2011

Financialliabilitiesundermulti-manager

contract

Financialliabilitiesof

Cellinsurancefacilities


Rm Rm Rm Rm

Openingbalanceat1April2010 1 041 7 582 – 8 623


Fair value gains and losses 105 166 – 271

Movement in insurance liabilities – – – –

Other movement in policyholder liabilities (13) (10) – (23)

Investments 1 049 – – 1 049

Disposals (1 043) – – (1 043)

Closingbalanceat31March2011 1 139 7 738 – 8 877

The Group’s profit or loss will not significantly be affected by favourable or unfavourable changes in the Level 3 assets shown above. 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.

2010

Financialliabilitiesundermulti-manager

contract

Financialliabilitiesof

Cellinsurancefacilities


Rm Rm Rm Rm

Openingbalanceat1April2009 589 7 498 – 8 087


Fair value gains and losses 211 116 – 327

Movement in insurance liabilities – 17 – 17

Other movement in policyholder liabilities – (56) – (56)

Investments 286 7 – 293

Disposals (45) – – (45)

ClosingbalanceatMarch2010 1 041 7 582 – 8 623

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44. OPERATIONAL,LEGALANDCAPITALRISKMANAGEMENT

44.1 OperationalriskOperational risk is the risk of loss due 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 back-up procedures, contingency planning and insurance.

44.2 LegalandregulatoryriskThe 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.

44.3 CapitalRegulated insurance and investment subsidiary companiesThe 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 Investment Solutions, all liabilities are directly related to asset values and no mortality or similar risks are assumed, the only risk to be considered is the expense risk. The CAR held at reporting date was R174 million (2010: R41 million), representing an excess of assets over liabilities of 2.8 times (2010: 7.6 times).

The CAR held by Alexander Forbes Life at reporting date was R92 million (2010: R40 million), representing an excess of assets over liabilities of 1.37 times (2010: 1.86 times).

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

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.

General operationsWhen maintaining capital, the Group’s objectives are to maintain a minimum 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.

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2011 2010

Notes Rm Rm


Tradingresultsfromoperations (3) (3)

Non-trading item 1 – (1)

Operatingloss (3) (4)

Investment income 1 2

Lossbeforetaxation (2) (2)

Income tax expense 2 – 1

loss for the year (2) (1)

2011 2010

Notes Rm Rm

Loss for the year (2) (1)

Other comprehensive loss for the year (net of income tax) – –

Total comprehensive loss for the year (net of income tax) (2) (1)

2011 2010

Notes Rm Rm

Assets Investment in subsidiary 3 3 190 3 190

Receivables 36 36

Cash and cash equivalents 18 17

Receivables from Group companies 3 9

Taxation prepaid 1 1

Totalassets 3 248 3 253


Share capital and share premium 4 3 261 3 261

Retained earnings (32) (30)

Totalequity 3 229 3 231

Borrowings 5 12 11

Payables to Group companies 5 9

Other payables 2 2

Totalliabilities 19 22

Totalequityandliabilities 3 248 3 253

COMpANy INCOME STATEMENTfor the year ended 31 March 2011

COMpANy STATEMENT OF FINANCIAL pOSITIONat 31 March 2011

COMpANy STATEMENT OF COMprEhENSIVE INCOMEfor the year ended 31 March 2011

| 216 | | 217 |



COMpANy STATEMENT OF CASh FLOwSfor the year ended 31 March 2011

2011 2010

Notes Rm Rm

Cashflowsfromoperatingactivities

Cash utilised in operations 6 (1) (13)

Investment income 1 2

Taxation paid 7 – (4)

Netcashoutflowfromoperatingactivities – (15)

Cashflowsfromfinancingactivities

Net proceeds of shareholder loans 1 (4)

Netcashinflow/(outflow)fromfinancingactivities 1 (4)

Increase/(decrease) in cash and cash equivalents 1 (19)

Cash and cash equivalents at beginning of period 17 36

Cashandcashequivalentsatendofperiod 18 17

COMpANy STATEMENT OF ChANGES IN EquITyfor the year ended 31 March 2011

Sharecapitalandpremium

Rm

AccumulatedlossRm

TotalRm

At1April2009 3 261 (29) 3 232

Loss for the year – (1) (1)

At 31 March 2010 3 261 (30) 3 231

Loss for the year – (2) (2)

At 31 March 2011 3 261 (32) 3 229

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NOTES TO ThE COMpANy FINANCIAL STATEMENTSfor the year ended 31 March 2011

2011 2010

Rm Rm

1. NoN-RECuRRING ItEM

Costs in respect of rights offer – (1)

– (1)

2. tAxAtIoN

South African income tax – (1)

Current tax – (1)

No capital gains tax was incurred by the Company in either the current or previous years.

The standard South African income tax rate for companies is reconciled to the Company’s actual tax rate as follows:

South African income tax rate for companies (28.0%) (28.0%)

Adjusted for the effects of:

Assessed losses 28.0% 13.9%

Disallowable expenses – 14.1%

Prior year overprovision – (86.6%)

Effective tax rate per income statement 0.0% (86.6%)

3. INvEStMENt IN SubSIDIARy

Closing carrying amount 3 190 3 190

The investment in subsidiary is carried at cost less provision for impairment and amounts written off.

Details of the Group’s financial interests in its subsidiaries are set out in Annexure A to these financial statements.

4. ShARE CAPItAl AND ShARE PREMIuM

Share capital 7 7

Share premium 3 254 3 254

3 261 3 261

| 218 | | 219 |



2011 2010

Numberofshares

Share capitalat par

Number of shares

Share capital at par

‘000 Rm ‘000 Rm

4.1 Sharecapital

Authorised



Non-convertible redeemable “B” preference shares of 1 cent each 45 000 – 45 000 –

Issued



Non-convertible redeemable “B” preference shares of 1 cent each 21 161 – 21 161 –

At 31 March 717 981 7 717 981 7

2011 2010

Rm Rm

4.2 Share premium

At 31 March 3 254 3 254

5. boRRowINGS

Loans from shareholders (12) (11)

The loans from shareholders are unsecured, have no fixed repayment terms and bear interest at market-related rates.

6. CASh utIlISED IN oPERAtIoNS

Loss before taxation (2) (2)

Cash items

Investment income (1) (2)


Other receivables – (13)

Payables – (2)

Intragroup payables and receivables 2 6

(1) (13)

4. ShARE CAPItAl AND ShARE PREMIuM (CoNtINuED)

| 220 | | 221 |



2011 2010

Rm Rm

7. tAxAtIoN PAID

Taxation prepaid/(payable) at beginning of year 1 (4)

Taxation charge per income statement – 1

Taxation prepaid at end of year (1) (1)

– (4)

8. RElAtED PARty DISCloSuRE

Listofrelatedpartyrelationships MajorshareholdersThe equity holders of the Company are detailed in Annexure B to these financial statements.The private equity consortium investors together have a 50.1% interest in the Company, however, no single member of the consortium or any other shareholder has an effective equity interest of more than 17% in the Company.

Subsidiaries,jointventuresandassociates 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 Annexure A to these financial statements.

Keymanagementpersonnel Details of key management personnel are included in the Group financial statements.

Summaryofrelatedpartytransactions

8.1 Transactions between related parties comprise non-interest-bearing loans.

NOTES TO ThE COMpANy FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 March 2011

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NOTES TO ThE COMpANy FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 March 2011

8.2 Transactionswithsubsidiaries

2011 2010

Rm Rm

Loan balances classified as intercompany loans

Opening balance – 7

Movement for the year (2) (7)

Closing balance (2) –

The Company has loans to and from subsidiaries. These loans are generally non-interest bearing and are analysed as follows:

Alexander Forbes Preference Share Investments Limited – 7

Alexander Forbes Holdco (Proprietary) Limited 3 2

Alexander Forbes Acquisition (Proprietary) Limited (5) (5)

Alexander Forbes Group & Technology Services (Proprietary) Limited – (4)

Total (2) –

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ANNExurE AMaterial subsidiaries, joint ventures and associates in which the Group has a financial interest

Entity Natureofbusinessyear-end

date

Economic interest

2011%

Economic interest

2010%

1. holDING CoMPANIES AbovE thE oPERAtIoNAl AlExANDER FoRbES lIMItED GRouP

Alexander Forbes Holdco (Pty) Limited Holding Company 31 March 100 100

Alexander Forbes PIK Funding (Pty) Limited Holding Company 31 March 100 100

Alexander Forbes Funding (Pty) Limited Holding Company 31 March 100 100

Alexander Forbes Acquisition (Pty) Limited Holding Company 31 March 100 100

2. oPERAtIoNAl CoMPANIES wIthIN thE AlExANDER FoRbES lIMItED GRouP

South Africa

Alexander Forbes Administration Services (Pty) Limited Risk services 31 March 100 100

Alexander Forbes Compensation Technologies (Pty) Limited

Facilitation of injury on duty and road accident claims

31 March 100 100

Alexander Forbes Direct (Pty) Limited Risk services 31 March 100 100

Alexander Forbes Financial Planning Consultants (Pty) Limited

Financial planning 31 March 100 100

Alexander Forbes Financial Services (Pty) Limited Financial services and risk services

31 March 100 100

Alexander Forbes Group & Technology Services (Pty) Limited

Technology services 31 March 100 100

Alexander Forbes Health (Pty) Limited Healthcare 31 March 100 100

Alexander Forbes i-Connect (Pty) Limited Risk services 31 March 100 100

Alexander Forbes Individual Client Administration Services (Pty) 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 Holdings (Pty) Limited Financial services 31 March 100 100

Alexander Forbes Risk Services (Pty) Limited Risk services 31 March 100 100

Caveo Fund Solutions (Pty) Limited Hedge fund management company

31 March 50.01 50.01

Faranani Risks Solutions (Pty) Limited Risk services 31 March 100 100

Guardrisk Allied Products and Services (Pty) Limited Risk services 31 March 100 100

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Entity Natureofbusinessyearend

date

Economic interest

2011%

Economic interest

2010%

2. oPERAtIoNAl CoMPANIES wIthIN thE AlExANDER FoRbES lIMItED GRouP (CoNtINuED)

SouthAfrica(continued)

Guardrisk Insurance Company Limited Short-term Cell-captive insurer

31 March 100 100

Guardrisk Life Limited Long-term Cell-captive insurer

31 March 100 100

Homeplan Financial Solutions (Pty) Limited Pension-backed lending 31 March 100 100

Investment Solutions Limited Multi-manager investment 31 March 100 100

Investment Solutions Trustees (Pty) Limited Securities holding 31 March 100 100

Investment Solutions Unit Trust Limited Unit trust management 31 March 100 100

Premium Payment Plan (Pty) Limited Premium financing 31 March 100 100

Seniors Finance (Pty) Limited Equity housing finance 31 March 83 83

Superflex Limited Multi-manager investment 31 March 100 100

Alexander Forbes Afrinet Investments (Pty) Limited Holding company for African operations

31 March 100 100

Rest of Africa

Alexander Forbes Financial Services (Botswana) Limited

Financial services (Botswana)

31 March 67 67

Alexander Forbes Risk Services (Botswana) (Pty) Limited

Risk services (Botswana) 31 March 71 71

Alexander Forbes Financial Services (East Africa) (Pty) Limited

Financial services (Kenya) 31 Dec 60 60

Alexander Forbes Malawi Limited Risk services (Malawi) 31 March 51 51

Guardrisk International Limited PCC Cell-captive insurance (Mauritius)

31 March 100 100

Alexander Forbes Mozambique Lda Risk services (Mozambique) 31 Dec 65 83

Guardrisk Namibia Insurance Company Limited Cell-captive insurance (Namibia)

31 March 70 70

Guardrisk Life Namibia Limited Cell-captive life assurance (Namibia)

31 March 70 70

Alexander Forbes Insurance Management Services Limited

Short-term personal lines insurer (Namibia)

31 March 70 70

Femi Johnson Company Risk Services (Nigeria) 31 March 60 60

Alexander Forbes Group Namibia (Pty) Limited Financial services and risk services (Namibia)

31 March 70 70

Investment Solutions Namibia Limited Multi-manager investment (Namibia)

31 March 70 70

Alexander Forbes Consulting Actuaries Nigeria Limited Financial services (Nigeria) 31 March 76 76

Swaziland Employee Benefit Consultants (Pty) Limited Financial services (Swaziland)

31 March 50 50

Alexander Forbes Tanzania Limited Risk services (Tanzania) 31 Dec 55 55

Alexander Forbes Uganda Limited Risk services (Uganda) 31 Dec 55 55

Alexander Forbes Zambia Limited Risk services (Zambia) 31 March 100 100

Alexander Forbes Zimbabwe Holdings (Pty) Limited Risk services (Zimbabwe) 31 March 60 60

ANNExurE A (CONTINuED)Material subsidiaries, joint ventures and associates in which the Group has a financial interest

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ANNExurE A (CONTINuED)Material subsidiaries, joint ventures and associates in which the Group has a financial interest

Entity Natureofbusinessyearend

date

Economic interest

2011%

Economic interest

2010%

2. oPERAtIoNAl CoMPANIES wIthIN thE AlExANDER FoRbES lIMItED GRouP (CoNtINuED)

RestofAfrica(continued)

Associates:

Alexander Forbes Healthcare Kenya Limited Healthcare (Kenya) 31 March 40 40

Alexander Forbes Insurance Brokers Kenya Limited Risk services (Kenya) 31 March 40 40

Tibiyo Insurance Brokers (Pty) Limited Risk services (Swaziland) 31 March 41.25 41.25

Alexander Forbes Zambia Limited Financial Services (Zambia)

31 March 49 –

UnitedKingdom/Europe

Alexander Forbes International Limited Ultimate holding company for international group

31 March 100 100

Alexander Forbes Channel Islands Limited Financial services 31 March 100 100

Alexander Forbes Financial Services Limited Financial services 31 March 100 100

Alexander Forbes Group Jersey Limited Holding company in Jersey 31 March 100 100

Alexander Forbes Financial Services Holdings Limited Holding company in the United Kingdom

31 March 100 100

Alexander Forbes Services Limited Group services 31 March 100 100

Alexander Forbes Trustee Services Limited Corporate trustee services 31 March 100 100

Chambers Townsend Consultancy Limited Software development for financial services

31 March – 100

Euroguard Insurance Company PCC Limited Short-term Cell-captive insurer (Gibraltar)

31 March 100 100

Investment Solutions Jersey Limited Multi-manager investment 31 March 100 100

Investment Solutions Absolute Return Fund Limited Multi-manager investment 31 March 100 100

Lane Clark & Peacock LLP Financial services 31 March 60 60

Lane Clark & Peacock Belgium CVBA Financial services (Belgium)

31 March 80 80

LCP Libera AG Financial services (Switzerland)

30 June 95 95

Media Insurance Services Limited Direct marketing entity in run-off

31 March 80 80

Investment Solutions Group Limited Multi-manager investment 31 March 100 100

Joint venture:

Alexander Forbes UK Direct Limited Direct marketing 31 March 40 40

LCP Asalis (AG) Financial Services (Switzerland)

31 March 95 95

Alexander Forbes DC Administration Services Limited Financial Services 31 March 100 100

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ANNExurE BShareholding information

Analysisofshareholders

Numberofshares

‘000 %oftotal

OrdinaryshareholdersoftheCompanyat31March2011areasfollows:

Actis AF Holdings Limited 46 096 679 12.2%

Ontario Teachers’ Pension Plan Board 62 230 516 16.5%

Caisse de Dépôt et Placement du Québec 34 470 276 9.1%

Ethos Capital v GP (SA) Limited 32 267 675 8.6%

Harbourvest International Private Equity Partners 13 829 004 3.7%

Alexander Forbes Preference Share Investments Limited 100 000 000 26.5%

Dream World Investments 518 (Pty) Limited 17 013 839 4.5%

Born Free Investments 580 (Pty) Limited 8 296 746 2.2%

Golden Falls Trading 485 (Pty) Limited 30 161 113 8.0%

Alexander Forbes Management Trust 32 309 920 8.6%

Alexander Forbes Management Co-Investment Trust 682 723 0.1%

Total issued share capital 377 358 491 100.0%

| 226 | | 227 |

227

Sh

Ar

Eh

OLD

Er

S’ N

OT

ICES


| 228 | | 229 |



NOTICE OF ANNuAL GENErAL MEETING

Alexander Forbes Equity Holdings Proprietary LimitedRegistration no 2006/025226/07 (“the Company”)

IntermsofthePre-ListingStatementofAlexanderForbesPreferenceShareInvestmentsLimited(“AFPref”)issuedon10July2007,thenoticeofannualgeneralmeetingofAlexanderForbesEquityHoldings(Pty)Ltd(“AFEH”)appearsbelow.ItisnotedthatAFPrefpreferenceshareholdersregisteredassuchonthecloseofbusinessonFriday,29July2011willbeentitled,subjecttoanyapplicableprovisionsofSouthAfricanlaw,andoftheAFEHarticles,toinstructAFPreftoexercisethevotingrights,ifany,pertainingtotheAFEHordinarysharescorrespondingtotheirAFPrefPreferenceShares.ThelastdaytotradeforshareholderstobeabletoattendandvoteattheannualgeneralmeetingisFriday,22July2011.

AdocumententitledInstructionastoVotingRights,isattachedheretoandshouldbelodgedwiththeCompany’stransfersecretariesorattheCompany’sregisteredofficeonorbefore08h30onWednesday,3August2011inordertogiveAFPrefpreferenceshareholders’instructionsastotheexerciseoftheirvotingrights.

Notice is hereby given that the fifth annual general meeting of members of the Company will be held in the Acacia Board Room,

7th Floor, Alexander Forbes Place, 61 Katherine Street, Sandown, Sandton on Friday, 5 August 2011 at 08h30, for the consideration of

the following resolutions, with or without modification:

OrDINAry rESOLuTION NuMBEr 1 – Adoption of financial statementsTo receive and adopt the audited financial statements for the year ended 31 March 2011, together with the reports of the Directors

and auditors.

Copies of the annual financial statements for the preceeding financial year are available on the Company’s website or on request from the Company’s Secretary.

RESolutIoN APPRovAl thRESholDFor Ordinary Resolution Number 1 to be approved by shareholders, it must be supported by at least 50% + 1 vote.

OrDINAry rESOLuTION NuMBEr 2 – re-election of DirectorsTo re-elect, by way of separate resolutions:

2.1 Dr D Konar

2.2 Ms N Kolbe, and

2.3 Mr H Meyer

to the Board of Directors.

Dr D Konar retires by rotation at the annual general meeting in terms of article 85(a) of the Company’s articles of association and

Ms N Kolbe and Mr H Meyer retire as Directors of the Company as they were appointed as Directors during the year and, in terms

of article 89 of the Company’s articles of association are required to retire at the annual general meeting. The retiring Directors are

eligible and offer themselves for re-election.

| 228 | | 229 |

INTEGRATED ANNUAL REPORT ShArEhOLDEr INFOrMATION


Dr Konar, Ms Kolbe and Mr Meyer’s curricula vitae appear on page 40 of this integrated annual report, of which this notice forms part.

The Board strongly recommends the candidates for favourable consideration by members at the annual general meeting.

ResolutionapprovalthresholdEach of Ordinary Resolutions 2.1 to 2.3 will be considered by way of a separate vote and for these resolutions to be approved by

shareholders, they must be supported by at least a 50% + 1 vote.

OrDINAry rESOLuTION NuMBEr 3 – Appointment of Audit Committee MembersTo elect, by way of separate resolutions, the following independent Non-executive Directors, as members of the Audit Committee of

the Company:

3.1 Dr D Konar (Chairman)

3.2 Adv. V Ngalwana, and

3.3 Mr B Petersen.

ResolutionapprovalthresholdEach of Ordinary Resolutions 3.1 to 3.3 will be considered by way of a separate vote and for these resolutions to be approved by

shareholders, they must be supported by at least a 50% + 1 vote.

OrDINAry rESOLuTION NuMBEr 4 – Appointment of AuditorsTo re-appoint the auditors of the Company for the ensuing year.

The Board recommends that PricewaterhouseCoopers Inc. be reappointed as external auditors, and that Mr J Grosskopf be appointed

as the designated auditor to hold office for the ensuing year.

ResolutionapprovalthresholdFor Ordinary Resolution Number 4 above to be approved by shareholders, it must be supported by at least a 50% + 1 vote.

OrDINAry rESOLuTION NuMBEr 5 – remuneration reportTo pass a non-binding advisory vote on the Company’s remuneration policy, which is included in the financial statements in this

annual report, of which this notice forms part, on page 231.

ResolutionapprovalthresholdFor Ordinary Resolution Number 5 above to be approved by shareholders, it must be supported by at least a 50% + 1 vote. However,

it should be noted that this is a non-binding advisory vote.

SpECIAL rESOLuTION NuMBEr 1 – Non-executive Directors’ Fees To approve the following Directors’ fees with effect from their approval at the annual general meeting:

1.1IndependentNon-executiveDirectors:

Board AuditCommitteeRemuneration&Nominations

Committeetransformation

Committee

Chairperson n/a R 383 571 R 164 388 R 82 194

Member R 383 572 R 164 388 R 82 194 R 43 836

1.2Non-executiveDirectors:Non-executive Directors to receive an annual retainer of R247,678 each.

ReasonforandeffectofSpecialResolutionNumber1The reason for, and effect of, the special resolution referred to above, is to permit the Company the authority to pay fees to its Directors

for services as Directors.

| 230 | | 231 |



ResolutionapprovalthresholdEach of Special Resolutions 1.1 and 1.2 will be considered by way of a separate vote and, in order for each such resolution to be adopted by shareholders, it must be supported by at least 75% (seventy five per cent) of the votes which shareholders present or represented by proxy at the meeting are entitled to cast.

SpECIAL rESOLuTION NuMBEr 2 – Section 45 Inter Group LoansTo resolve that the Company be and is hereby authorised to provide direct or indirect financial assistance to any related or inter-related Company (as defined in the Companies Act 71 of 2008 (the “Companies Act”)) of the Company, by way of a general authority in favour of that category of recipients as contemplated in section 45(3)(a)(ii) of the Companies Act, on the terms and conditions and for amounts that the Board of Directors may determine from time to time.

ReasonforandeffectofSpecialResolutionNumber2The reason for, and effect of, the special resolution referred to above, is to permit the Company to provide direct or indirect financial assistance to entities within the AFEH Group. This requirement arose as a result of the coming into force of the Companies Act on 1 May 2011.

ResolutionapprovalthresholdFor Special Resolution Number 2 above to be approved by shareholders, it must be supported by at least 75% (seventy five per cent) of the votes which shareholders present or represented by proxy at the meeting are entitled to cast.

By order of the Board

JESalvadoCompany Secretary

30 June 2011

RegisteredOffice 61 Katherine Street Sandown Sandton

NOTICE OF ANNuAL GENErAL MEETING (CONTINuED)


| 230 | | 231 |

INTEGRATED ANNUAL REPORT ShArEhOLDEr INFOrMATION


INSTruCTION AS TO VOTING rIGhTS


For use with reference to Alexander Forbes Preference Share Investments Limited’s (“AF Pref”) voting rights at the third annual general meeting of shareholders of Alexander Forbes Equity Holdings (Pty) Ltd (“the Company”), to be held at Alexander Forbes Place, 61 Katherine Street, Sandown, Sandton on Friday, 5 August 2011 at 08h30.

I/We

of (address)

being the holder/holders of preference shares in the share capital of AF Pref, do hereby instruct AF Pref to vote as follows at the Company’s annual general meeting:

Numberofvotes(onevotepershare)

Resolution Subject In favour Against Abstain

OrdinaryResolutionNumber1 Annual financial statements

OrdinaryResolutionNumber2 Re-election of Directors:2.1 Dr D Konar2.2 Ms N Kolbe2.3 Mr H Meyer

OrdinaryResolutionNumber3 Appointment of Audit Committee Members:3.1 Dr D Konar (Chairman)3.2 Adv. V Ngalwana3.3 Mr B Petersen

OrdinaryResolutionNumber4 Re-appointment of Auditors

OrdinaryResolutionNumber5 Remuneration Report

SpecialResolutionNumber1 1.1 Independent Non-executive Directors’ Fees1.2.Non-executive Directors’ Fees

SpecialResolutionNumber2 Section 45 Inter Group Loans

Signed at on 2011

Signature

NOTICE OF ANNuAL GENErAL MEETING (CONTINuED)

| 232 | | PB |



AlexanderForbesEquityHoldingsProprietaryLimitedRegistered addressAlexander Forbes Place61 Katherine StreetSandown, 2196South Africa

PO Box 787240Sandton, 2146South Africa

Telephone: +27 11 269 0000Fax: +27 11 269 1111E-mail: [email protected]

Websitewww.alexanderforbes.com

Group Company SecretaryJanice SalvadoTelephone: +27 11 269 1033Fax: +27 11 263 0299Email: [email protected]

transfer SecretariesComputershare Investor Services Proprietary LimitedGround Floor, 70 Marshall StreetJohannesburg, 2001PO Box 61051Marshalltown, 2107

AuditorsPricewaterhouseCoopers Inc2 Eglin RoadSunninghill, 2157Telephone: +27 11 797 4000Fax: +27 11 797 5800

ADMINISTrATION

http://www.alexanderforbes.co.za/default.aspx

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