ALEXANDER˜FORBES GROUP HOLDINGS LIMITED Governance … ALEXANDER˜FORBES GROUP HOLDINGS LIMITED...

GovernanceReport

ALEXANDER FORBES GROUP HOLDINGS LIMITED

FY2020with King IV Application Report

The whole is greater than the sum of its partsFrom a flock of birds that move in unison to a team of rowers contributing to a team win, the whole is greater than the sum of its parts.

We combine and integrate our unique skills, expertise and offerings across Alexander Forbes. This reflects our integrated strategy to achieve One Alexander Forbes, which is beneficial to our clients, employees and shareholders.

Contents

1 Committee reports 1

2 King IV application 30

3 Managing risk 38

Corporate information IBC

This governance report is intended to expand on the governance-related disclosures in the 2020 integrated annual report and annual financial statements. It is structured around the principles of the King IV Report on Corporate Governance for South Africa, 2016 (King IV1). This report provides supplementary information, including board committee reports, risk reporting, King IV application as well as the group’s remuneration policy and its implementation. The governance report should be read in conjunction with the 2020 integrated annual report and annual financial statements (both available on the company’s website at https://www.alexanderforbes.co.za/investorrelations/financial-results). Audit and risk

committee report 2

Mergers and acquisitions committee report 5

Nominations committee report 6

Social, ethics and transformation committee report 7

Remuneration committee report 9

Remuneration report 10

1 The group recognises and respects the Institute of Directors in Southern Africa NPC’s copyright and trademarks in relation to King IV and reference to and usage of the King IV acronym and/or references to the King IV report, its principles, practices and any other aspects are intended as permitted use in accordance with the Copyright Act 98 of 1978, as amended, for the purpose of review and reporting on Alexander Forbes’s events during the reporting period.

1

Committee reports

Alexander Forbes Group Holdings Limited

1Governance report 31 March 2020

https://www.alexanderforbes.co.za/investorrelations/financial-results

https://www.alexanderforbes.co.za/investorrelations/financial-results

Nigel Payne (chair)

Audit and risk committee reportThe committee is pleased to present its report for the financial year ended 31 March 2020. This report is the same report as included in the annual financial statements.

Purpose and structureThe group audit and risk committee is an independent statutory committee in terms of section 94(2) of the Companies Act 71 of 2008, as amended (Companies Act). Its primary responsibility is as audit and risk committee for Alexander Forbes Group Holdings Limited, but it also fulfils the role of a group committee as permitted by section 94(2)(a) of the Companies Act for all South African subsidiaries as well as the offshore and emerging markets’ subsidiaries and controlled trusts (where bespoke committees have not been established).

In line with the ongoing process to simplify and integrate the governance structures within the company, most subsidiary audit and risk committees have been absorbed into the group committee. For the financial year, the combined insurance audit and risk committee remained in place, but once approval is obtained from the Prudential Authority (in accordance with the company’s licencing as an insurance group), this committee will also be absorbed into the group committee. It is anticipated that the bespoke Alexander Forbes Investments Limited and combined insurance audit and risk committees will likely be terminated by the second quarter of financial year 2021 and absorbed into this audit and risk committee.

As indicated in the prior year, the group audit and risk committee initially absorbed the information technology governance committee and in December 2019, also the previous bespoke capital oversight committee.

Terms of referenceThe committee has adopted formal terms of reference, which are reviewed and updated as necessary on an annual basis (or more frequently if required) by both the committee and the board. In March 2020, amended terms of reference were approved to formally incorporate the previous information technology governance committee and capital oversight committee aspects. The committee is satisfied that it complied with its legal, regulatory and other responsibilities during the financial year ended 31 March 2020.

The committee’s primary objective is to assist the board with its responsibilities for the management of risk, safeguarding of assets, solvency and liquidity and oversight of financial control and reporting internal controls, stakeholder reporting and corporate governance, particularly relating to legislative and regulatory compliance. The committee’s roles and responsibilities include statutory and regulatory duties as per the Companies Act, King IV, the Insurance Act 18 of 2017, JSE Limited Listings Requirements (JSE Listings Requirements) and Prudential Standards.

The committee comprises three independent members (independence in accordance with the holistic King IV definition and not merely that of the Companies Act) who are elected by shareholders annually. The board chair and all non-committee member directors, chief executive officer, chief financial officer, heads of control functions, executive: governance, legal and compliance, cluster chief financial officers, information technology representative, head of capital and external auditor are standing invitees. The committee, however, debates matters without the permanent invitees present, as and when required. The committee meets between four and six times annually, with two of those meetings arranged as bespoke risk-focused sessions. Two closed meetings (aligned with the approvals of the interim and annual financial results) are held with both the independent external auditor and head of group internal audit respectively, where management is not present.

Composition and attendance

Financial statements and accounting practicesThe committee reviewed the audited consolidated and separate annual financial statements of the company and group for the year ended 31 March 2020, particularly to ensure that disclosure was adequate and that fair presentation had been achieved. The committee recommended the approval of the consolidated and separate annual financial statements to the board of directors. The committee believes that they present a balanced view of the group’s performance for the year under review and that they comply with International Financial Reporting Standards.

Evaluation of the expertise and experience of the chief financial officer and appropriateness of financial reporting proceduresThe committee deliberated on the expertise and experience of the chief financial officer Mr BP Bydawell and is satisfied that he has the requisite expertise and experience to execute his designated functions. The committee has also considered and satisfied itself of the appropriateness of the expertise, experience and adequacy of the resources of the finance function and the adequacy of financial reporting procedures in the preparation of financial statements.

* Chair of meeting.1 Appointed with effect from 1 January 2020.2 Resigned with effect from 31 December 2019.3 Resigned with effect from 31 December 2019 on appointment as board

chair with effect from 1 January 2020.4 Resigned with effect from 28 November 2019.

Audit and risk

Current

Nigel Payne* – 6/6

Bob Head – 6/6

Thabo Dloti1 – 1/1

Previous

Mark Collier2 – 5/5

Marilyn Ramplin3 – 5/5

Information technology governance committee

Bob Head* – 1/1

Simon O’Regan – 1/1

Nigel Payne – 1/1

Dawie de Villiers – 1/1

Capital oversight committee

Bob Head* – 3/3

David Anderson – 2/3

Thabo Dloti – 2/3

Nigel Payne – 2/3

Bridget Radebe4 – 1/2

Marilyn Ramplin – 2/3

Key items of focus during the yearThe committee also considered the following key items during the year under review (which included the information technology governance and capital oversight committees’ objectives for the financial year, which were also achieved, either by that bespoke committee or by this committee following integration):

■ Significant oversight of errors and omissions, enhanced transfer value (ETV) and progress with payment of historic bulking proceeds to closed funds.

■ Sale of the short-term insurance business and the optimal application of the proceeds (also a focus area for the capital oversight committee), as well as the resultant impact on the solvency capital requirements and stranded costs.

■ Progress on the regulatory programme established to effectively implement financial crime control, market conduct and privacy-related legislation and regulation, as well as overall compliance progress and maturity.

■ Implications of and proper accounting for IFRS 16 Leases.

■ Risk management strategy and risk appetite, including debate of the improved risk reporting from the management risk committee.

■ Initially, in collaboration with the capital oversight committee, significant progress was made in embedding an improved own risk and solvency assessment (ORSA) process and ultimate approval of the ORSA scenarios and report.

■ Information technology governance maturity and progress against identified deficiencies, including the rationalisation of systems, appropriate and fit-for-purpose systems improvements, better alignment between information technology capital allocation and overall group strategic direction, as well as improved cyber security.

■ Approval and oversight of the successful conversion of 12 retirement funds from being underwritten to privately administered funds, significantly mitigating the long-term Standard Bank concentration risk charge and leading to a regulatory capital reduction in excess of R400 million.

■ General disaster recovery processes and readiness received regular debate. In the final weeks of the financial year and as a subsequent event, the committee specifically considered the impact of COVID-19, initially focused on the company’s disaster recovery responses and later the group’s out-of-cycle ORSA scenarios and the proposed remedial steps to mitigate against those scenarios. The committee focused on key risks including liquidity risk considering the group’s investment portfolios and the potential for large withdrawals, supply chain risk to ensure no disruption to our services and the increased risk of attempted fraud through our internet connectivity due to the work-from-home requirements.


3

Committee reports

2 Governance report 31 March 2020

Mergers and acquisitions committee report – 2020The committee is pleased to present its report for the financial year ended 31 March 2020.

Bob Head (chair)

Focus for FY2021 ■ Effective and efficient disposal of the long-term

insurance business as quickly and responsibly as reasonably possible, within the context of regulatory approvals, post stabilisation of the economic environment.

■ Continuing to evaluate potential employee benefits targets that will enable and align with our overall strategic intent.

Purpose and role of the committeeThe committee has been established as a sub-committee of the board to review acquisitions, mergers, disposals and joint ventures, and only meets when required.


Current

Bob Head (chair) – 5/5

Bruce Bydawell – 5/5


Thabo Dloti – 4/5


Nigel Payne – 5/5

Previous

Mark Collier (chair) – 4/4 (resigned 31 December 2019)

Ad hoc invitees include professional advisers and members of staff whose input may be required.

Terms of reference The committee has adopted formal terms of reference, which are reviewed and updated as necessary. The committee is satisfied that it complied with its responsibilities during the financial year ended 31 March 2020.

Some of the key issues that received attention during the year

■ Oversight over the finalisation of the disposal of the short-term insurance businesses, in the most efficient and value-accretive manner. These transactions are discussed in detail in the integrated annual report and the committee is especially pleased with the timely, effective and value-accretive manner in which the company disposed of Alexander Forbes Insurance Company Limited.

■ Consideration of potential employee benefits businesses as potential targets for acquisition.

■ Oversight of the successful exit from sub-optimal non-South African markets.

■ Although material progress was made with the planned disposal of the long-term insurance business, the economic uncertainty created by the response to COVID-19 derailed the planned transaction, which will continue again as soon as reasonably practical.

Internal auditThe committee is responsible for ensuring that the group’s internal audit function is independent and has the necessary resources, standing and authority within the group to enable it to perform 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. Internal audit continued to operate under the charter approved in the prior year.

In addition to reporting to this committee, the internal audit function also reports to the relevant subsidiary audit and risk committees (where applicable) 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 regularly reporting the findings of the internal audit work against the agreed internal audit plan to the respective audit and risk committees.

Internal controlsBased on its oversight and monitoring of the group’s system of internal financial controls throughout the year, as well as reports made by the independent external auditor on the results of their audit and management reports, the committee is satisfied that the company’s system of internal financial controls is effective, in all material respects, and forms a basis for the preparation of reliable financial statements

Going concernDespite reporting during times of heightened economic uncertainty, the committee, with support and input from the capital oversight committee, and concurrence from PwC, has reviewed a documented assessment, including key assumptions prepared by management, of the going concern status of the company and consolidated group and have made a recommendation to the board in accordance therewith. The board’s statement on the going concern status of the group, as supported by the committee, appears in the directors’ responsibility for financial reporting section of the annual financial statements.

FY2021 committee objectivesThe following areas, in addition to continuing items from the year under review, will be:

■ further entrenching the responsibilities of the information technology governance and capital oversight committees’ responsibilities to ensure efficacy is maintained and enhanced

■ financial soundness and sustainability (cost containment, revenue strength) in the context of extreme economic challenges and market volatility

■ further business continuity, internal control, risk and compliance maturity improvement

External auditThe group’s independent external auditor is Pricewaterhouse-Coopers Incorporated (PwC). Fees paid to the auditor are disclosed in note 3 of the group annual financial statements for the year ended 31 March 2020. During the year under review fees paid to PwC amounted to R29 million (2019: R28 million), which included R25 million (2019: R24 million) for statutory audit and related activities as well as R4 million (2019: R4 million) for preapproved non-audit services.

The committee is satisfied with the level and extent of non-audit services rendered during the year by PwC and that such did not impact on their independence.

The committee annually assesses the independence of PwC and again completed such assessment at its meeting on 2 June 2020. PwC was required to confirm that:

■ they are not precluded from reappointment due to any impediment in section 90(b) of the Companies Act

■ in compliance with section 91(5) of the Companies Act, by comparison with the membership of the firm at the time of its reappointment in 2018, more than one-half of the members remain in 2019

■ they remain independent, as required by section 94(7)(a) of the Companies Act and the JSE Listings Requirements

At this meeting, the committee also specifically considered the information presented by PwC as required in terms of paragraph 22.15(h) of the JSE Listings Requirements, in relation to registration, inspections, firm internal control and investigations in respect of PwC as a firm and the designated auditor, Ms A du Preez. Based on these assessments and the information considered, the committee again nominated PwC as independent external auditor for financial year 2021. Shareholders will therefore be requested to re-elect PwC as the independent external auditor, with Ms A du Preez as designated auditor, for the financial year 2020 at the annual general meeting (AGM) on 2 September 2020.

Key audit matters relevant to the consolidated financial statements The key audit matters are those items of most significance as determined by PwC during the audit of the financial statements. The key audit matters consist of:

■ goodwill impairment assessment

■ provision for errors and omissions claims and the ETV and related reimbursement asset

■ recoverability of deferred tax assets on assessed losses

For further details, refer to the independent auditor’s report on pages 7 to 13 in the annual financial statements for the year ended 31 March 2020.


5

Committee reports


Purpose and role of the committeeThe committee has been established as a statutory committee for those statutory duties assigned to it in terms of section 72(4) of the Companies Act (read in conjunction with regulation 43 of the Companies Regulations, 2011) and as a committee of the board for all other duties assigned by the board. The committee does not assume the functions of management, which remain the responsibility of the executive directors, prescribed officers and other members of senior management, nor does it assume accountability for functions performed by other committees of the board.

The role and objective of this committee is to oversee and monitor the group’s activities in relation to social and economic development, good corporate citizenship, corporate social responsibility, ethical conduct and business practices, environmental impact, consumer relations (including treating customers fairly), fair labour practices and transformation.

Nominations committee report – 2020The committee is pleased to present its report for the financial year ended 31 March 2020.

Marilyn Ramplin(chair)

Focus for FY2021 ■ Following the resignation of Mr DJ Anderson, the

committee will in the short term be required to carefully consider the appropriateness of the board and committee composition in addition to standard succession planning considerations.

■ Executive succession will be a high priority during the year.

■ As also reported elsewhere, it is anticipated that further progress will be made towards the company’s intended integrated governance model, which may require further subsidiary board and committee rationalisation and committee and board composition reviews.

■ Ongoing focus on board and committee effectiveness, especially considering the appointment of a new chair, new lead independent director and the departure of a few long-serving directors, while the new executive team is also still establishing themselves and their relationship with the board.

Purpose and role of the committeeThe committee has been established as a sub-committee of the board to assist the board by providing independent oversight of the process for nominating, electing and appointing members to the board, its committees and the executive committee; classification of directors; board and committee induction; and ongoing development processes and interventions, succession planning and board performance evaluation processes.

Composition and attendance Current

Marilyn Ramplin (chair) – 1/1 (appointed 1 January 2020)

Thabo Dloti – 1/1 (appointed 1 January 2020)

Totsie Memela-Khambula – 4/5

Nigel Payne – 1/1 (appointed 1 January 2020)


Previous

Nonkululeko Nyembezi (chair) – 4/4 (resigned 31 December 2019)

Mark Collier – 4/4 (resigned 31 December 2019)

The chief executive officer and chief financial officer are standing invitees and ad hoc invitees include professional advisers and members of staff whose input may be required.

Terms of reference The committee has adopted formal terms of reference, which are reviewed and updated as necessary by both the committee and the board. The committee is satisfied that it complied with its responsibilities during the financial year ended 31 March 2020.

Standing invitees include the Chief financial officer, Executive: Human resources and transformation, Executive: Brand, marketing and communications, Ethics officer, Head: Investor relations and transformation, Head: Customer experience and insight and ad hoc invitees include professional advisers and members of staff, whose input may be required.

Terms of reference The committee has adopted formal terms of reference, which are reviewed and updated as necessary. The committee is satisfied that it complied with its responsibilities during the financial year ended 31 March 2020.


■ As expected and articulated in last year’s report, board succession and especially chair succession featured prominently during the period. The committee is pleased that the chair could be succeeded by an internal candidate.

■ A revision of the board skills and experience matrix, in response firstly to the company’s revised strategy and the impact of such on the required non-executive skill sets, experience and diversity and secondly to respond to the change in board composition following the resignations of Mesdames Nyembezi and Radebe and Mr Collier.

■ Good progress was made against the deficiencies identified as part of the combined insurance board evaluation process in early 2019 (FY2019), culminating in an overall pleasing outcome from the board evaluation completed at the end of 2019 (FY2020), which is discussed in more detail in the integrated annual report.

■ As discussed in last year’s report and elsewhere, progress was made with the rationalisation of committees, with both the Information technology governance and capital oversight committees having been successfully absorbed into the audit and risk committee.

Totsie Memela-Khambula(chair)

Composition and attendance Current

Totsie Memela-Khambula (chair) – 4/4

David Anderson – 1/4


Thabo Dloti – 4/4

Previous

Bridget Radebe – 3/3 (resigned on 28 November 2019)

Social, ethics and transformation committee report The committee is pleased to present its report for the financial year ended 31 March 2020.


■ The successful formation of an ethics management committee to assist with the overall day-to-day management of ethics-related matters and embedment of an ethical culture, as referenced in last year’s report.

■ The ethics opportunity and risk assessment facilitated through the Ethics Institute was extensively considered and debated. In total, 931 employees participated in the assessment, which is less than 50% of the employee population. The assessment highlighted several areas requiring improvement, including the need for more ethics-related communication and training. It drew attention to some perceptions of unfair treatment and favouritism. Overall, it was clear that the basic tenants of ethics management were in place, but this area requires attention to mature. The committee will continue to receive regular updates on the improvement strategy in FY2021.

Despite the deficiencies identified (some of which stemmed from the leadership challenges experienced in 2017 and 2018 as referenced in last year’s committee report and the 2019 integrated annual report), the committee was very pleased with the definitive positive impact experienced by staff following the appointment of Dawie de Villiers as chief executive officer and the newly appointed executive team. Some of the verbatim comments included: “People are taking their cue from the new leadership” and “There is a distinct tone from the top to enhance ethics”. Other areas of strength included that clients were prioritised and treated ethically.

The newly established management ethics committee will further operationalise areas of improvement and interventions requiring attention.

■ The committee approved a revised and improved whistleblowing policy (refer to the King IV disclosures for more information).


7

Committee reports



■ The committee was exceptionally pleased with the positive response from shareholders at the AGM, discussed more below. Further consideration was given to feedback received from shareholders during the 2019 governance roadshow and how such should impact the remuneration policy and disclosures.

■ No changes were made to the remuneration policy during the year.

■ In the latter part of the year, the company’s response to COVID-19, through insights from the out-of-cycle ORSA as well as industry benchmark responses, and following extensive debate, carefully considered the appropriateness of the payment of short-term incentives (despite the group’s solid performance and exceptionally strong balance sheet), increases and long-term incentive allocations.

■ Also generally considered the impact of work-from-home practices and challenges to staff morale, productivity and future ways of work.

■ The previous year’s objective to enhance anti-money laundering, anti-theft, bribery and corruption programmes was achieved. The programmes were enhanced through the company’s financial crime control interventions as part of the overall regulatory programme (refer to the King IV disclosures for more information). This area will continue to receive focus during FY2021 as processes and systems are further improved and entrenched.

■ Following the well-publicised Open Secrets report on unclaimed benefits, the committee interrogated management’s actions and engagements with Open Secrets and the unclaimed benefits committee. The committee was pleased with the proactive and transparent nature in which management engaged with both bodies prior to the release of the report, including the information and insights that management gave to these bodies on industry challenges. Unclaimed benefits remain a critical ethical and moral industry and country challenge. The committee is however comfortable with the steps taken by Alexander Forbes to manage this challenge, which includes implementing a robust governance structure to manage unclaimed benefits. The company also embarked on an exercise to enhance the quality of historic data records, which is the principal industry-wide cause for the inability to identify beneficiaries. The company provides quarterly updates on progress to the Financial Sector Conduct Authority (FSCA) and continues to engage with the FSCA to seek meaningful solutions to address this longstanding issue. Further information is available on the company’s website in order to assist and guide potential beneficiaries.

■ The company’s Broad-Based Black Economic Empowerment verification process and performance continued to receive material focus. The committee is especially pleased with the progress made in the final months of the financial year to ensure the achievement of a level 2 rating for FY2020.

■ The committee approved a revised complaints management framework towards the objective of improving customer service delivery and enhancing customer satisfaction.

■ Considered the company’s corporate social responsibility activities through the Alexander Forbes Community Trust (the Trust). A total amount of R6.5 million was donated to the Trust directed at supporting orphaned and vulnerable children, people with disabilities and students. The Trust is involved in community development across four provinces supporting six CoHubs for FY2020 with a total of 2 481 beneficiaries.

Focus for FY2021 ■ Further improvement and enhanced maturity of

the ethics-related processes and policies, and specifically overseeing that the management ethics committee addresses the deficiencies highlighted in the ethics opportunity and risk assessment.

■ The committee will direct as much focus as possible to achieving some of the FY2020 objectives that still require attention, such as leadership development and training interventions, skills development, graduate development and partnership programmes and increased representation of individuals with disabilities. However, these focus areas will be carefully considered and possibly slightly reprioritised in a COVID-19 constrained environment.

■ It is anticipated that the committee will spend a considerable amount of time understanding the real impact of COVID-19 and the consequential decisions, including the emotional and financial support mechanisms available to staff, as well as COVID-19 interventions, like the Solidarity Fund, which the company has already supported.

■ The committee will spend more time on in-depth evaluation of the company’s treating customers fairly policies, processes and practices.

Focus for FY2021 ■ Review of the remuneration policy, specifically in

respect of potential amendments to metrics and objectives to align with the capital-light objective, but also in response to new ways of work following COVID-19 and related permanent changes to work practices.

■ Remuneration and staff-related short-term responses to COVID-19.

■ Improved remuneration benchmarking advice and guidance as input into the remuneration policy to ensure continued relevance and appropriateness – especially in challenging economic times and while under cost-containment pressure.


Current

Thabo Dloti (chair) - 0/0 (appointed 1 January 2020)

Totsie Memela-Khambula - 4/5

Simon O’Regan - 5/5

Nigel Payne - 0/0 (appointed 1 January 2020)

Marilyn Ramplin - 0/0 (appointed 1 January 2020)

Previous

Mark Collier (chair) – 5/5 (resigned 31 December 2019)

Nonkululeko Nyembezi – 5/5 (resigned 31 December 2019)

The chief executive officer, chief financial officer and executive: human resources and transformation are standing invitees, and ad hoc invitees include the remuneration specialist and other professional advisers and members of staff whose input may be required The committee has access to independent remuneration consultants for advice on best practice, trends and regulatory changes, in order for such to be considered in reviewing and formulating the remuneration policy.

Terms of referenceThe committee has adopted formal terms of reference, which are reviewed and updated as necessary The committee is satisfied that it complied with its responsibilities during the financial year ended 31 March 2020.

Remuneration committee report The committee is pleased to present its report for the financial year ended 31 March 2020.

Purpose and role of the committeeThe remuneration committee (Remco) has been established as a sub-committee of the board to assist the board by providing independent and objective oversight of key remuneration matters for the group including, but not limited to, remuneration strategies, philosophies and their implementation, as well as the remuneration policy and implementation reports as disclosed to shareholders. The committee also approves the appointment and remuneration of specific key positions, like the executive committee members and heads of control functions.

Thabo Dloti (chair)


9

Committee reports


Components of remunerationThe remuneration structure comprises three components:

■ Total guaranteed pay (TGP)

■ Short-term incentives (STI)

■ Long-term incentive plan (LTIP)

Total remuneration consists of fixed and variable components, with emphasis on variable pay at executive and senior levels to encourage performance and alignment with shareholder value creation and long-term sustainability.

Level Occupational level TGP STI LTIP ESOP

6 Executive/top management ✓ ✓ ✓

5 Senior management ✓ ✓ ✓

4 Mid-management/ senior specialist ✓ ✓ ✓

3 Junior management/specialist ✓ ✓ ✓

2 Skilled technical/ analyst ✓ ✓ ✓

1 Administrator/clerk ✓ ✓ ✓

Background statementThe company has developed an integrated approach to performance management and remuneration to give effect to the company’s ‘pay for performance’ remuneration philosophy. The company is committed to the concept of total reward, which recognises that reward is multifaceted and does not only have direct financial components. Consequently, our employee value proposition includes offering competitive market remuneration and rewards that contribute towards the financial well-being of our employees now and into the future. In this way the company 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 company’s values and to align the interests of all stakeholders.

The committee ensures that directors, senior management and employees are remunerated fairly and responsibly. They also ensure that the remuneration policy is aligned with the company’s overall reward philosophy, long-term business objectives and risk appetite.

In determining the remuneration policy, the committee has embraced the King IV principles and remuneration best practices generally.

Shareholder engagement and AGM votingFollowing the extensive engagement during our inaugural governance roadshow in April 2019, regular informal engagement with shareholders on, inter alia, remuneration matters continued during the year. While no material concerns or items have been raised by shareholders based on the policy changes that were implemented in the previous reporting period, the committee will welcome any comments that shareholders may have on our report or any concerns regarding the remuneration policy or the implementation thereof. The committee will also continue to take into consideration all comments from shareholders in future policy reviews and amendments.

Both the remuneration policy and implementation report are put to separate non-binding advisory votes at the company’s AGM. In the event that either the policy and/or implementation report is voted against by 25% or more of the voting rights exercised, the committee will actively engage with shareholders and report on the outcomes and on any corrective measures taken or required.

The positive response to our shareholder engagement practices is evidenced by the substantial improvement in voting outcomes at the 2019 AGM. Of the few shareholders that voted against the remuneration policy and implementation reports, none requested further engagements with the company.

The table below sets out the results of voting on the company’s remuneration policy and implementation report for the past three years.

% vote in favour 2019 2018 2017

Remuneration policy 99.12% 59.33% 87.96%

Implementation report1 99.69% 60.59%

Not applicable

1 This resolution was only introduced in 2018.

The committee undertakes to continue to actively engage with shareholders, evaluate and consider their feedback on the remuneration policy and its implementation prior to considering or making any significant policy changes. This is in line with our commitment to enhance our reporting, meet shareholder expectations where feasible, and maintain accurate, transparent and relevant disclosure on the performance measures used to determine the award of short-term and long-term incentives.

Remuneration policyPhilosophyThe total rewards philosophy strives to create a reward environment conducive to performance while enabling growth and development.

Alexander Forbes’s philosophy in relation to remuneration aims to:

■ offer total remuneration that meets the remuneration principles of the company

■ align with the Alexander Forbes employee value proposition and the performance management system

■ complement and support the delivery of financial and non-financial key objectives which underpin the company’s strategy

■ align the remuneration especially of executives with the creation of long-term shareholder value

■ attract, motivate and retain talented, high-performing people

■ offer employees competitive guaranteed packages which are relevant to market benchmarks

■ encourage performance to drive the achievement of both short-term results and long-term sustainability

Remuneration principles1 Attract, motivate and retain

2 Recognise and reward performance

3 Fair and transparent

4 Equitable

5 Aligned with strategy

6 Sound governance and best practice

TGP is a core element of remuneration reflecting the individual’s role and position and is payable for undertaking expected day-to-day responsibilities. The TGP is a fixed component that consists of: salary, benefits (medical cover, life cover, disability cover and personal accident insurance) and retirement fund contributions.

Alexander Forbes strategically positions itself to ensure competitive total reward within the parameters of affordability. This implies benchmarking against the market’s 50th percentile (or median) and through leveraging of non-guaranteed incentive pay. ‘Total reward’ in certain instances (consistent high performance, scarce skills, critical roles, etc.) can be benchmarked at the market’s upper quartile. The company’s relative market position strives to ensure that it attracts and retains the core competencies required to meet the strategic objectives of the company.

Compulsory benefits Summary

Alexander Forbes Retirement Fund

Contribution rate options available are 13%, 15%, 17%, 19%, 22.5%, 25% and 27.5% of pensionable salary. Elected contribution rate also allows for additional voluntary contribution. There are three investment portfolio strategy options that employees can choose from: (1) the default investment strategy chosen by the management committee of the sub-fund; (2) the Alexander Forbes Goals-based LifeStage Model; or (3) employees can also select their own choice of portfolios.

Life assurance cover

Group life assurance is provided for employees who are members of the Alexander Forbes Retirement Fund. This benefit is payable should the employee pass away while in the employ of Alexander Forbes. The employee’s beneficiaries receive a lump sum benefit made up of 4.25 times annual pensionable salary plus tax replacement cover. Employees have the option to buy up an additional death benefit of 0.75 times their annual pensionable salary, on a voluntary basis, outside of the fund.

Permanent health insurance

Disability income benefit will become payable in the event that an employee becomes disabled to such an extent that he/she is unable to perform their occupation for the first 24 months and any other occupation thereafter. A flat 75% of pensionable salary is payable monthly, with a maximum monthly benefit of R185 000. This benefit will be payable until the earlier of the employee’s recovery, retirement or death.

Make-up of targeted remuneration (percentage) by employment level

0% 20% 40% 60% 80% 100%

TGP STI LTIP

Level 1

Level 5

Level 3

Executive

Level 2

Level 6

Level 4

CEO

Total guaranteed pay (TGP)


11

Committee reports


STI pool amount

Qualifier for STI

The qualifier for the award of the STI is based on an individual achieving a minimum performance rating of 3 as well as achieving a threshold cumulative rating of at least 3 (on a 1 to 5 rating scale). This cumulative rating is determined by calculating the weighted score of the group scorecard and individual performance (thus individual’s overall score).

For executives and senior management, greater weighting is placed on overall company performance as set out below:

The STI (‘bonus’) component forms a fundamental part of the total reward philosophy that drives both financial and non-financial organisational and individual performance. One of the key features of the remuneration policy is the ‘pay-for-performance’ principle. All permanent, active employees are eligible for the STI, except those who receive sales incentives or commissions.

Alexander Forbes’s STI scheme rewards performance for meeting specific predetermined short-term organisational targets. The guiding principles are as follows:

■ a direct link between performance management and rewards

■ objectives and measures used in the incentive scheme are derived from the overall annual strategic objectives, which are cascaded down to determine relevant objectives and targets at all levels

■ the weighting on the group scorecard in respect of financial and non-financial measurements is generally a 70:30 split, however, Remco can amend this split, informed by specific objectives for any particular year and drive the outcomes to achieve both financial and non-financial objectives linked to the long-term company strategy

■ the incentive programme seeks to enable participants to have a clear understanding of value-adding remuneration opportunities and what they can do in order to maximise their value add and ultimately their variable remuneration

Compulsory benefits Summary

Dread disease cover

This cover makes provision for a lump sum payment on a diagnosis of any dread diseases specified in the policy. The cover is as follows:

■ Members under age 40 with dependants: 1.5 times annual pensionable salary at date of diagnosis

■ Members from age 40 with dependants: 1.25 times annual pensionable salary at date of diagnosis

■ Single members with no dependants: 0.5 times annual pensionable salary at date of diagnosis. The benefit is subject to a maximum of R500 000.

Spouse’s cover Employees who are married participate in the spouse’s cover policy that pays a lump sum death benefit in the event of the death of the spouse. The cover is 2 times your annual pensionable salary subject to a maximum of R300 000.

Funeral benefit A funeral benefit is provided up to a maximum of R20 000 payable on the death of an employee and that of the spouse. A lower amount will be payable on the death of a child, depending on the child’s age at date of death.

Medical aid In line with company policy and subject to the conditions of the scheme, it is compulsory to be a member of the company’s medical scheme, unless the employee is covered on their spouse’s medical scheme. The scheme offers various benefit options that individuals can change in January of each year. The company has partnered with Discovery Health and Bonitas Health, providing a variety of options to cater for different needs.

Alexander Forbes reviews individual TGP once a year, effective 1 July. This annual review includes merit adjustments. The average increase in employment cost is approved by the Remco and is a factor of the increase in cost of living, market remuneration rates, affordability and general employment market trends. Overall annual reviews will primarily be informed by:

■ projected inflation

■ external market

■ affordability

Once the overall increase has been determined, individual employee performance ratings are the primary driving factor in the annual reward cycle review of respective individuals, but the following variables will also be taken into account:

■ the individual’s assessed long-term value to the organisation

■ the individual’s remuneration positioning within a pay scale and remuneration of others in similar positions internally (internal equity)

■ market alignment (external benchmarks)

Short-term incentive (STI)1) Financial measures (60% to 70%) possibly comprising:

new business and lost business targets and an absolute cost target (instead of cost-to-income ratio).

2) Non-financial measures (40% to 30%) possibly comprising measures of client satisfaction as well as employee engagement.

Discretion of the committeeThe Remco has discretion to withdraw or change the STI scheme. In addition, the Remco holds overriding discretion on incentive payments including: zero STI awards and/or in the event of exceptional individual performance being achieved (within the context of poor company performance) ex gratia payments may be approved. The Remco may also reserve a percentage of the STI pool for discretionary allocations.

modifier against hurdle growth rate

x (15% – 20%)

STI pool methodology

A company-wide STI pool is determined by applying a formula-based calculation, that incorporates the following inputs, approved by the Remco:

■ a percentage of adjusted normalised profit from operations before non-trading and capital items (‘adjusted operating profit’)

■ a performance-related modifier for performance above and below a predetermined threshold (measured by the required hurdle growth rate). The Remco reviews these thresholds annually. Thresholds are set to ensure that the STI pool reduces at a proportionally higher rate for below-target performance but increases at a higher proportional rate for above-target performance

The mechanism for quantifying the pool is subject to annual review and refinement by the Remco and can be modified where necessary.

The STI pool size will determine the final amounts paid to eligible employees. The individual award is calculated in line with the employee level, employee performance and group performance which is then calibrated to the size of the pool.

Alexander Forbes Retirement Fund post COVID-19

Alexander Forbes’s staff members who participate in the AFRF are generally provided with an option twice a year (in April and August) to change their contribution rate. Alexander Forbes and the management committee that looks after the staff participation in the AFRF have recognised that staff members and/or their families may be financially impacted by the restrictions imposed due to the COVID-19 lockdown and have agreed to amend the Special Rules of the AFRF in order to provide members with a one-off option to reduce their contribution rate to increase net take-home pay. To assist members further, a 5% contribution rate option was made available.

The Special Rules were amended effective 1 July 2020 and the 5% contribution rate option is valid for a period of six months only; thereafter it will be defaulted to the 13% contribution rate option (1 January 2021).

Adjusted operating profit ■ Profit from operations before non-trading and capital

items plus

■ IFRS lease adjustment (with the intention of reflecting the cash expense for leased property)

■ Excluding the STI pool expense

■ Adjusted for any quality of earnings adjustments identified through the year-end audit process

■ Adjusted for emerging markets’ minority interest

■ Including reported profits from associate investments

2021 group scorecard

The group scorecard rating is based on a 5-point scale, with a 3-point rating being on-target.

Due to the uncertainty of the market impact on the revenue of the group, the Remco proposed that more definitive and controllable measures should be used for the group that could include:

LevelGroup

weightingIndividual weighting

Level 5 – Senior management

Level 4 – Management

Level 6 – Top management

Group executive

40%60%

50%50%

30%70%

80% 20%


13

Committee reports


The Alexander Forbes LTIP applies to executive and middle to senior management (Level 4 and above). The share-based LTIPs are governed by rules as approved by shareholders. LTIP award levels, expressed as a percentage of guaranteed pay, will be made based primarily on an employee’s TGP, job grade, performance, retention and attraction requirements and market benchmarks.

The LTIP is designed to:

■ reward individual performance for the achievement of long-term Alexander Forbes objectives

■ act as a retention mechanism

■ align the objectives and focus of those that can most influence the company’s strategy, long-term sustainability and value add with stakeholder value creation

■ incentivise executives and senior management to drive growth and achieve sustainable above-market growth and returns

To align shareholders, executives and senior management’s interests, the vesting of the LTIP awards are conditional on achieving performance conditions measured over a period appropriate to achievement of the strategic objectives of the company and continued employment over the vesting period. Such performance measures are linked to factors enhancing stakeholder value and require strong levels of overall corporate performance, measured against predetermined objectives and targets.

Awarding of LTIPs is made on a sliding scale to avoid an ‘all or nothing’ profile that may encourage undesirable risk taking, and starts at a level that is appropriate in comparison with guaranteed pay. Awards with high potential value may only be linked to commensurately high levels of performance. Full awards require significant value creation.

CSP performance measuresThe 2018 award has three-year cliff vesting, with only normalised headline earnings per share (HEPS) as the performance measure.

The metrics and weighting of the performance measures for the 2019 and 2020 awards tranche are set out in the table below.

Metric and weighting Rationale and measurement Staggered vesting (year 3: 50% and year 4: 50%)

Normalised HEPS

■ Basis on which management manages the company and normalised results reflect the economic substance of the company’s performance

■ Normalised HEPS growth over time should be the foundation upon which the share price should appreciate and shareholder wealth creation rests

■ Sustainable growth in normalised HEPS is important to achieving long-term performance and therefore this measure is based on a three-year and four-year CAGR basis to align with the vesting periods

30% vests for threshold performance and 100% vests for target; where:

■ Threshold performance = nominal GDP

■ Target performance ≥ nominal GDP + 6%

■ Linear vesting applied between these points

Normalised return on equity (RoE)

■ Measurement incorporates the annual delivery of results against the capital held within the business

■ Normalised RoE is measured over the performance period and is calculated based on the simple average of the reported RoE over the vesting periods

30% vests for threshold performance and 100% vests for target; where:

■ Threshold performance = risk-free rate + 2% ■ Target performance ≥ risk-free rate + 6% ■ Linear vesting applied between these points

Strategic initiatives

■ Inclusion of strategic initiatives provides the board with a further tool to drive specific objectives which contribute to long-term sustainability

■ The initiatives will be clearly defined and measurable, scored by the board on an annual basis

The scores for all initiatives will be added at the end of the vesting period and applied to the vesting shares as a percentage of the total possible score for the entire vesting periods

35%

35%

30%

Long-term incentive plan (LTIP)

The Remco currently makes two types of awards under the LTIP as follows:

■ Forfeitable share plan awards (FSP) – Forfeitable shares are awarded subject to continued employment, with no performance conditions, other than the original individual entry performance condition in order to qualify for an allocation. These awards are aimed at retention. From 2019 onwards, vesting is staggered in equal tranches in year three and year four. For the 2017 and 2018 tranches, cliff vesting applies in year three, thus 2020 and 2021 respectively.

■ Conditional share plan (CSP) – Conditional shares are awarded subject to continued employment and achievement of certain company performance conditions. From 2019 onwards, performance is measured over a three-year and four-year period with staggered vesting in equal tranches in years three and four. In total, 30% of the award vests for threshold performance, rising on a sliding scale to 100% of the award for performance at stretch target performance. For the 2017 and 2018 tranches, cliff vesting applies subject to performance conditions being met, thus 2020 and 2021 respectively.

The LTIP award for the 2018, 2019 and 2020 financial years comprise 60% CSP and 40% FSP. As communicated in the 2019 report, the reason for the 40% FSP award remains the need to retain and motivate critical employees to ensure delivery of the company’s strategy during challenging economic circumstances (even more so since the adverse market impact of the COVID-19 pandemic).

The Remco previously reported that it would continue to monitor the appropriateness of the percentage allocation and may progress to a reduction in the split between CSP and FSP awards, if deemed appropriate, over time. Remco believes that at present the allocation remains necessary, appropriate and in the best interests of all stakeholders.


15

Committee reports


Settlement of sharesThe company generally settles the LTIP awards by way of on-market purchases, thus not having a dilutionary effect for shareholders. The rules of the plan do, however, also allow for settlement of shares through the use of treasury shares or the issue of new shares. The company has however not included the requisite resolution to utilise an issue of shares for settlement in the 2020 AGM notice and hence will settle all awards through on-market purchases.

Executive remunerationMinimum shareholding requirements

An additional requirement for the awards to vest for members of the executive committee is that they must meet the minimum shareholding requirement (MSR) as set out below. The company wishes to encourage members of the executive to hold shares in the company, thus reinforcing the alignment between the executive and shareholder interests. Executives must build up and hold a specified number of shares (the target minimum shareholding) over predetermined holding periods, whereafter there is an expectation that executives, subject to the MSR, will continue to maintain their shareholding in good faith while in the employment of the company or such period as determined by the Remco from time to time.

The target minimum shareholding may be satisfied by:

■ transfer of vested shares to an individual’s personal account (prior to the MSR measurement periods) instead of disposing of such shares on vesting and/or

■ personal investment shares purchased in the company through the use of after-tax income, which are unencumbered and automatically count towards the MSR

MSRs (% of TGP) are shown in the table below:

MSR to be met by:March

2022March

2023March

2024

Chief executive officer 150% 200% 250%

Executives 100% 125% 150%

Clawback on STI and LTIP

Since 2019 the Alexander Forbes long-term incentive share plan (‘Forfeitable and Restricted Share Scheme 2015’) rules also provide for the recovery of vested shares.

The Remco may reduce the quantum of incentive remuneration awards or payments in whole or in part (including to nil) under the following circumstances:

■ should the participant act fraudulently or dishonestly or be in material breach of obligations to the company and/or

■ should the company become aware of a material misstatement or omission in the annual financial statements

Remuneration mix at minimum, target and maximum

The main difference in the remuneration structure of executives and other employees is a greater emphasis on variable performance-linked pay in senior roles. As an overarching principle, executive remuneration is structured to ensure alignment with the creation of shareholder value and the strategic objectives of the company, and to encourage achievement of stretched targets within appropriate risk parameters.

The charts below illustrate the average total potential remuneration for the executives under various performance scenarios.

0 105 2015 3025

TGP STI LTIP

The pay mix is the potential earnings per year that can be achieved linked to performance. It includes the minimum earnings (poor performance), ‘on-target’ earnings (achievement of targets), and the maximum potential earnings (stretch). These are total potential earnings ‘on award’. The assumptions made in arriving at these outcomes are the following:

■ Minimum remuneration is calculated assuming zero performance outcome on variable pay (targets not met – poor performance below a 3 rating). The average TGP for the 2020 financial year has been used for the illustrations.

■ Target remuneration is calculated assuming that the performance outcome for the company and individual resulted in an ‘on target’ outcome (targets met – solid performance or a 3 rating).

■ Maximum remuneration is calculated assuming that the performance outcome for the company and individual resulted in a ‘stretch outcome’ (exceeded targets – up to the maximum of a 5 rating).

.Executive directors’ service contracts

The notice period for all executive committee members is three months. None of the executive directors or prescribed officers have special contractual obligations in employment contracts which could give rise to payments on termination of employment or office.

Maximum

Maximum

Target

Target

Minimum

Minimum

Chief executive officer

Executives

R’million

Implementation reportThe detail relating to the remuneration paid to executive directors, non-executive directors and prescribed officers for the financial year ended 31 March 2020 is provided in this part of the report. The Remco considers that these payments are in line with the company’s remuneration policy and where discretion (within permitted parameters) has been applied, such instances are specifically indicated.

Factors that influenced remunerationThis was a critical year for Alexander Forbes as we implemented our strategy and changes to our operating model. The change that was brought about by the implementation of the new operating model, supported by employee engagement initiatives, focused on showing our people how we have delivered against our commitments to them and our stakeholders. The key theme of FY2020 has been execution on promises made in the prior year, against a backdrop of an extremely challenging macroeconomic environment that has been exacerbated by the uncertainty and volatility brought about by the COVID-19 pandemic in the last quarter of the financial year. Factors that informed the review of remuneration in financial year 2020 included:

External factors

■ Persistently challenging macroeconomic environment that has been exacerbated by the uncertainty and volatility brought about by the COVID-19 pandemic in the last quarter of the financial year

■ Competitive labour market competing for scarce skills

Internal factors

■ Delivering on strategic initiatives – including embedding the target operating model, the completion of the sale of the short-term insurance business and the conversion of the umbrella fund to being privately administered

■ Good cost management (including the management of stranded costs resulting from the sale of the short-term insurance business)

■ Delivering on our service-level agreements for our clients and improved client engagement reflected in the net promoter score which was higher than target

■ Improvement in the management of errors and omissions, although further work remains necessary

■ Improving culture and morale – improvement in the employee engagement score

■ During the COVID-19 pandemic, our people have been able to continue operating effectively and efficiently on a remote basis

The company and committee had the task of once again balancing a year of lower than anticipated financial performance impacting the overall STI pool calculation, with the need to retain key staff under challenging market and economic conditions.

Remuneration of non-executive directors (NEDs)The factors that determine NED remuneration proposals are:

■ the company’s market capitalisation and sector

■ the level of complexity and responsibility, especially in relation to regulated companies

■ the time commitment (both for meetings and on a continuous basis)

■ level of individual competence does not influence individual remuneration per se, other than certain committees that may require a different level of competence

■ residency does not influence remuneration, although travel and accommodation are covered by the company in addition to the normal fees payable

■ the chair’s fee is based on an all inclusive fee, considering the number of applicable boards and regardless of board committee attendance (which the chair is expected to attend as far as possible as a standing invitee)

■ a new bespoke lead independent director fee has been included for approval in the 2020 AGM notice;

■ the company targets similar benchmarking tools for employee and NED remuneration to ensure parity and fairness. Both ‘overall market’ and ‘financial sector’ data are considered during the process, with specific focus on the latter

■ the company targets NED remuneration at the median, although certain instances may warrant the upper quartile

■ NEDs are not eligible to receive any performance incentives or LTIPs


17

Committee reports


For financial year 2020, an average increase of 4.3% was made as part of the annual review cycle effective 1 July 2019. This increase was applied on a cascaded basis with higher increases being applied to staff on levels 1, 2 and 3 and lower increases being applied to senior staff on levels 4, 5 and 6.

Increases were in line with inflation in South Africa (average CPI at the time was 4.5%).

The summary TGP outcome is shown in the table below. Details of the TGP (basic salary plus benefits) paid to each of the executive directors and prescribed officers during the 2020 financial year are set out in the table containing the single-figure remuneration on page 24 of this report.

Based on the financial and non-financial performance results, the overall group scorecard resulted in a rating of 3.5. The comparable group STI outcome for 2019 was 1.67. The group scorecard rating is based on a 5-point scale, with a 3-point rating being on-target.

FY2020 group scorecardMeasure-

ment unit Weighting Target Actual ScoreWeighted

score

Financial (70%)

Net revenue Rm 35% 3 252 3 153 2.4 0.8

Cost1 to income ratio % 35 80 76 4.0 1.4

Non-financial (30%)

Our clients – customer net promoter score Score 15% 12 17 5.0 0.8

Our people – employee engagement survey Score 15% 57.5 56 3.2 0.5

Total 3.5

1 Adjustments include the operating results of discontinued operations, the IFRS 16 lease adjustment, minority interests from emerging market countries and other quality of earnings adjustments. The adjustments for the Remco performance measure also reverses the accrued bonus provision and LTIP expenses at year-end.

2 The bonus pool calculation is 17.5% of the Remco performance measure. The remuneration policy allows for this percentage to be between 15% and 20% at the election of the Remco.

3 Approved Remco bonus pool includes the negative multiplier adjustment in line with the negative growth of the performance measure as well as an addition to the pool of R20 million as a reward for the successful implementation of the short-term insurance sale which resulted in a profit on sale of R861 million.

4 The ex gratia amount shown in the table reflects the total approved by the Remco for the group. The STI outcome table on page 20 shows the ex gratia amount paid to employees in South Africa for FY2019.

2020 group scorecard outcome The performance against the group scorecard for the financial year was pleasing despite the revenue targets not being met. The implementation and execution of initiatives through the year have improved the results when compared to the prior year.

The outcome of the group scorecard for financial year 2020 on which the STI incentive is calculated and awarded is shown below:

2020 STI outcome2020 TGP outcome

STI pool outcome

Rm 2020 Growth 2019Operating profit before non-trading and capital items – per published results 757 0.5% 753

Adjustments1 196 270

Remco performance measurement 953 (6.8)% 1 023

STI pool calculated on formula2 167

Approved Remco bonus pool3 147 1354 (Ex gratia)

1 Including stranded costs.

TGP increase %

2019 2020

Rm 2020 2019

DJ de Villiers1 5 472 2 600

BP Bydawell2 3 891 1 870

CH Wessels3 3 223 2 608

B Mokoena 3 517 3 332

L Stevens 2 429 2 305

B Tladi4 2 780 –

M Sokkie5 2 504 –

JG Anderson4 3 214 –

LJ Kukard6 1 773 –

Total 28 803 12 715

For financial year 2021, given the impact of the COVID-19 pandemic on global and South African economies, the executive committee took the decision, supported by the Remco, to forgo the TGP increase. Increases are however being implemented for junior staff on levels 1, 2 and 3 where the economic hardship will be felt the most.

1 Appointed on 1 November 2018. 2 Appointed 1 April 2019. 3 Appointed to executive committee in the 2019 financial year.4 Announced as group executive members in June 2019. 5 Subsequent to the year end, Ms M Sokkie resigned from the role of executive: human resources and transformation with effect from 31 May 2020.6 Appointed in the capacity of acting group executive member.

3.2

Executive committee members

Senior management

Management Other employees

0.6

3.2

2.6

4.4 4.54.7

4.54.3


19

Committee reports


TGP:

5 472STI (cash):

3 159STI (converted to FSP):

3 159LTIP1:

3 200Dividends:

1 458

STI paymentAnnual STI bonus payments are typically paid in cash following finalisation of the company’s audited financial results for the year in question and are not deferred.

Key considerations in the 2020 financial year reward cycle (which culminated in the Remco making decisions amidst global and local lockdown restrictions and overall adverse economic circumstances as a consequence of COVID-19) included:

■ the key priority of staff job security and protection of salaries

■ the personal and working lives of our people, their efforts over the past year and the efforts that the company will be requiring of them in this volatile and uncertain time ahead

■ sensitivity towards the overall circumstances of our people, including staff spouses’ livelihoods being negatively affected due to COVID-19

■ South African business response, including the establishment of various social and economic support initiatives

■ ensuring and enabling the long-term sustainability of the business through engaged employees and superior client service

■ company sustainability and affordability in the context of the detailed ORSA process (discussed in the integrated annual report)

■ the outcome of the group performance scorecard for the 2020 financial year and the STI pool outcome

■ possible varied shareholder perception and sentiment following the company’s choice whether to proceed with payment of the STI or not in the context of post COVID-19 industry benchmarks and trends

The Remco extensively debated whether to proceed with the payment of the STI and on the basis of the above factors, decided to approve the STI award for financial year 2020.

Based on a combination of group and individual performance (as detailed in the remuneration policy) the resultant STI awards for executive directors, prescribed officers and all other employees are shown in the table below:

STI outcome (R’000) 2020Ex gratia amount

2019

Executive committee members 21 529 6 680

Senior management 57 933 44 605

Management 36 073 35 300

Other employees 31 749 32 907

Total operations 147 284 119 492

In light of the adverse economic impact of COVID-19, the executive committee will receive 50% of the total 2020 STI award in cash bonuses and the remaining 50% will be converted to FSP shares with the following conditions:

1. Vesting will be deferred in two equal tranches: 50% in 12 months from date of issue and the remaining 50% in 24 months from date of issue.

2. The Remco approved a 15% enhancement to the FSP share portion of the bonus, which will be reflected in the share awards allocated in July 2020.

Details of the STI paid to each of the executive directors and prescribed officers are set out in table below (and in the table containing the single-figure remuneration on page 24 of this report). The cash component paid during the year also includes payments made in lieu of awards given up from previous employers.

R’000

2020 2019

CashSTI converted to FSP award1 Total Cash

DJ de Villiers 3 159 3 159 6 318 5 0802

BP Bydawell3 1 800 1 800 3 600 1 250

CH Wessels 1 9534 1 370 3 323 2 2504

B Mokoena 464 463 927 800

L Stevens 885 885 1 770 800

B Tladi 1 120 1 120 2 240 –

JG Anderson 1 174 1 174 2 348 –

LJ Kukard 1 1225 793 1 915 –

Total 11 677 10 764 22 441 10 180

1 FSP award refers to the 50% portion of the STI award that has been converted to shares (with equal vesting in the 2021 and 2022 financial years).2 Appointed 1 November 2018. Mr DJ de Villiers received a sign-on award comprising a R3 million bonus, included in the 2019 award.3 Appointed 1 April 2019. Prior to his appointment, Mr BP Bydawell was employed as a consultant for a period of six months during which he acted in the capacity of chief financial officer.4 The cash bonus amount awarded to Ms CH Wessels includes an amount of R583 000 paid in lieu of a retainer payment given up from her previous employer

(2019: R500 000 sign-on award).5 The cash bonus amount awarded to Ms LJ Kukard includes an amount of R328 585 paid as final compensation in respect shares from her previous employer.

Dawie de Villiers Chief executive officer

The performance scorecard for Dawie, inter alia, included the following measures for the 2020 financial year:

■ improving the culture and reinvigorating the values of Alexander Forbes throughout the organisation – ensuring customer at the center of the business and deliver advice-led framework

■ ensuring a coherent and functioning executive and management committee

■ embedding the strategy of the group – including implementation of the target operating model, delivering ‘One Alexander Forbes’, and ongoing evaluation of potential M&A opportunities that are aligned to the group strategy

■ achieving the budgeted financials for 2020 and ongoing stakeholder engagement

Key outcomes in 2020 included successful implementation of the target operating model, improved employee morale evidenced by the increase in the employee engagement score and stabilisation of the client base together with re-establishment of key client relationships – driven by successful embedment of the client-centric ‘One Alexander Forbes’ operating model. Successful completion of the sale of the short-term insurance business.

Performance outcomes – executive directorsWe have set out below the single-figure remuneration outcomes and performance outcomes of the executive directors. This summary includes, on an individual basis, commentary regarding each individual’s achievement against his personal KPIs and their remuneration mix.

19%19%

20%

9%

33%

Remuneration mix

Dawie received a final performance score of 3.5 (1 – 5 rating scale) in 100% alignment with the performance rating of the company scorecard.

2020 remuneration outcome:

1 Value of FSP award received in 2019.

Bruce BydawellChief financial officer

The performance scorecard for Bruce, inter alia, included the following measures for the financial year 2020:

■ focus on driving the cultural change and renewed focus on embedding the values of Alexander Forbes throughout the organisation

■ align compensation to enterprise value

■ delivery of the financial results of the group

■ manage the implementation of the target operating model – along with underlying expense management initiatives

■ provide leadership and improvements to the finance, strategy and risk management functions

■ delivery of strategic M&A transactions

Key outcomes in 2020 included the successful completion of the sale of the short-term insurance business and the conversion of the umbrella fund licence to being privately administered – substantially improving the surplus capital and balance sheet position of the group, commencing the journey of becoming capital-light. Maturing the risk management function and improved finance function succession.

19%

19%

19%

2%

41%

Remuneration mix

TGP:

3 891STI (cash):

1 800STI (converted to FSP):

1 800LTIP1:

1 760Dividends:

197

Bruce received a final performance score of 4.1 (1 – 5 rating scale).

2020 remuneration outcome:

1 Value of FSP award received in 2019.


21

Committee reports


Long-term incentive plan (LTIP) outcome

1 Risk-free rate is the R186 SA government bond.

LTIP shares outstanding The total position of shares outstanding in relation to historic awards made under both the CSP and FSP is detailed in note 22 of the annual financial statements (pages 68 to 71).

Awards with a performance period ending during the 2020 financial year

The vesting profile for the 2017 Award with a performance period ending 31 March 2020:

CSP performance condition for the 2017 award Achievement of performance condition

Growth in normalised headline earnings per share (CAGR) (13.4%) < Nominal GDP (CAGR) threshold of 4.9%Target not met

Resultant vesting –

Performance of the strategic initiatives, relating to the 2019 awardThe current score used for the measurement of the 2019 strategic initiatives is an average of 4.5 (of 5) which equates to a participation percentage of 90%. Details of the strategic initiatives that were approved for the performance conditions relating to the 2019 award are highlighted in the table below.

2019 Strategic initiatives (30%)

1. Implementing the capital-light strategic deliverable with the successful completion of the disposal of the short-term insurance business and the transition of the umbrella fund to being privately administered by financial year-end

The sale of the short-term insurance business was well managed through an open market process and resulted in the sale price exceeding expectation. Executives from both parties, board members, shareholders and the bidders that lost the bid commended the professinalism with which the process was run, speed of execution and commented on the success of the deal.

The umbrella fund was successfully converted during the second half of the year with a corresponding release of capital of R400 million.

2. Implementation of the target operating model with all three platforms in place and fully integrated by financial year-end and implementation clearly defined reporting structures

The target operating model has been fully implemented with new reporting structures being defined. The changes were made with no disruption to clients and through on-going employee engagement initiatives to help our people make the necessary transition. The benefits of the change are expected to impact the business positively over the next two years.

3. Transformation objectives aligned to the Financial Sector Codes and B-BBEE Act requirements with the aim to obtain a Level 1 rating by FY2023

Strategic framework and base-line work commenced during the year. Level 2 rating achieved for FY2020.

LTIP awards made during the year2020 CSP awards

CSP awards were granted on 1 July 2019 with staggered vesting in equal tranches in years three and four. The performance conditions for the 2020 CSP awards remain unchanged. The performance targets, weighting and performance periods are applicable to the number of shares awarded and are tested over a three-year and four-year period.

The strategic initiatives relating to the 2020 CSP awards will include continuation of the transformation objective from the 2019 award as well as measures to ensure sustainable delivery of the strategic deliverables that incorporates efficiency improvements and member engagement.

Due to the price-sensitive nature of the targets set under the strategic initiatives, the company will report and disclose retrospectively on the performance against these objectives in its remuneration report.

2020 FSP awards

FSP awards were granted on 1 July 2019 with staggered vesting in equal tranches in years three and four. There are no performance conditions applicable to the number of shares awarded except for the initial performance required to qualify (FY2020 performance) and the individual remaining employed at the time of vesting.

2017 Award 2018 Award 2019 Award 2020 Award

Instruments usedCSP 80% CSP 60% CSP 60% CSP 60%

FSP 20% FSP 40% FSP 40% FSP 40%

Performance metrics and weighting (CSP)

Normalised HEPS (100%)

Normalised HEPS (100%)

Normalised HEPS (35%)Normalised RoE (35%)Strategic initiatives (30%)

Normalised HEPS (35%)Normalised RoE (35%)Strategic initiatives (30%)

Performance metrics and conditions (CSP)

Threshold (30% vesting)

Normalised HEPS (CAGR) Nominal GDP Nominal GDP

Normalised RoE – Risk-free rate1 + 2%

Strategic – Not applicable

Target (100% vesting)

Normalised HEPS (CAGR) Nominal GDP + 8% Nominal GDP + 6%

Normalised RoE Risk-free rate1 + 2% Risk-free rate1 + 6%

Strategic – See performance of the strategic initiatives, relating to the 2019 award on the next page

Measurement (CSP) Condition not met Not yet applicable Not yet applicable Not yet applicable

Performance conditions (FSP)

Employment on vesting




Vesting period Three-year, cliff vesting

Three-year, cliff vesting

Four-year vesting: staggered in equal tranches in year three and year four

Four-year vesting: staggered in equal tranches in year three and year four

Other conditions (For executives and prescribed officers)

– – Minimum shareholding requirementMalus and clawback

Minimum shareholding requirement Malus and clawback

Summary comparison – historic and current LTIP awards


23

Committee reports


Executive directors and prescribed officers (R’000) Year Salary

Benefits and

allowances

Retirement fund

contribu-tions Bonus

STI converted

to FSP award1

LTIPs received2

Divi-dends

received Total

DJ de Villiers (chief executive officer)3

2020 4 616 363 493 3 159 3 159 3 200 1 458 16 448

2019 1 850 552 198 5 080 – 9 618 336 17 634

BP Bydawell (chief financial officer)4

2020 3 036 356 499 1 800 1 800 1 760 197 9 448

2019 1 629 163 78 1 250 – – – 3 120

CH Wessels (executive: governance, legal and compliance)5

2020 2 675 109 439 1 953 1 370 1 000 212 7 758

2019 2 198 49 361 2 250 – 749 220 5 827

B Mokoena (executive: market development)

2020 2 780 257 480 464 463 800 147 5 391

2019 2 472 431 429 800 – 544 60 4 736

L Stevens (executive: marketing and customers)

2020 2 023 74 332 885 885 553 70 4 822

2019 1 945 41 319 800 – 576 42 3 723

B Tladi (executive: consulting)6

2020 2 219 196 365 1 120 1 120 680 139 5 839

2019 – – – – – – – –

M Sokkie (executive: human resources and transformation)6, 7

2020 2 072 172 260 – – 480 109 3 093

2019 – – – – – – – –

JG Anderson (executive: investments, product and enablement)6

2020 2 814 100 300 1 174 1 174 976 481 7 019

2019 – – – – – – – –

LJ Kukard (interim executive: services)8

2020 1 550 58 165 1 122 793 256 57 4 001

2019 – – – – – – – –

Total for the year 2020 23 785 1 685 3 333 11 677 10 764 9 705 2 870 63 819

2019 10 094 1 236 1 385 10 180 – 11 487 658 35 040

Single-figure remuneration for the year ended 31 March 2020 (audited)The intention of single-figure remuneration is to disclose the remuneration earned and/or accrued by executive directors and prescribed officers based on the performance of the current year, the vesting of shares with non-financial performance conditions and including any income attributable to unvested long-term share schemes.

The composition of remuneration outcomes in 2020 for executive directors and prescribed officers is represented below.

1 FSP award refers to the 50% portion of the STI award that has been converted to bonus shares (with equal vesting in the 2021 and 2022 financial years).2 This amount reflects the cash equivalent value of the FSP awards granted during the year. The cash equivalent amount is then converted to shares based on the grant date

price (calculated as the three-day VWAP value) on the applicable grant date.3 Appointed 1 November 2018. Mr DJ de Villiers received a sign-on award comprising a R3 million bonus and 1 867 510 FSP shares amounting to R9.6 million.4 Appointed 1 April 2019. Prior to his appointment Mr BP Bydawell was employed as a consultant for a period of six months during which he acted in the capacity of chief financial officer.5 The bonus amounts awarded to Ms CH Wessels include a sign-on award comprising R583 000 paid in the current year and R500 000 paid in the prior year to align to awards that were given up from her previous employer.6 Announced as group executive members in June 2019. 7 Subsequent to the year-end, Ms M Sokkie resigned from the role of executive: human resources and transformation with effect from 31 May 2020.8 The bonus of R1 121 850 awarded to Ms LJ Kukard includes an amount of R328 585 paid as final compensation in respect of shares from her previous employer.

Ms LJ Kukard was appointed in the capacity of acting group executive member.

Single-figure remuneration and participation in share schemes

Dawie de Villiers Total guaranteed pay Short-term incentives Long-term incentives

Total single figure of remuneration Salary

Benefits and

allowances

Retirement fund

contributions Bonus

STI converted to

FSP award1 LTIPs

received Dividends

received Total

2020 4 616 363 493 3 159 3 159 3 200 1 458 16 448 2019 1 850 552 198 5 080 – 9 618 336 17 634

Bruce Bydawell Total guaranteed pay Short-term incentives Long-term incentives


Benefits and

allowances

Retirement fund

contributions Bonus

STI converted to

FSP award1 LTIPs

received Dividends

received Total

2020 3 036 356 499 1 800 1 800 1 760 197 9 448 2019 1 629 163 78 1 250 − − − 3 120

Share reconciliation

Scheme Award date Vesting date

Opening balance

(‘000)

Granted during the

year (‘000)

Forfeited during the

year

Vested during the

year

Closing balance

(‘000)

Value of LTIP

received (R’000)

Estimated closing

fair value (R`000)

2020

FSP – 2018 tranche 01/11/2018 01/11/2021 1 868 − − − 1 868 − 7 993

CSP – 2018 tranche 01/04/2019 31/03/2022 (50%) 31/03/2023 (50%) 1 951 − − − 1 951 − −

FSP – 2019 tranche 01/07/2019 30/06/2022 (50%) 30/06/2023 (50%) − 562 − − 562 3 200 2 407

CSP – 2019 tranche 01/07/2019 30/06/2022 (50%) 30/06/2023 (50%) − 844 − − 844 − −

Total 3 819 1 406 − − 5 225 3 200 10 400

2019

GEC – 2018 tranche 01/11/2018 01/11/2022 − 1 951 (1 951) − − − −

FSP – 2018 tranche 01/11/2018 01/11/2021 − 1 868 − − 1 868 9 618 9 394

CSP – 2018 tranche 01/04/2019 31/03/2022 (50%) 31/03/2023 (50%) − 1 951 − − 1 951 − −

Total − 5 770 (1 951) − 3 819 9 618 9 394



Opening balance

(‘000)

Granted during the

year (‘000)


year

Vested during the

year

Closing balance

(‘000)

Value of LTIP

received (R’000)

Estimated closing

fair value (R`000)

2020

CSP – April 2019 tranche

01/04/2019 31/03/2022 (50%) 31/03/2023 (50%) − 186 − − 186 − −

FSP – April 2019 tranche

01/04/2019 31/03/2022 (50%) 31/03/2023 (50%) − 124 − − 124 600 529

CSP – 2019 tranche 01/07/2019 30/06/2022 (50%) 30/06/2023 (50%) − 306 − − 306 − −

FSP – 2019 tranche 01/07/2019 30/06/2022 (50%) 30/06/2023 (50%) − 204 − − 204 1 160 873

Total − 820 − − 820 1 760 1 402

1 FSP award refers to the 50% portion of the STI award that has been converted to bonus shares (with equal vesting in the 2021 and 2022 financial years).


25

Committee reports


Carina Wessels Total guaranteed pay Short-term incentives Long-term incentives


Benefits and

allowances

Retirement fund

contributions Bonus

STI converted to

FSP award1 LTIPs

received Dividends

received Total

2020 2 675 109 439 1 953 1 370 1 000 212 7 758 2019 2 198 49 361 2 250 − 749 220 5 827



Opening balance

(‘000)

Granted during the

year (‘000)


year

Vested during the

year

Closing balance

(‘000)

Value of LTIP

received (R’000)

Estimated closing

fair value (R`000)

2020

CSP – 2017 tranche 23/06/2017 24/07/2020 165 − − − 165 − −

FSP – 2017 tranche 23/06/2017 26/03/2020 78 − − (78) − − −

FSP – 2017 tranche 23/06/2017 24/07/2020 41 − − − 41 − 177

CSP – 2018 tranche 02/07/2018 01/07/2021 89 − − − 89 − −

FSP – 2018 tranche 02/07/2018 01/07/2021 59 − − − 59 − 253

RSP – 2018 tranche 02/07/2018 01/07/2019 (50%) 37 − − (37) − − −

CSP – 2019 tranche 01/07/2019 30/06/2022 (50%) 30/06/2023 (50%)

− 264 − − 264 − −

FSP – 2019 tranche 01/07/2019 30/06/2022 (50%) 30/06/2023 (50%)

− 176 − − 176 1 000 752

Total 469 440 − (115) 794 1 000 1 182

2019

CSP – 2017 tranche 23/06/2017 24/07/2020 165 − − − 165 − −

FSP – 2017 tranche 23/06/2017 26/03/2019 286 − − (286) − − −

FSP – 2017 tranche 23/06/2017 26/03/2020 78 − − − 78 − 392

FSP – 2017 tranche 23/06/2017 24/07/2020 41 − − − 41 − 208

CSP – 2018 tranche 02/07/2018 01/07/2021 − 89 − − 89 − −

FSP – 2018 tranche 02/07/2018 01/07/2021 − 59 − − 59 333 297

RSP – 2018 tranche 02/07/2018 01/01/2019 (50%) 01/07/2019 (50%)

− 74 − (37) 37 416 186

Total 570 222 − (323) 469 749 1 083


Bonga Mokoena Total guaranteed pay Short-term incentives Long-term incentives

2020 2 780 257 480 464 463 800 147 5 391 2019 2 472 431 429 800 – 544 60 4 736

2020

CSP – 2016 tranche 23/07/2016 24/07/2019 250 − (250) − − − −

CSP – 2017 tranche 23/06/2017 24/07/2020 226 − − − 226 − −

FSP – 2017 tranche 23/06/2017 24/07/2020 57 − − − 57 − 242

CSP – 2018 tranche 02/07/2018 01/07/2021 71 − − − 71 − −

FSP – 2018 tranche 02/07/2018 01/07/2021 47 − − − 47 − 202

RSP – 2018 tranche 02/07/2018 01/07/2019 (50%) 25 − − (25) − − −

CSP – 2019 tranche 01/07/2019 30/06/2022 (50%) 30/06/2023 (50%)

− 211 − − 211 − −

FSP – 2019 tranche 01/07/2019

30/06/2022 (50%) 30/06/2023 (50%)

− 141 − − 141 800 602

Total 676 352 (250) (25) 753 800 1 046

2019

CSP – 2015 tranche 03/09/2015 03/09/2018 233 − (233) − − − −

CSP – 2016 tranche 23/07/2016 24/07/2019 250 − − − 250 − −

CSP – 2017 tranche 23/06/2017 24/07/2020 226 − − − 226 − −

FSP – 2017 tranche 23/06/2017 24/07/2020 57 − − − 57 − 285

CSP – 2018 tranche 02/07/2018 01/07/2021 − 71 − − 71 − −

FSP – 2018 tranche 02/07/2018 01/07/2021 − 47 − − 47 266 238

RSP – 2018 tranche 02/07/2018 01/01/2019 (50%) 01/07/2019 (50%)

− 49 − (25) 25 278 124

Total 766 167 (233) (25) 676 544 647

Lynn Stevens Total guaranteed pay Short-term incentives Long-term incentives


Benefits and

allowances

Retirement fund

contributions Bonus

STI converted to

FSP award1 LTIPs

received Dividends

received Total

2020 2 023 74 332 885 885 553 70 4 822 2019 1 945 41 319 800 − 576 42 3 723



Opening balance

(‘000)

Granted during the

year (‘000)


year

Vested during the

year

Closing balance

(‘000)

Value of LTIP

received (R’000)

Estimated closing

fair value (R`000)

2020

CSP – 2016 tranche 23/07/2016 24/07/2019 160 − (160) − − − −

CSP – 2017 tranche 23/06/2017 24/07/2020 79 − − − 79 − −

FSP – 2017 tranche 23/06/2017 24/07/2020 20 − − − 20 − 85

CSP – 2018 tranche 02/07/2018 01/07/2022 511 − − − 511 − −

RSP – 2018 tranche 02/07/2018 01/07/2019 (50%) 51 − − (51) − − −

CSP – 2019 tranche 01/07/2019 30/06/2022 (50%) 30/06/2023 (50%)

− 146 − − 146 − −

FSP – 2019 tranche 01/07/2019 30/06/2022 (50%) 30/06/2023 (50%)

− 97 − − 97 553 416

Total 821 243 (160) (51) 853 553 501

2019

CSP – 2015 tranche 03/09/2015 03/09/2018 157 − (157) − − − −

CSP – 2016 tranche 23/07/2016 24/07/2019 160 − − − 160 − −

CSP – 2017 tranche 23/06/2017 24/07/2020 79 − − − 79 − −

FSP – 2017 tranche 23/06/2017 24/07/2020 20 − − − 20 − 100

GEC – 2018 tranche 02/07/2018 01/07/2022 − 511 (511) − − − −

CSP – 2018 tranche 02/07/2018 01/07/2022 − 511 − − 511 − −

RSP – 2018 tranche 02/07/2018 01/01/2019 (50%) 01/07/2019 (50%)

− 102 − (51) 51 576 257

Total 416 1 124 (668) (51) 821 576 357

Butsi Tladi Total guaranteed pay Short-term incentives Long-term incentives


Benefits and

allowances

Retirement fund

contributions Bonus

STI converted to

FSP award1 LTIPs

received Dividends

received Total

2020 2 219 196 365 1 120 1 120 680 139 5 839 2019 − − − − − − − −



Opening balance

(‘000)

Granted during the

year (‘000)


year

Vested during the

year

Closing balance

(‘000)

Value of LTIP

received (R’000)

Estimated closing

fair value (R`000)

2020

CSP – 2016 tranche 23/07/2016 24/07/2019 150 − (150) − − − −

CSP – 2017 tranche 23/06/2017 24/07/2020 206 − − − 206 − −

FSP – 2017 tranche 23/06/2017 24/07/2020 51 − − − 51 − 220

CSP – 2018 tranche 02/07/2018 01/07/2021 90 − − − 90 − −

FSP – 2018 tranche 2/07/2018 01/07/2021 60 − − − 60 − 258

RSP – 2018 tranche 02/07/2018 01/07/2019 (50%) 75 − − (75) − − −

CSP – 2019 tranche 01/07/2019

30/06/2022 (50%) 30/06/2023 (50%)

− 179 − − 179 − −

FSP – 2019 tranche 01/07/2019

30/06/2022 (50%) 30/06/2023 (50%)

− 119 − − 119 680 511

Total 632 298 (150) (75) 705 680 989



27

Committee reports


Muriel Sokkie Total guaranteed pay Short-term incentives Long-term incentives


Benefits and

allowances

Retirement fund

contributions Bonus

STI converted to

FSP award1 LTIPs

received Dividends

received Total

2020 2 072 172 260 - - 480 109 3 093 2019 − − − − − − − −



Opening balance

(‘000)

Granted during the

year (‘000)


year

Vested during the

year

Closing balance

(‘000)

Value of LTIP

received (R’000)

Estimated closing

fair value (R`000)

2020

FSP – 2018 tranche 01/10/2018 30/09/2022 98 − − − 98 − 419

CSP – 2019 tranche 01/07/2019 30/06/2022 (50%) 30/06/2023 (50%) − 127 − − 127 − −

FSP – 2019 tranche 01/07/2019 30/06/2022 (50%) 30/06/2023 (50%) − 84 − − 84 480 361

Total 98 211 − − 309 480 780

John Anderson Total guaranteed pay Short-term incentives Long-term incentives


Benefits and

allowances

Retirement fund

contributions Bonus

STI converted to

FSP award1 LTIPs

received Dividends

received Total

2020 2 814 100 300 1 174 1 174 976 481 7 019 2019 – – – – – – – –



Opening balance

(‘000)

Granted during the

year (‘000)


year

Vested during the

year

Closing balance

(‘000)

Value of LTIP

received (R’000)

Estimated closing

fair value (R`000)

2020

CSP – 2017 tranche 23/06/2017 24/07/2020 368 − − − 368 − −

FSP – 2017 tranche 23/06/2017 24/07/2020 568 − − − 568 − 2 432

CSP – 2018 tranche 02/07/2018 01/07/2021 93 − − − 93 − −

FSP – 2018 tranche 02/07/2018 01/07/2021 62 − − − 62 − 264

RSP – 2018 tranche 02/07/2018 01/07/2019 (50%) 29 − − (29) − − −

CSP – 2019 tranche 01/07/2019

30/06/2022 (50%) 30/06/2023 (50%) − 257 − − 257 − −

FSP – 2019 tranche 01/07/2019 30/06/2022 (50%) 30/06/2023 (50%) − 172 − − 172 976 734

Total 1 120 429 − (29) 1 520 976 3 430


Laura Kukard Total guaranteed pay Short-term incentives Long-term incentives


Benefits and

allowances

Retirement fund

contributions Bonus

STI converted to

FSP award1 LTIPs

received Dividends

received Total

2020 1 550 58 165 1 122 793 256 57 4 001 2019 − − − − − − − −



Opening balance

(‘000)

Granted during the

year (‘000)


year

Vested during the

year

Closing balance

(‘000)

Value of LTIP

received (R’000)

Estimated closing

fair value (R`000)

2020

CSP – 2017 tranche 23/06/2017 24/07/2020 32 − − − 32 − −

FSP – 2017 tranche 23/06/2017 24/07/2020 8 − − − 8 − 35

CSP – 2018 tranche 02/07/2018 01/07/2021 62 − − − 62 − −

FSP – 2018 tranche 02/07/2018 01/07/2021 41 − − − 41 − 176

RSP – 2018 tranche 02/07/2018 01/07/2019 (50%) 43 − − (43) − − −

CSP – 2019 tranche 01/07/2019 30/06/2022 (50%) 30/06/2023 (50%) − 67 − − 67 − −

FSP – 2019 tranche 01/07/2019 30/06/2022 (50%) 30/06/2023 (50%) − 45 − − 45 256 192

Total 186 112 − (43) 255 256 403


Non-executive directors’ fees for 2020Fees paid to non-executive directors during the year ended 31 March 2020, on authority granted by shareholders at the AGM held on 6 September 2019, are set out below.

Non-executive directors’ fees and remunerationThe table below includes total fees, whether paid by the company or subsidiary companies within the group.

Non-executive directors’ fees consist of a combination of standard fees plus additional fees for committee or sub-committee membership.

Proposed non-executive directors’ fees for 2021As explained in the AGM notice and aligned with the decision not to proceed with salary increases for management employees, a zero increase in non-executive directors’ fees has been proposed. As detailed in the policy, a new lead independent director bespoke fee has been proposed. Refer to special resolution number 1 set out in the notice of AGM for approval by shareholders.

Independent non-executive directors (R’000) 2020 2019M Ramplin (chair)1 1 650 2 621

MD Collier Resigned 31/12/2019 1 367 2 076

RM Head 1 154 1 111

T Dloti 879 475

N Nyembezi (chair) Resigned 31/12/2019 1 441 2 122

BJ Memela-Khambula 913 984

NG Payne2 1 722 2 013

9 126 11 402

1 During the prior financial year Ms M Ramplin acted as chief executive officer between 25 September 2018 and 1 November 2018 during which she received a salary amounting to R426 000 included in the prior year amount. Ms M Ramplin was appointed chair of the board effective 1 January 2020.

2 In addition to his independent non-executive director fees, Mr NG Payne received R1.5 million (excluding VAT) for services performed on a special forensic consulting assignment during the current financial year which is not deemed a non-executive director fee for services rendered as a director and therefore excluded from the amount disclosed in the table above.


29

Committee reports


The governing body should lead ethically and effectively

Principle 1

The board collectively, and each director individually, subscribes to the ethical characteristics of integrity, competence, responsibility, accountability, fairness and transparency.

Conflicts of interest or potential conflicts of interests are holistically and proactively managed and extend beyond the strict interpretation of material personal financial interests defined in the Companies Act. This is an example where the board is driven by more than mere legal compliance, but rather by the ethical spirit of regulations and legislative requirements.

The board is acutely aware that their behaviours and actions set the tone for the culture within the company: following the leadership challenges experienced in the first half of FY2019, the board set specific objectives for FY2020 to improve oversight of the organisational culture as a whole, but especially the ethical culture. Although the improvement in the overall culture became quite visible in the latter part of FY2019, the board continued to remain close to employees at various levels and is pleased that the culture has continued to improve, as further evidenced by the FY2020 employee engagement score.

The directors of the board have significant experience in and knowledge of the financial services industry and of the company’s business and value creation model. Their skills and experience are kept up to date through information sharing, training and development sessions.

Directors have regular one-on-one sessions with executive management, heads of control functions and other staff in the business. The board provides strategic guidance and direction, approves material policies and business planning principles, provides implementation oversight and holds executive management and the organisation accountable for performance against agreed annual scorecards.

The group’s own risk and solvency assessment process, as well as its enterprise risk management principles serve as considered inputs into the business planning and strategy cycle, enabling the board to take appropriate risks and seize business opportunities in the company’s best interests. The board acknowledges that each of its decisions impacts the capitals available to the company to create and sustain value. The company’s approach to stakeholder engagement, albeit well considered, has been fragmented and an integrated holistic approach will be developed and entrenched in future.

Delegation to board committees are well established and effectively functioning, but without an abdication of accountability. There is significant overlap between committee memberships and directors remain aware of and involved in the areas of responsibility of the different committees. The chair attends all committee meetings where she is not a formal member as standing invitee and other directors are also often in attendance as standing invitees. All directors have access to all meeting documents, whether as member or invitee to ensure full knowledge and collective accountability of all board and committee oversight areas.

Principle 1 30

Principle 2 31

Principle 3 31

Principle 4 32

Principle 5 32

Principle 6 33

Principle 7 33

Principle 8 34

Principle 9 34

Principle 10 34

Principle 11 35

Principle 12 35

Principle 13 36

Principle 14 37

Principle 15 37

Principle 16 37

2

King IV application

5%

17%22%

6%

22% 28%

The governing body should govern the ethics of the organisation in a way that supports the establishment of an ethical culture

Principle 2

The board believes in utmost transparency, as was especially visible in the manner in which both the positive and negative aspects of FY2019 were reported in the company’s previous integrated and governance reports. We are committed to continue to report in this manner, as is visible through the balanced and holistic FY2020 reporting suite.

From a commitment perspective, the requirements for all new directors to, in their consent to act as director also commit to acting in good faith and in the best interests of the company, remain in place. The board however not only promises or speaks ethics, but they live and abide by the highest ethical standards, keeping each other accountable through honest and robust debate and regular board evaluation processes. Any whistleblowing complaints or allegations against directors are also fully investigated and do not receive any distinct treatment.

The board sets the standards for ethical practices and the expected ethical culture, including through approval of group-wide ethics-related policies and codes of practice.

The company’s ethics policies detail standards of engagement with internal and external stakeholders.

The company’s code of ethics is incorporated by reference in supplier and employee contracts. When new staff join the company, they receive access to the policy passport platform which includes the company’s code of ethics and other related ethics policies (like whistleblowing).

Responsibility to implement the ethics policies and processes have been delegated to the executive, but in order to further improve the management of ethics and effectively entrench the ethical culture, a management ethics committee was established in FY2020. The committee, inter alia, manages the ethics related policies, coordination of and remedial actions in response to whistleblowing allegations, and ethics awareness campaigns.

Our independently managed whistleblowing programme enables concerned individuals to anonymously report conflicts of interest, fraud and corruption and other ethics issues. We ensure that, where appropriate, line management or independent investigators conduct investigations and take appropriate follow-up action on such reports, including disciplinary action in accordance with the company’s disciplinary policy.

During the reporting period our whistleblowing line received six allegations regarding fraud or corruption (2019: five), which were all investigated. Four of the allegations related to fraudulent insurance claims, which fell under our disposed short-term insurance company. Investigations relating to all six cases have been completed and no evidence of any fraudulent activity were found. A further 13 (2019: 15) reports were made regarding ethical matters, such as general areas of unacceptable behaviour, including discrimination, nepotism/favouritism, failure to declare conflict of interests, and unfair treatment of clients. In each case the complaint is reviewed, and appropriate corrective action taken should evidence indicate unacceptable behaviour.

28% Other

5% Discrimination

17% Favouritism/ nepotism

22% Fraudulent insurance claims

6% Fraudulent payments

22% Non-declaration of interests

Types of whistleblower reports received

An ethics risk analysis was undertaken in the 2020 financial year in order to gauge the effectiveness of existing programmes and to provide details on any new ethics-related risks (refer the social, ethics and transformation committee report for more information). Our ethics strategy was revised in order to address the recommendations of the analysis and the relevant controls were put in place to ensure that all risks are mitigated. This remains an area of focus and will continue to receive attention by the management ethics committee.

A revised whistleblowing policy was approved and implemented during the year (available on the company’s website).

Despite the original intention, the company did not make material progress on the planned improvements to the conflicts of interest declaration processes yet. This will continue to receive focus in FY2021. Other areas of focus include:

■ ensuring the management ethics committee operates effectively in contributing to the company’s ethical culture

■ ethics awareness campaign

■ improved alignment with anti-money laundering, anti-bribery and anti-corruption initiatives

■ revision of and improvement to remaining key ethics-related policies

Below is a chart which indicates the type of whistleblower reports received:

The governing body should ensure that the organisation is and is seen to be a responsible corporate citizen

Principle 3

The group’s social, ethics and transformation committee oversees the group’s approach to corporate citizenship. As a responsible corporate citizen, the group is committed to adherence with all legislation and regulation and aspires to apply and comply with codes of good practice.

The Setco, which oversees the corporate citizenship policies, approved the empowerment and transformation strategy. This included ensuring compliance with broad-based black economic empowerment legislation as well as employment equity and skills development legislation that form part of the transformation framework.


31

King IV application


The governing body should appreciate that the organisation’s core purpose, its risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value-creation process

Principle 4The fairness of remuneration and especially the comparison between highest and lowest paid employees are considered by the Remco.

As a business highly dependent on our human capital, the dignity and diversity of our employees are paramount. The discussion on how we treat our employees can be found in the integrated annual report.

Customer First is a core value of Alexander Forbes and is a key tenet of our advice-led business strategy. By instilling a culture of Customer First, we have reinforced our commitment to treating all our customers fairly. We continuously drive improvements to business processes and client experiences, not only to place our clients at the centre of everything we do, but to ensure we comply with legislation to know our clients (Financial Crime Control), to protect our clients’ data (POPIA and PAIA) and to treat our clients fairly (treating customers fairly and market conduct legislation).

The purpose of the group complaints management framework is to demonstrate Alexander Forbes’s fair treatment of its customers by ensuring that we provide simple and easy mechanisms for them to complain. This includes not creating any post-sale barriers and through the complaints process, until the complaint is resolved. This framework is created in line with the market conduct legislation, and in particular, the revised Policyholder Protection Rules. It ensures that Alexander Forbes acts with due skill, care and diligence when dealing with its policyholders, members and corporate as well as individual clients.

The approach, principles and guidelines for the management of tax risk across the group is documented in the Group Tax Policy which is endorsed by the group audit and risk committee. The Group Tax Policy has been developed in line with international best practice and applies to all staff and contractors.

The group is committed to being a transparent and responsible taxpayer. This means that tax risks identified are managed proactively. Sound risk management is an important enabler of the group’s strategic intent, enhancing its ability to perform against its stated objectives. The group’s strategy in respect of tax risk management is, amongst others, to:

■ comply with all applicable laws, rules, regulations and disclosure requirements in the countries where the group operates, without exception

■ behave in a way that maintains the trust in the group by regulators, revenue authorities, clients and the public

■ ensure that transactions between group entities are undertaken on a commercial basis and are not used to achieve a tax advantage

As discussed in the integrated annual report, we influence enterprise development through our investment into the ASISA Enterprise Development Fund and through our corporate social initiatives administered by the Alexander Forbes Community Trust. Please refer to the integrated annual report on page 57 for further information.

The company does not materially impact public health and safety, albeit that our offices are visited by our clients and members of the public and steps therefore taken to ensure their safety and security during such engagements.

Despite our environmental impact not being a material issue for the company, we still remain focused on reducing our negative impact as much as possible.

The board approved the company’s revised strategy in March 2019 and reviewed progress against its deliverables in March 2020.

Internal and external stakeholders remain supportive of the company’s strategy. Certain initiatives however required review and termination or reprioritisation following the impact on the global economy as a consequence of the COVID-19 pandemic. It, inter alia, required the company to terminate its agreement to repurchase 200 800 000 of the company’s own shares from Mercer Africa Limited, which repurchase may be revisited later in the 2021 financial year.

The decision not to proceed with the share repurchase at present will further strengthen the company’s capital and liquidity position and ensure its robust sustainability through the difficult economic conditions expected over the forthcoming months. This aspect will continue to receive the board’s regular and detailed oversight.

The approved strategy informs the approval of management budgets and execution plans. However, in the context of the current global uncertainty and economic volatility, the board and management will take a much more agile approach to previously approved plans and budgets, continuously assessing and reassessing to ensure responsiveness and to compensate for the potential negative and unanticipated impacts.

The governing body should ensure that reports issued by the organisation enable stakeholders to make informed assessments of the organisation’s performance, and its short, medium and long-term prospects

Principle 5

The board is committed to communicating openly and transparently through an integrated annual report, annual financial statements and governance report.

Although the group is complex and diverse, the board is confident that the integrated reporting suite articulates all material items relevant to stakeholders. The board trusts that the efforts during FY2020 to simplify and integrate the business into One Alexander Forbes is evident to stakeholders, aiding in the clear understanding of the business and its value creation.

The audit and risk committee assists the board with oversight of all external reporting, ensuring its integrity, and the board as a whole approves the integrated annual report.

The nominations committee and board are comfortable with the current board composition, from a skills, experience, diversity, age, gender and independence perspective, although consideration will be given to the need for additional non-executive directors as discussed in the integrated annual report.

Previously aspects of race and gender diversity were dealt with in the board charter and nominations committee terms of reference, but in response to the JSE Limited’s revised requirements, the board approved a more detailed board diversity policy, addressing diversity in the broadest sense, (available on the company’s website).

Information on directors’ tenure, gender, race and independence, as well as the company’s performance against diversity targets are discussed in more detail in the 2020 integrated annual report.

Rotation of non-executive directors are detailed in the company’s memorandum of incorporation. Nomination for re-election is informed by the individual director’s performance, contribution and attendance. Information on directors standing for election and re-election are included in the AGM notice.

No new directors were appointed in FY2020, but the process for nomination and appointment is well established, formal and transparent. Ms Refiloe Nkadimeng was appointed post the reporting period. Where new directors are appointed, the terms of their appointment are detailed in a formal letter of appointment and they are required to complete detailed induction sessions enabling them to rapidly contribute optimally to the group.

Detailed economic updates are provided to the board at least bi-annually and general governance, industry, best practice, research and regulatory information shared with the board during each board cycle and often more frequently.

In addition, policy and other training and development sessions are incorporated into the board cycle to ensure continued development of and information sharing with directors. External sessions are also shared with directors as appropriate.

Directors fully comply with the Companies Act requirements in relation to the disclosure of personal financial interests, but also ensure that all conflicts and potential conflicts of interest are proactively managed at each meeting, including those of directors nominated by large shareholders.

Mr Nigel Payne serves as lead independent director and his role, as well as that of the board chair and chief executive officer are clearly articulated in the board charter, as well as the detailed divisions of responsibility policy so as to ensure no individual has unfettered powers.

Board and CEO succession planning will receive significant focus in the 2021 financial year.

As detailed earlier, the board provides leadership and strategic direction to the business through setting and approving material policies and business planning processes. It oversees and monitors the implementation of the strategy, policies and principles through the approved performance scorecards, as well as quarterly performance and progress reporting against determined metrics and key strategic initiatives.

The board is comfortable that the King IV principles are all applied, bespoke application explained in detail and their application leads to the intended outcomes. As expected, there are a few practices where improvements continue to receive focus.

The board charter and all board committee terms of reference and annual plans fully align with the King IV principles, practices and outcomes. The board charter describes the role, responsibilities, membership requirements and procedures, including details on access to independent advice. The board has not agreed to a specific protocol to be followed for non-executive members to requisition documentation and arrange meetings with management.

Meeting attendance information, as well as information on the board’s view on their performance during FY2020 are included in the integrated annual report.

The board is supported by the executive: governance, legal and compliance, Ms Carina Wessels. Details of her annual evaluation is disclosed in the integrated annual report, as well as under principle 10 and in the remuneration implementation report.

The governing body should serve as the focal point and custodian of corporate governance in the organisation

Principle 6

The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively

Principle 7

As promised in the 2019 report, the nominations committee considered the impact on the board’s skills and experience requirements in response to the revised strategy, and the company’s transition to a more narrowly focused business with primary focus on South Africa.

Following the resignations of Ms Nonkululeko Nyembezi and Mr Mark Collier, the committee decided not to recruit any additional non-executive directors. The nominations committee regarded a smaller board as appropriate for the future of the company.

As previously reported, the decision by Mercer Africa Limited to divest of its shares in the company led to the resignation of Mr David Anderson.


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The board is comfortable that, following further improvements to the delegation of authority policy, the policy and processes ensure role clarity, as well as the efficient and effective execution of responsibilities. The group nature of most policies and delegations adopted by subsidiary companies are described in the group’s governance framework.

The nominations committee evaluates the chief executive officer’s performance against specific individual key performance metrics and the agreed group scorecard. His performance-related remuneration is based, inter alia, on achievement of the scorecard objectives. The remuneration committee approves all executive and heads of control functions’ appointments and remuneration. Refer to the remuneration committee report for further information.

Ms Carina Wessels provides professional governance and general legal counsel and compliance services to the board and its committees. She was appointed by the board as group secretary on 1 October 2017 and also became the group’s general counsel on 1 April 2018 and the executive: governance, legal and compliance on 1 March 2019. She holds a LLB; two LLM degrees, one in Labour Law and one in Extractive Industry Law in Africa (cum laude); a PMD and FCIS. She is also an admitted advocate of the High Court of South Africa and past president of both the Chartered Secretaries Southern Africa and the Corporate Secretaries International Association. She met the continued professional development requirements to maintain her chartered secretary (FCIS) membership.

After completing a formal process, the board again endorsed her skills, competence and experience and confirmed her objectivity, gravitas and arm’s length relationship with the board, as also discussed in the 2020 integrated annual report.

The board acknowledges the need to delegate certain matters to board committees to ensure more comprehensive oversight of all governance matters. However, despite the delegation the board retains full accountability for all oversight, other than in respect of the audit and risk committee’s statutory responsibilities.

The board is confident that the existing standard and ad hoc committees assist in ensuring good performance and effective control over legislated and material issues. As part of the focus on transitioning to an integrated business, the current complex governance model (resulting primarily from a complex corporate and regulatory structure) has been extensively analysed and several decisions made to streamline forums and processes. As reported in the 2019 financial year, several changes within the subsidiary governance processes and structures remain ongoing, pending approval from the Prudential Authority regarding the implementation of an integrated governance approach.

After the disposal of the short-term insurance businesses and as part of the implementation of the company’s capital-light model, the capital oversight committee was collapsed into the audit and risk committee in December 2019.

Refer to the 2020 integrated annual report for a diagrammatic overview of our governance structure and committee and subsidiary board interrelationships.

Formal terms of reference have been established for all board committees. The terms of reference include detailed annual planners to ensure the committees meet all of their objectives and requirements, which also include the prudential requirements applicable to insurance businesses.

During any quarterly board cycle, committee meetings are held shortly before the board meeting. Where possible, draft committee minutes are included in the board meeting packs that immediately follows. Notwithstanding inclusion of the minutes, all committee chairs report back on matters dealt with at the committees and especially any matters recommended to the board for approval. There is significant overlap of directors on the various committees and particularly independent non-executive directors. This ensures matters are not considered in isolation, but also in the broader context of other matters delegated by the board.

All committees consist of at least three directors. Non-committee directors, as well as appropriate management representatives are standing invitees. Composition and attendance disclosures are included in the 2020 integrated annual report and in the relevant committee reports.

The governing body should ensure that its arrangements for delegation within its own structures promote independent judgement, and assist with balance of power and the effective discharge of its duties

The governing body should ensure that the evaluation of its own performance and that of its committees, its chair and its individual members support continued improvement in its performance and effectiveness

Principle 8 Principle 9

The governing body should ensure that the appointment of, and delegation to, management contributes to role clarity and the effective exercise of authority and responsibilities

Principle 10

Information on the board evaluation and areas of improvement are included in the 2020 integrated annual report.

Due to our highly regulated environment, risk governance receives oversight at several levels within the group.

The group board provides ultimate oversight to ensure alignment between strategy, risk and sustainability, while aspects of risk governance have been delegated to the audit and risk committee.Following the identification of the need for more in-depth risk governance discussions, we incorporated two bespoke risk-focused audit and risk committee meetings per year, resulting in the committee meeting six times a year to ensure full coverage of all areas of oversight.

The group’s risk strategy was approved and establishes the group’s philosophies, attitudes, direction and approach in terms of risk management. It informs the group’s risk management architecture, its updated risk appetite measures and the methodologies employed to protect and generate stakeholder value for the group. As part of the board’s strategic development process, the significant strategic risks associated with each of the group’s strategic objectives were evaluated through a risk lens. The risk strategy is supported by risk management policies, the risk management framework and other tools to assist in embedding risk-adjusted decision-making throughout the group. The board regularly reviews the group’s principal risks, the extent of risk mitigation and risk-based priorities.

The key areas of focus in FY2020 included:

■ review and approval of the risk management strategy, focusing on risk governance, risk escalation and the approach to risk appetite

■ launching a targeted risk management training programme

■ embedding the risk policies at group level, as well as subsidiary levels

■ improvement in risk reporting at all governance levels

■ improving the ORSA process to better facilitate proactive implementation of ORSA insights and results

■ further delineation of the first and second lines of defence and strengthening the operational relationship between them in order to holistically mature risk governance

While the focus has been on ensuring sufficient downside protection within the group, the ongoing embedment of the ORSA processes and a move towards more deliberate linkage between performance, risk and reward has started the journey towards active opportunity management as well.

The risk management function is routinely subject to independent review. The findings from the last independent review have been resolved (with some improvements pending upgrade of the risk management software and ongoing embedment of policies, including the internal control policy).

The planned areas of focus for FY2021 will include:

■ continued review of the risk appetite metrics for the group as well as the subsidiary entities

■ continued alignment of ORSA processes towards real-time risk-adjusted decision-making

The governing body should govern risk in a way that supports the organisation in setting and achieving its strategic objectives

Principle 11

The governing body should govern technology and information in a way that supports the organisation setting and achieving its strategic objectives

Principle 12

The board, through delegation to the audit and risk committee, assumes ultimate responsibility for the governance of IT and it is a standing item on the committee’s agenda focusing on:

a) Risk, compliance and audit regulations and controls

b) Cyber and information security regulations

c) Oversight of the group IT strategy.

Risk and complianceThe board together with the audit and risk committee oversee the governance of IT. The audit and risk committee during the year increased its focus on technology, information, compliance and maximisation of opportunities while managing risk factors.

The audit and risk committee is supported by the relevant IT and business managers. The IT management team is responsible for establishing and maintaining all measures to remediate risk, compliance and audit findings with the necessary controls and actions. IT risk management has become a more continuous effort ensuring that risks are recorded, tracked and remediated with visibility on exposures and trends.

Beyond IT business continuity, holistic business continuity and disaster recovery management are critical aspects for the group. Systems and procedures all conform to the highest international standards and protocols and are regularly tested.

Cyber and information securityCyber and information security has become a key driver for managing information risk and we scaled up the internal IT security team as well as made investments in defensive technologies.

A newly formed project management office has been established to focus on programmes and projects with associated business cases to enforce, inter alia, the spirit of information and technology-related capital governance and reporting.

Group IT strategyThe revised IT strategy better aligns core IT projects to business objectives. The IT strategy encompasses all functions within IT, enforcing policies and procedures, and robust governance through mandated steering committees and assurance across key performance indicators.

■ enhancing opportunity management processes (pending the group’s prioritisation given current COVID-19 risk responses)

■ increasing the risk management training effort and conducting risk culture surveys as required

■ improving the analysis of contagion risks across the group


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Focus areas of the IT strategy include applying general hygiene and maintenance across IT by ensuring that processes are defined and key roles and responsibilities are defined for continuous delivery.

Technology and information risk is integrated in the company’s risk management and executed through the various management level IT committees.

The IT strategy includes the development of an Enterprise Architecture (EA). The EA is a discipline for proactively and holistically responding to disruptive forces that might impact the business vision, strategy and outcomes. EA delivers value by presenting our company’s leaders with recommendations to adjust policies and projects to achieve targeted business outcomes. It helps us to capitalise on relevant business disruptions with greater alignment between IT and business concerns.

The IT strategy identifies the capabilities that will be needed over the next one to three years to support the organisation’s strategy. Through the EA, the IT strategy assesses the gap between Alexander Forbes’s current maturity against each capability and the level required to realise the vision.

The IT strategy designs the target technology architecture that will support the required business capabilities. It then develops a prioritised roadmap for building the target technology architecture.

To support the execution of the IT strategy, we have a well-defined IT business model. The IT business model includes operational procedures and functional structures to align and execute business strategy through a well-developed and mature IT strategy. The development of a strategic workforce plan and focused financial management principles further strengthen the value delivery of IT realising not only the technology value but the underlying business value of IT.

The governing body should govern compliance with applicable laws and adopted, non-binding rules, codes and standards in a way that supports the organisation being ethical and a good corporate citizen

Principle 13

Compliance in our highly regulated environment is governed on multiple levels. The group board retains ultimate oversight, supported by the audit and risk committee as well as the combined insurance audit and risk committee.

As in many other large corporates, but especially in financial services and insurance-related companies, regulation has become extremely onerous, especially related to the time and effort required to align with and implement new requirements. In the year under review some 80 pieces of regulation were issued impacting the business and clients. A robust process is in place to ensure all emerging legislation / regulations received are extensively analysed, with house views developed and communicated in the business and to clients, as appropriate. We play a leading role in commenting on and lobbying for or against required change through the industry bodies in which we participate.

Key regulatory instruments received over the past year include the second draft of the COFI Bill, amendments to tax legislation, retail distribution review papers and in the latter part of FY2020 an influx of COVID-19 related regulations. The company continues to review, strengthen and consider fit-for-purpose compliance structures across the business in both the first and second lines of defence.

Good progress has been made through the centralised regulatory portfolio team to drive the implementation of important pieces of legislation such as financial crime control, market conduct and privacy. The team was set up to assist in the analysis of regulation, identify gaps in our business and to design, build and implement solutions in a coordinated manner across the group. The team will further enable the business to become more proactive in how we meet our regulatory obligations in future. This programme and the team’s skills have strengthened the company’s approach to compliance risk management, specifically with regard to the execution of large-scale compliance projects. During the year, the audit and risk committee received independent assurance on some aspects of compliance management, namely:

■ review of the FCC regulatory portfolio implementation

■ review by the company’s lawyers of certain compliance documentation and processes

In the final weeks of the financial year, the speed at which business, first and second line compliance and legal were able to respond to the needs created through the COVID-19 pandemic was phenomenal. The teams responded to the myriad of regulations issued following the lockdown and ensured business operations could effectively continue through, inter alia, enabling electronic signatures, electronic client engagements, sign-on and advice. They also took steps to enable:

■ retirement fund rules changes to allow distressed employers to reduce contributions to cover risk and administration expenses only

■ financial crime control changes to allow email signatures by clients and allow for electronic client identification

Many of the changes have improved business operations for the better and will remain post the COVID-19 lockdown.

For the year ahead, we had anticipated a revised draft of the COFI Bill, updated RDR discussion documents, amendments to tax laws and potential changes to the Pension Funds Act, as well as the recently confirmed and long anticipated 1 July 2020 effective date for the Protection of Personal Information Act. We had been informed that the COFI Bill would be presented to Parliament in the latter part of 2020. The COFI Bill will be overarching market conduct legislation and apply across our various licences, products and services. However, it remains to be seen to what extent the regulatory timetable is amended to rather focus on regulatory measures issued to sustain our economy and clients as a result of the COVID-19 pandemic. For further information regarding our response to regulatory changes refer to the integrated annual report.

The group’s combined assurance model is currently under review to align with best practices and to better entrench assurance principles in the organisation. This process is regarded as a medium-term journey and we believe this is an area with tremendous opportunity for improvement over the next two to three financial years.

Currently, assurance over the annual financial statements is provided by our external auditor, the audit and risk committee and the board. Focused assurance work in relation to internal and external reporting is planned for the 2021 financial year and will receive attention as part of the overall combined assurance framework improvements.

The chief audit executive, and the internal audit function are appropriately empowered and have the requisite access to the audit and risk committee chair and other key forums. The function performs ongoing self-assessments, and the results are reported to the audit and risk committee. An independent assurance review will be undertaken in financial year 2021.

The governing body should ensure that the organisation remunerates fairly, responsibly and transparently so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term

The governing body should ensure that assurance services and functions enable an effective control environment and that these support the integrity of information for internal decision-making and of the organisation’s external reports

In the execution of its governance role and responsibilities the governing body should adopt a stakeholder-inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time

Principle 14

Principle 15

Principle 16

Refer to the remuneration committee report for the detailed remuneration policy and its implementation.

The social, ethics and transformation committee has not yet considered a formal stakeholder management policy, although several policies govern the management of stakeholder relationships. It continues to address a few of the recommended King IV practices that are currently not optimally applied.

The marketing department is responsible for the implementation and execution of stakeholder relationship management, although business plays a key role. Refer to the integrated annual report for disclosure on stakeholder engagements and material issues raised during the period.

As discussed elsewhere, a holistic group governance framework was approved in the year, but is being refined following the strategic changes and governance simplification.

King IV disclosuresOur existing code of ethics and ethics policy are available online at www.alexanderforbes.co.za/investorrelations/company-overview/governance/standards-and-policies.


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http://www.alexanderforbes.co.za/investorrelations/company-overview/governance/standards-and-policies

http://www.alexanderforbes.co.za/investorrelations/company-overview/governance/standards-and-policies

Enterprise risk management 38

Risk appetite 40

Material risks 41

Own risk and solvency assessment (ORSA) 46

3

Managingrisk

Our second-line risk function has been centralised to improve the consistency of risk management operations and to achieve coordinated risk responses to major changes in the group. We have also enhanced the robustness of risk ownership by bolstering the number of first-line risk analysts and managers to assist with risk assessments, consideration of risk treatment, maintenance of risk information and monitoring of actions towards risk mitigation. Ensuring a viable and effective risk governance model remains a priority as we entrench our new operating model. We will ensure that the risk governance model evolves to accommodate changing best-practice principles and organisational fit.

Management holds responsibility and accountability for managing risks on a day-to-day basis. Through operational committees, management provides oversight on strategy implementation, performance measurement, risk management, company controls and governance processes (first line of defence).

In addition to second, third and other fourth line-line assurance, independent audit and risk committees provide objective oversight. Risks are rigorously evaluated to ensure appropriate mitigation through frequent risk assessment and report-back, continuing engagement and monitoring of the environment.

Accountability for risk

management

Risk reportingRisk management reports are formally updated at least quarterly and risks, issues and associated actions are tabled and discussed at dedicated cluster risk forums, with material risks and issues escalated to appropriate executive management, and then to board-level oversight committees. Apart from providing independent assurance, the group risk management function also provides guidance on risk-related matters and is involved in specialist risk management issues at a business level. The function also provides transactional approval, where appropriate, such as validation processes within the client services and solutions development process.

Risk appetiteAlexander Forbes’s risk appetite – the amount of risk we are willing to accept in pursuit of our objectives – defines the parameters within which we operate. Our risk appetite serves as a valuable reference point for important business decisions. The risk appetite is defined by measures for each of the major categories of risk. We are clear on the risks that the organisation actively seeks, avoids or accepts, as well as on the balance between risk and reward.

Each category has a set of key metrics that are monitored quarterly against set thresholds. Additionally, qualitative principles regarding our appetite and expected risk behaviour have been set for each of the categories. In the regulatory risk space, we have made progress on implementing a risk appetite framework for market conduct and financial crime. The board spent a considerable amount of time discussing and debating the risk appetite and it will continue to be refined in the coming months. See Risk appetite table on page 40.

Key business risksAlexander Forbes identifies and classifies its key risks according to a three-level system. The three-level taxonomy is based on the Basel classification of operational risk, and further enhancements for risk classification that take into consideration the FSCA’s Quantitative Impact Studies over the last few years.

Our risk appetite statements have been expressed quantitatively and qualitatively, and they seek to ensure that our organisation is responsibly managed in its pursuit of value. The risk appetite statements are used to drive our strategic decisions, facilitate the setting of boundaries for decision-making based on the organisation’s strategy and ensure that the level of risk taken on is being monitored. Our risk categories consider what the organisation wants to include in its discussion of risk and how they are defined.

Risk categorisation assists in grouping risks in a structured risk management process that then allows the group to more intelligently address different risk categories. This includes the building of strategies to avoid or minimise impact. Key risks are identified and ranked by our group risk division in terms of our risk management strategy and in consultation with cluster and group management. See Material risks on pages 41 to 45.

Looking forwardTo further support the progress made this year towards risk maturity, next year’s risk efforts will focus on the following:

■ continued review of the risk appetite metrics for the group as well as the subsidiary entities

■ continued alignment of ORSA processes towards real-time risk-adjusted decision making

■ enhancing opportunity management processes

■ increasing the risk management training effort and conducting risk culture surveys as required

■ improving the analysis of contagion risks across the group

We will continue to evolve our approach to determine the appropriate risk-reward balance within the group.

COVID-19The global pandemic of COVID-19 has profoundly changed the world we live in and placed us in a protracted period of uncertainty and disruption of people’s lives, communities, health services and employment.

During this period, significant internal resources and efforts have been deployed towards protecting our employees and clients and our business continuity programmes continue to support security of our environment.

The company moved into a defensive position to protect stability of operations – the risk management system consequently realigned to ensure ongoing value protection during this period. Risk efforts were expended on:

■ ensuring robust risk assessment as business conditions changed

■ enhancing risk management techniques where needed (e.g. shifting to quantitative risk measurement where data permits)

■ complementing the activities of fellow assurance providers such as the business continuity management and internal audit teams

■ improving risk reporting and feedback loops to support real time risk-adjusted decision-making

The pandemic required a quick and mission-critical response – risk assessments to date have focused on responding to components of the business model that have experienced a shift in conditions, including the workforce, technology, supply chain management, investment and product-specific risks, the working capital cycle and regulatory and contractual risks (amongst other items).

During this period, and in line with the improved ORSA processes, the board undertook an agile approach in providing ongoing guidance and support for management decisions – this has helped ensure business resilience and has supported the exploration of opportunities presented by the economic circumstances. Communication and reporting processes were ramped up to enable quality real-time decision-making and the company benefited from the diversity and experience of the board as scenarios, risk assessments and conclusions were challenged, and decisions bettered through the rigorous out of cycle ORSA process.

Accountability for oversight and control

Enterprise risk managementWe manage our risks and the achievement of our business strategies and objectives through our group enterprise-wide risk management strategy and supporting framework. The principles outlined in these documents are incorporated into risk management-related policies and procedures to ensure that risk management is embedded into day-to-day management activities. Through 2020 we continued to review and update our key group-wide risk management policies to ensure their relevancy and comprehensiveness, and they are supported by ongoing risk training initiatives throughout the organisation.

We manage risk along four principal lines of defence:

Provides oversight and assurance through internal and bespoke alternative independent assurance concerning the adequacy and effectiveness of risk management governance and internal control (third and fourth lines of defence).

Internal audit/alternative

independent assurance

External audit


39

Managing risk


Risk description and rating Management mitigation Material theme

Macroeconomic headwinds may suppress fee income as retrenchments rise and threaten core earning streams - this includes decrease in inflows and increase in outflows due to business liquidations and retrenchments as well as the impact of underperforming financial markets.

■ Value proposition includes the provision of liability driven investing strategies, alternative investment solutions, geographic diversification into ‘Rest of Africa’ and offshore markets to protect targeted outcomes

■ Integrated advice-led consulting approach ensures holistic advice towards better client outcomes and drives improved client consultation and reporting

■ Skilled staff and market-leading thought leadership

■ Stress testing of earnings for susceptibility to volatility

■ Approved game change plans: formal, approved contingency plans include plans for revenue and profit management and diversification strategies in the event of a financial crisis

Our clients and members Investors– ensuring we continue to deliver and reassure clients during a low growth, low return environment and optimising risk – adjusted return on capital

1


Non-compliance to regulations could lead to reputational damage or subject the company to additional legal risk, including enforcement actions, fines and penalties.

■ Established, well-managed regulatory change management processes

■ Intelligent, forward-looking software is utilised to manage regulatory scanning and projects

■ Experts (internal and external) maintain regulatory relationships and conduct environmental scanning

■ Approved, business-relevant anti-money laundering and fraud policies, standard operating procedures and processes

Regulation– ensuring correct and timely responses to changes in the regulatory environment

2


Accidental or intentional but unauthorised modification, destruction or disclosure of data and information, which may be exacerbated by changes in the group’s technology and communications infrastructure.

■ Group Data Management Policy and Group Data Privacy Programme are in place along with employee training

■ “Data loss prevention software solutions allow IT administrators to set business rules that classify confidential and sensitive information so that it cannot be disclosed maliciously or accidentally by unauthorised end users. This includes the use of Secure File Transfer Protocol for transfer of sensitive data outside the organisation.”

■ Management utilises machine learning tools which learn to whom employees commonly exchange emails and what they discuss, flags potentially anomalous behaviour

■ Service level agreements stipulate the company’s data protection requirements for third-party service providers and include clauses to provide for legal protection the the event of breach

Our clients and members – ensuring the privacy of our clients and members’ information

3

Material risks


Destabilisation of corporate standing and financial losses due to failure to actively and properly manage cyber risks.

■ Regular external penetration testing and vulnerability management – all issues identified are remediated

■ Dedicated team and resources allocated (included specialist third parties)

■ Cloud-based DoS solutions

■ The anti-DoS defences utilise not just volume-based detection, but also behavioural-based detection methods; they have been tested to ensure that they are ready to withstand complex application layer attacks

■ Deployment of advanced anti-malware protection due to the move to remote working, encrypted devices and constant review of firewall and other server logs

Our clients and members – ensuring that we safeguard our client’s experience and information

4

Risk category Risk appetite and how we monitor these Key risk indicators

Strategic risk

We seek strategic risk and are willing to balance the risk of potential losses in pursuit of higher returns. We do not seek strategic risk in excess of our risk-bearing capacity.

■ Normalised return on equity over five-year period

■ Growth in revenue ■ Earnings at risk (deviation

from budget) ■ Cost-to-income ratio

Liquidity risk

We avoid liquidity risk and seek to maintain liquid assets to meet both planned and unexpected cash outflows. We avoid redemption risk, which is forced exits or withdrawals from investment positions. We will avoid mass withdrawals from our funds during market stress events at all costs, as it creates systemic risk in the financial services industry and has an impact on revenue.

■ Own funds allocated to liquid assets, short duration assets

■ Current and quick ratios

Credit risk

We have limited appetite for credit risk and hence limit our exposure to non-investment grade counterparties and actively manage our credit concentrations.

■ Exposure to non-investment grade counterparties

■ Counterparty concentration

Insurance risk

We seek insurance risk through our underwriting activities in the insurance licences of Alexander Forbes Insurance and Alexander Forbes Life. The material portion of the Alexander Forbes Investments business is written on a life insurance licence, however, it is not exposed to life underwriting risk. We seek to manage insurance risk by appropriate and disciplined risk pricing, underwriting practices and the monitoring of lapses and expenses. We will also seek to diversify insurance claims risk and mitigate catastrophe risk as far as possible. This will change dramatically as we progress with the sale of our insurance businesses.

■ Loss ratios ■ Lapse ratios ■ Annual premium growth or

gross written premium ■ Change in reserves ■ Expenses or cost-to-income

ratio

Market risk

We have limited appetite for market risk on our own funds and aim to invest in short-dated fixed interest instruments. We accept limited levels of mismatching risk on insurance liabilities. Our revenue stream from the investment business is exposed to market risk; the downside protection of its own revenue stream is aligned with the protection of client assets as far as possible. Protection of client assets occurs through our multi-management investment philosophy which is underpinned by superior manager research and high levels of manager and asset diversification.

We have limited appetite for currency translation risk on emerging markets’ businesses.

■ Nature and duration of assets ■ Insurance liabilities matched as

per asset liability management policy

Operational risk

We have a limited appetite for the failure of people, processes, systems and for the impact of external events on our operations. The impact of operational risk spans across the business and will be managed by implementation of the appropriate controls. We have zero appetite for reputational risk.

■ Staff turnover ■ System downtime

(occurrences on key systems) ■ Errors and omissions ■ Process failures (number of

erroneous transactions) ■ Internal fraud ■ External fraud ■ Customer complaints

Regulatory risk

We will avoid situations arising from non-compliance with laws, regulatory requirements, and codes of conduct applicable to the industries in which we operate that will result in a compromise of our business model, objectives, reputation and financial soundness. We will specifically focus on minimising market conduct, financial crime and privacy risks.

■ Group and solo entities’ solvency capital requirement

■ The following KPIs will still be refined:

– market conduct – financial crime – privacy

Risk appetite

High risk Medium risk


41

Managing risk


Material risks continued


Material breakdowns within operations and administration leading to significant errors and omissions, possible regulatory censure and widespread complaints.

■ Regular operational due diligence processes over Maitland, Silica and AFICA

■ KPIs and legal clauses set up with third-party providers and regular monitoring reports received regarding performance and errors

■ Succession planning for critical roles

Our clients and members– ensuring commitment to quality service level standards and good client experience

Regulation– to ensure operational resilience and ultimate protection of client’s interests

10


Large-scale transformation programme failure.

■ An effective business case comprises content that aligns with the organisation’s project management framework and clearly articulates to what extent the programme would address and support these dimensions

■ The scope and scale of the strong programme organisation means that sponsorship is distributed within a governance board or steering committee headed by an executive sponsor

■ A well-defined programme architecture provides an outline of how the projects within the programme will deliver the capabilities that result in the required benefits. It clearly defines the projects within the programme, ensures projects deliver benefits and defines high-level dependencies

■ Programme monitoring and reporting to key stakeholders

Society – achieving transformation objectives

9

Risk description and rating Management mitigation

Continued ■ Governance refers to executive forums and management processes that yield high-quality decisions on strategic priorities, resource allocation and business performance management. A management dashboard with the key metrics keeps the focus on the company’s top priorities

■ Ways of working describe the expected cultural norms for how people collaborate, especially across the boundaries between functions or teams. Establishing an appropriate decision-making style provides an important context for behaviours

■ Capabilities refer to how the company combines people, process and technology in a repeatable way to deliver desired outcomes. Where capabilities lead the design, all other aspects of the operating model must support them

■ Management of high-performance and approved remuneration and reward frameworks, policies and models

8Risk description and rating Management mitigation

Continued ■ Security staff have assessed and reported that all connections to the company network are secure pre- and post-moving to remote working

■ Policies have been implemented, including password and remote access policies

■ Risk-assessed and approved information technology strategy to move to cloud-based storage that offers high levels of encryption

■ Formal assessments of demand versus server capacity are regularly made

4


Material loss in empowerment status and/or perceptions of reluctance to transform.

■ Formal, board-approved BBBEE strategies and programme (with tracking and monitoring)

■ Skilled and experienced legal/regulatory experts (internal and external) maintain regulatory relationships and conduct environmental scanning

■ Approved game change plans: formal, approved contingency plans include plans for revenue and profit management in the event of not meeting the targeted empowerment level, e.g. equity/alliance/employee advancement plans, etc.

■ Reporting and monitoring framework

Society– achieving transformation objectives

5


Transformation of data as a strategic asset to the firm is still in relative infancy.

■ Strong leadership and governance

■ A corporate data strategy has been drafted, approved and communicated – this is now supported by a similarly documented, approved and communicated Data Governance Policy

■ Highly skilled, experienced and influential individuals

■ A data culture must be created and efficiently introduced throughout the organisation

Investors – ensuring we deliver on strategic objectives and create value

6


Internally or externally triggered damage to the corporate reputation.

■ Formal and informal reputation management processes are in place including executive level responsibility

■ Ethics policy and programme are under review

■ Business interruption cover is in place

Our clients and members– ensuring transparent and ethical conduct as well as quality client experience

7


General failure in strategic execution of the integrated company model.

■ Active and visible leadership buy-in and support for change

■ Structure involves drawing appropriate boundaries for lines of business and defining shared services, centres of expertise and other coordinating mechanisms that allow the company to leverage scale and expertise

■ Accountabilities describe the roles and responsibilities of the main entities and business functions, including ownership of P&Ls and a clear, value-adding role for the corporate centre

Our people– this is supported by our people strategy, driving a high-performance culture and ensuring delivery of targets

Capital-light – strategic capital allocation and management

8


Managing risk

42


43


Inability to meet revenue targets due to the loss of clients ultimately resulting in a failure to meet publicly communicated performance targets.

■ Establishment of a strategic account management unit and programme with a dedicated leader

■ Skills and competencies formally defined, aligned to strategic objectives, scorecards and development plans, regularly assessed and adjusted

■ Training and development packages ensure that strategic account management is reflected in talent management, career design and the organisation’s wider HR strategy

■ Company tools and methodologies support strategic account management, e.g. MiFiKi

■ Group customer insights unit meets regularly with the head of strategic account management and the heads of sales and advisory to share insights and trends that may need to be addressed to ensure client requirements are properly met by the company and to safeguard core relationships

■ Renewed focus on the client experience and relationship

■ A suitable, forward-looking client relationship management solution has been designed in consideration of the relevant strategies, frameworks, policies, programmes and plans, etc.

Our clients and members– ensuring value-add on a client basis by providing best advice for clients and measurable benefits

11

Material risks continued



Inability to attract and manage critical talent and skills.

■ Formal, approved, relative and competitively positioned job architecture framework is in place and has been consistently deployed throughout the company

■ The company has in place a consistent methodology and decision model for assigning job levels and titles that are based on enterprise-wide criteria

■ Written, signed job descriptions, which define each employee’s role and accountabilities, are also aligned to the job architecture framework and to the methodologies and decision models that underpin the framework

■ The company has a well-defined and documented workforce planning process

Our people– ensuring the group grows and maintains a leading employee value proposition

14


Failure to respond to increasing threats of disruptive innovation.

■ Hybrid model project and data exchange project

■ Clarity solution (adaptation, implementation and management thereof)

■ Digital solutions hub that conducts R&D towards improved client experience and outcomes (this includes using insights from Accenture, etc. to ensure external thinking and perspectives and access to expertise)

Capital-light – driving competitive advantage and long-term sustainability through innovation

13


Business interruption and/or failure to recover processes and systems.

■ Comprehensive business risk and impact assessments are conducted and tabled at the relevant governance structures for review and approval of the organisation’s priorities

■ Cloud back-up and replication solutions are consistently utilised and tested frequently

■ Data management and disaster recovery plans are in place

Our clients and members– ensuring commitment to quality service level standards and good client experience

12


IInsufficient oversight and monitoring of outsourced arrangements. Failures within outsourced providers may occur, creating disruption or unexpected termination of the delegated services to investors.

■ Active, ongoing monitoring processes for financial stability risks at all key third parties

■ Confirmation of vendors’ planning and processes such as inter alia succession planning, inventory levels, business continuity plans and insurance coverage

■ Issuance of due diligence questionnaires to third parties, analysis of results and actioning to address weaknesses

■ Review of exit conditions, any contractual penalties that may exist

■ Development of alternate plans, for instance insource strategies or substitutability, if the critical third-party’s ability to perform services is impaired

Our clients and members Investors – ensuring we continue to deliver and reassure clients and investors of financial stability

Regulation

– to ensure operational resilience and ultimate protection of clients’ interests

15


45

Managing risk


Own risk and solvency assessment (ORSA)The Solvency Assessment and Management (SAM) regime commenced on 1 July 2018. As part of this regime, the Prudential Authority requires all insurance companies to complete an ORSA annually. The ORSA aims to investigate the adequacy of insurers and insurance groups’ risk management and assess the group’s current and future solvency under normal and severe stress scenarios.

We define our strategy over the business planning period through a rigorous budgeting process. The results form the basis of the ORSA analysis of future projected solvency. These solvency results then undergo stress testing to determine the robustness of the business and its various contributing entities, and to determine the maturity of its risk management practices. The ORSA process and risk management responsibilities are then monitored and embedded through the ongoing and recurring ERM processes.

Our ORSA process is designed to determine and highlight the following:

■ the overall solvency needs of the group and solo insurance entities by considering the specific risk profile, approved risk appetite and business strategy

■ the significance with which the risk profile of the insurance entity deviates from the implied risk profile underlying the financial soundness requirements

■ compliance, on a continuous basis, with financial soundness requirements

■ the resilience of the solvency position of the group and insurance entities across a number of sensitivities and scenarios

Key resultsWe conducted our most recent group level ORSA and submitted results to the Prudential Authority in December 2019. The key findings are summarised below:

■ The group and solo entities are sufficiently capitalised: The group and each solo insurance licence have eligible own funds in excess of their Solvency Capital Requirements (SCR) (i.e. cover ratios for all entities are greater than 1).

■ Risk within the group is concentrated in a few entities with the insurance entities being the main contributors. The results of the March 2019 strategic review (and the consequent reorientation of the group’s business model), as well as the inherently onerous regulatory demands within the insurance operations, led to the decision to move to a capital-light model. Planned transactions in this regard (including the disposal of the AF Insurance business) were assessed in terms of their rationale, risk impact and financial impact (including impact to solvency). When the assessments occurred, all related transactions were found to be viable and had met the objectives of the group.

■ The group and its insurance entities are expected to remain solvent over the business planning period and above its target risk appetite levels for SCR cover. The group expects to continue to pay dividends in line with its dividend policy.

■ The capital targets discussed in the ORSA were assessed to be adequate given the size, business mix and complexity of the insurance operations.

■ The resilience of the group’s projected solvency position was assessed using scenario testing techniques and found to be sound under various scenarios, including significant market deterioration.

The previous ORSA (December 2018) revealed the following focus areas to be targeted in the foreseeable future:

■ Ensuring that the ORSA is a more continuous process that is implemented throughout the financial period.

Progress: This improved during the period, but was truly achieved as part of the work performed during the assessment of strategies, risk management and capital for the transactions, as well as the out of cycle COVID-19 ORSA process.

■ Improved integration and embedment of the strategy, risk management and capital planning processes.

Progress: Similar to the above, we improved integration during the financial year.

■ Simplification of the ORSA processes and reporting.

Progress: This is an ongoing process, but one where the board has acknowledged the material improvement achieved during FY2020.

■ It is envisaged that more focused consideration and assessment will be given to group-specific risks such as complexity, contagion and concentration in future ORSA cycles. This will include more detailed analyses and assessment of the intra-group transactions and other dependencies within the group.

Progress: The group conducted an assessment of the dependencies within the group across entities and functions for the first time as part of the 2019 ORSA. Material dependencies were noted that create operational, business and strategic risks.

■ Improvement of the out-of-cycle ORSA methodologies to support intelligent and timely decision-making.

Progress: This has been especially achieved, as demonstrated by the out of cycle COVID-19 ORSA process (Refer the integrated report for more information on this).

■ Strengthening of the lines of defence to better support the ORSA processes.

Progress: This has been achieved as a consequence of improved ORSA planning. Continuous enhancement of the efficiency and consistency in the ORSA process through strengthening the centralised risk, compliance, capital and actuarial functions remain ongoing.

As a result of the COVID-19 pandemic and related economic uncertainty and financial market volatility, management conducted an out of cycle ORSA. We derived immense value from this process, which has informed our way forward, as explained in the integrated report in the message from the chair and the chief financial officer. The assessment is dynamic and will be reviewed and updated as the need arises.


Governance report 31 March 2020

Managing risk

46

Corporate information

Registration number: 2006/025226/06

Tax reference number: 9404/921/15/8

JSE share code: AFH

ISIN: ZAE000191516

(Incorporated in the Republic of South Africa)

Independent directors

M Ramplin (Chair), RM Head, NG Payne, BJ Memela-Khambula, T Dloti

Non-executive directors

WS O’Regan, MR Nkadimeng

Executive directors

DJ de Villiers (Chief executive officer)

BP Bydawell (Chief financial officer)

Executive: Governance, legal and compliance (Company secretary)

CH Wessels

Investor relations

Z Amra

Registered office

Alexander Forbes, 115 West Street, Sandown, 2196

Transfer secretaries

Computershare Investor Services Proprietary Limited

Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196

Private Bag X9000, Saxonwold, 2132

Sponsor

Rand Merchant Bank (A division of FirstRand Bank Limited)

1 Merchant Place, corner of Fredman Drive and Rivonia Road, Sandton, 2196

www.alexanderforbes.co.za


http://www.alexanderforbes.co.za

Alexander Forbes Group Holdings Limited Tel +27 11 269 0000, 115 West Street, Sandown PO Box 787240, Sandton, 2146, South Africa

www.alexanderforbes.co.za

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