Directors responsibility for financial reporting certificate by the

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					                                                                                     Alexander Forbes LI M ITE D 2010




Directors’ responsibility for financial reporting
for the year ended 31 March 2010


The South African Companies Act requires directors to                Based on the information and explanations given by
ensure that the company maintains adequate accounting                management and the internal and external auditors, the
records and to be responsible for the content and integrity          directors are of the opinion that the system of internal
of the group and company annual financial statements of              controls provides reasonable assurance that the financial
Alexander Forbes Limited and related financial information           records may be relied on for the preparation of the group
included in this report. It is their responsibility to ensure        and company annual financial statements in accordance
that the financial statements, for each financial year, fairly       with IFRS. Nothing has come to the attention of the directors
present the state of affairs of the group and company at the         to indicate that any breakdown in the functioning of the
end of the financial year and the results of their operations        internal controls, resulting in a material loss to the group, has
and cash flows in conformity with International Financial            occurred during the year and up to the date of this report.
Reporting Standards (IFRS).
                                                                     The directors have a reasonable expectation that the group
The   accounting    policies,   supported   by   judgements,         and company have adequate resources to continue in
estimates and assumptions which comply with IFRS, have               operational existence for the foreseeable future. For this
been applied on a consistent and going-concern basis.                reason, the directors continue to adopt the going-concern
                                                                     basis in preparing the group and company annual financial
It is the responsibility of the independent auditors to report       statements.
on the fair presentation of the financial statements. Their
unmodified audit report appears on page 2.                           DIrEcTors’ approvaL of annuaL
                                                                     fInancIaL sTaTEMEnTs
The directors are ultimately responsible for the internal            The group and company financial statements, prepared
controls of the group. To enable the directors to meet these         in accordance with IFRS, were approved by the board of
responsibilities, management designs and implements                                5
                                                                     directors on 1 June 2010 and are signed on their behalf by:
standards and systems of internal control to provide
reasonable, but not absolute, assurance as to the integrity
and reliability of the financial statements in accordance
with IFRS and to adequately safeguard, verify and maintain
accountability for group assets. Systems and controls
include the proper delegation of responsibilities within a           Ms Moloko                         E Kieswetter
clearly defined framework, effective accounting procedures           Chairman	                         Group	chief	executive
and adequate segregation of duties.                                  15 June 2010                      15 June 2010




certificate by the company secretary
for the year ended 31 March 2010

In terms of section 268G (d) of the South African Companies Act of South Africa, as amended, I certify that, in respect of the year
ended 31 March 2010, Alexander Forbes Limited has lodged all returns that are required of a public company, in terms of the
Act, with the Registrar of Companies and that all such returns are true, correct and up to date.




JE salvado
Company	secretary
15 June 2010




                                                                                                                                         1
 Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




    Independent auditors’ report to the members of alexander
    forbes Limited for the year ended 31 March 2010
    We have audited the group annual financial statements of         misstatement of the financial statements, whether due to fraud
    Alexander Forbes Limited which comprise the consolidated         or error. In making those risk assessments, the auditor considers
    statement of financial position as at 31 March 2010, and the     internal controls relevant to the entity’s preparation and fair
    consolidated income statement and consolidated statement         presentation of the financial statements in order to design
    of comprehensive income, changes in equity and cash              audit procedures that are appropriate in the circumstances,
    flows for the year then ended, and a summary of significant      but not for the purpose of expressing an opinion on the
    accounting policies and other explanatory notes, and the         effectiveness of the entity’s internal control. An audit also
    directors’ report, as set out on pages 3 to 108.                 includes evaluating the appropriateness of accounting policies
                                                                     used and the reasonableness of accounting estimates made
    Directors’ responsibility for the financial statements           by management, as well as evaluating the overall presentation
    The company’s directors are responsible for the preparation      of the financial statements.
    and fair presentation of these financial statements in
    accordance with International Financial Reporting Standards      We believe that the audit evidence we have obtained is
    and in the manner required by the Companies Act of South         sufficient and appropriate to provide a basis for our audit
    Africa. This responsibility includes: designing, implementing    opinion.
    and maintaining internal control relevant to the preparation
    and fair presentation of financial statements that are free      opinion
    from material misstatement, whether due to fraud or error;       In our opinion, the financial statements present fairly, in
    selecting and applying appropriate accounting policies; and      all material respects, the consolidated financial position of
    making accounting estimates that are reasonable in the           Alexander Forbes Limited as at 31 March 2010, and its
    circumstances.                                                   consolidated financial performance and its consolidated
                                                                     cash flows for the year then ended in accordance with
    auditors’ responsibility                                         International Financial Reporting Standards and in the
    Our responsibility is to express an opinion on these financial   manner required by the Companies Act of South Africa.
    statements based on our audit. We conducted our audit in
    accordance with International Standards on Auditing. Those
    standards require that we comply with ethical requirements
    and plan and perform the audit to obtain reasonable
    assurance whether the financial statements are free from         pricewaterhousecoopers Inc.
    material misstatement.                                           Director: J Grosskopf
                                                                     Registered	Auditor	
    An audit involves performing procedures to obtain audit          2 Eglin Road
    evidence about the amounts and disclosures in the financial      Sunninghill
    statements. The procedures selected depend on the auditor’s      South Africa
    judgement, including the assessment of the risks of material     15 June 2010




2
                                                                                   Alexander Forbes LI M ITE D 2010




Directors’ report
for the year ended 31 March 2010


The directors present their report, which forms part of the        Market conditions in the core corporate broking business
group and company annual financial statements of Alexander         have been difficult. However, specialist areas such as Risk
Forbes Limited for the year ended 31 March 2010.                   Engineering, Metals and Minerals, Financial Institutions and
                                                                   Professions produced good revenue growth during this period
naTurE of busInEss                                                 and continue to differentiate our corporate offering to clients.
Alexander Forbes Limited (“the company” or “Alexander              In support of our segmentation strategy we have positioned
Forbes”) was listed on the JSE Limited on 4 November 1996.         Commercial Solutions as a separate business. This approach
As a result of the private equity deal, the company delisted       will bring the necessary focus to one of our strategic growth
effective from 26 July 2007. The company is incorporated           initiatives in the small and medium enterprise (“SME”) market.
and domiciled in the Republic of South Africa. The company         The superior product offering accompanied by our diverse skill
is an investment holding company and is the controlling            set will see our customers benefit as a result of this dedicated
company of the group’s subsidiaries, joint ventures and            market focus.
associates. Its subsidiaries, joint ventures and associates are
principally engaged in risk services, financial services and       Guardrisk group remains the largest specialist cell captive
multi-manager investment activities.                               insurance provider in the world and now also includes the
                                                                   CRE8 business which was fully integrated during the year.
The group employs over 4 400 personnel operating in                CRE8 now trades as Guardrisk Allied Product and Services.
17 countries in Africa, Europe and Latin America. The group        The Guardrisk group made a substantial contribution to trading
has correspondent relationships in other countries in Africa,      profits notwithstanding a very challenging environment.
Europe and Latin America, as well as Asia, Australia and           Although not the largest contributor to Guardrisks’ profit, the
North America. The principal operations of the group are in
                                                                   short-term underwriting profits more than doubled over the
South Africa and the United Kingdom.
                                                                   year due to successful interventions and a number of new
                                                                   schemes. The results are even more credible considering the
Group rEsuLTs                                                      impact of reducing interest rates on the investment income of
The group’s results are set out in the income statement
                                                                   this group. The offshore operations in Mauritius and Gibraltar
on page 37. A segmental analysis of the group’s results is
                                                                   reported mixed results for the year with the core business
provided in Annexure A to these financial statements. Total
                                                                   remaining stable. Guardrisk Insurance’s AA claims-paying
group operating income from continued operations net of
                                                                   ability and Guardrisk Life’s AA- financial strength rating were
direct expenses (“net revenue”) of R4,4 billion is 4,5% below
                                                                   recently reaffirmed by an independent rating agency.
the R4,7 billion of the previous year. Consolidated profit from
continued operations before non-trading and capital items
                                                                   Alexander Forbes Compensation Technology (AFCT) offers
(“trading result”) increased by 8% to R1 034 million.
                                                                   key value to clients by expediting recoveries against statutory
                                                                   insurers. The year under review saw substantial improvements
sa risk and Insurance services
                                                                   in productivity levels with a 52% improvement in submissions
Net revenue from this diverse business increased by 1%
                                                                   on behalf of customers. This translated into strong revenue
to R1,041 million. This was an acceptable result given the
                                                                   growth and a substantial improvement in trading margin.
economic recessionary climate which has had a somewhat
                                                                   AFCT disposed of its COIDLink subsidiary towards the end of
delayed impact on the core broking businesses of Risk and
                                                                   the year. This is expected to result in working capital being
Insurance Services as clients scale down activities or postpone
                                                                   released over the course of an 18-month earn-out period.
projects. The reduction in the prime interest rate resulted in a
                                                                   Elements of the sale will contribute to enterprise development
22% decline in operational interest earnings also negatively
                                                                   for AFCT, in line with our commitment to black economic
affecting revenue. The trading result of R275 million is 2%
                                                                   empowerment.
below that of the previous year. New business remains key
to the success of the business with corporate and Alexander
                                                                   Alexander Forbes Motor and Household Insurance has seen
Forbes Motor and Household Insurance making meaningful
                                                                   a significant increase in gross written premiums related to the
contributions.


                                                                                                                                      3
 Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




    Directors’ report           continued
    for the year ended 31 March 2010


    increase in distribution capacity and the marketing campaign         a reduction in margins due to competitive pricing and high
    launched last year. New business premium was substantially           claims in some areas. Strategies are being implemented
    above that of the previous year and continues its upward             to grow our Professional Wealth offering (risk cover for the
    trajectory. Alexander Forbes Insurance’s management remain           individual market) more aggressively in the future.
    committed to the superior levels of services and claims
    handling that have seen them differentiate themselves from           With the Group strategy to focus on core activities, we have
    other direct insurers in the market. Loss ratios for the year have   discontinued various businesses during the year. We sold
    been below industry norms – this is key to the sustainability        our electronic payment and switching business, FIHRST
    of the business.                                                     Management Services, and sold the broking business within
                                                                         our Brazilian operation Ticketseg Corretora de Seguros
    sa financial services                                                S.A., in which we had a 50% interest. In addition we have
    During the year under review, net revenue increased by 3%            been reviewing the strategic options for our Homeplan
    from the previous year to R1 276 million, trading results rose       Securitisation Vehicle which matures in July 2010 and the
    13% to R302 million.                                                 Homeplan operations as a whole and have at classified these,
                                                                         where appropriate, as discontinued operations as required by
    A satisfactory result was achieved by the Retirement Funds           the accounting standard, IFRS 5.
    division which featured excellent client retention levels and
    strong new business wins particularly in our core administration     africa Investment solutions
    division. Members under administration exceed 1,1 million.           The Investment Solutions’ results reflect the tale of two halves
    In a society where the savings culture is relatively poor, we        in equity markets with the first half characterised by overall
    have continued to extend innovative ways of educating our            nervousness and the second half characterised by growing
    membership about the importance of disciplined savings               optimism over the state of investment and capital markets. Net
    and financial awareness and in particular the importance of          revenue, net of direct product costs such as fees paid to asset
    preservation of retirement savings. During the past year we          managers, grew by 1% to R437 million. Trading results were
    have conducted 1 200 education and awareness sessions to             R247 million which is 2% above the prior year. The result for
    members.                                                             the current year was underpinned by:
                                                                         • Good retention efforts which allowed the benefits of the
    Our Retail division, focusing on individual clients, enjoyed            positive equity markets in particular to translate into
    continued good new business cash flows and continues to                 realisable revenue and profit gains.
    develop strategies to grow its distribution. New products were       • Disciplined cost management – operating expenses were
    launched during the year further strengthening the platform             down 3% year on year in spite of significant investment in
    offered to clients. Stronger equity markets in the second half          systems, people and brand revitalisation.
    of the year also benefited this division.                            • Respectable new business flows. We achieved R3,9 billion
                                                                            of new mandates split between our core multi-management
    Following the restructure of our Health Management Services             portfolios and investment administration offering on our
    division, which now specialises in ill-health, disability and           platform. The new gains in “platform” business reflect the
    absenteeism management, we have experienced a significant               benefits of investment in systems to ensure a competitive
    turnaround in the Health division. Good new business wins               offering in this area.
    were secured in the last quarter of the financial year. The core     • Substantial market recovery. However, the increase in
    Health broking and consulting business performed in line with           trading result does not directly reflect the recovery of
    expectations.                                                           markets over this period as might be the expectation as a
                                                                            result of the group having substantially hedged the indirect
    Alexander Forbes Life experienced good growth in premium                exposure of income to equity markets in the previous
    income in the group risk product although it suffered from              reporting period.




4
                                                                                    Alexander Forbes LI M ITE D 2010




Investment performance was pleasing especially over the             down 1% from the prior year, and trading results of
three-year period. Over three years, 70% of funds are above         £11,7 million, which is £3 million or 55% up on the prior
benchmark and 97% are above median when compared                    year, despite the unprecedented recessionary environment
against peers. This is in line with Investment Solutions’           affecting the United Kingdom and Europe.
commitment to clients. Over a 12-month measurement period,
investment performance results are weaker due to base               financial services uK
effects in some of our bigger portfolios being Performer and        The recession in the United Kingdom continues to impact
Pure Equity that collectively make up over 40% of our assets        negatively on the small and medium sector, Alexander
under management. We are encouraged by the positive results         Forbes Financial Services’ (AFFS) core target market.
being experienced from the innovative enhancements to our           Employee contributions to pensions and expenditure on
investment process that were introduced over the past year.         healthcare and risk solutions were negatively affected by
                                                                    redundancy programmes, the curtailment of expenditure
Manager selection remains one of our critical competencies.         by employers and, in some instances, the insolvency of
The enhancement of our Manager Assessment and Ranking               employers. Client retention remained very high, supported by
Systems (MARS) supports the dynamic nature of our                   continued operational efficiency improvements. In response
investment philosophy and underpins the overall success that        to declining sales volumes, AFFS maintained its strong cost
has been delivered to clients thus far.                             control and undertook a further redundancy programme to
                                                                    reduce its cost base. AFFS continues to focus on building its
afrinet (africa excluding south africa)                             renewable income in anticipation of the implementation of
During the period under review Afrinet focused on increasing        the Financial Service Authorities’ Retail Distribution Review,
operational efficiencies and cost control. Revenue of               which will have a materially adverse impact on AFFS’s initial
R290 million is in line with the previous year. Total expenditure   commission revenues from the implementation of new
also remained constant with that of the previous year.              defined contribution schemes from 2013. The Healthcare
                                                                    division, Alexander Forbes Trustee Services and Alexander
Afrinet recorded trading results of R71 million, 3% higher than     Forbes Channel Islands continued to perform strongly, with
the prior year. This reflects the tougher operating environment     profits in line with the preceding year and expectations.
in   Africa,   evidenced   by   the   contracting   government      Overall, these businesses made a trading loss of £0,3 million,
expenditure, declining interest rates, worsening exchange           an improvement of £2,0 million over the previous year.
rate movements and revising down of GPD growth rates in
most of the regions in which we operate. The South African          Lane clark & peacock partnership uK and Europe
Development Community operations such as Namibia,                   The actuarial consulting business, Lane Clark & Peacock,
Swaziland and Malawi recorded resilient performance.                continued to outperform, delivering strong growth across our
                                                                    businesses in the United Kingdom, Switzerland, Ireland and
Afrinet provides the most comprehensive network in Africa           Belgium. The investments made in the Netherlands and Swiss
with offices in Nigeria, Kenya, Tanzania, Uganda, Zambia,           asset consulting businesses, as well as the diversification into
Malawi, Mozambique, Botswana, Namibia, Swaziland and                non-pensions actuarial consulting in the United Kingdom
Zimbabwe and correspondents in other key countries.                 performed in line with expectation. Overall, profits grew a very
Expansion into African territories remains core to our growth       credible 19% off operating income growth of 6%. This was
strategy, as we seek to confirm Alexander Forbes as a truly         driven by strong organic growth, with a number of significant
African company with a global footprint.                            new business wins and continued demand for actuarial and
                                                                    investment consulting services from the larger corporate
International financial services                                    market as clients grappled with the credit crisis, recession and
The group’s International operations performed significantly        investment market volatility, coupled with strong internal cost
                                                    1
better than in the prior year with net revenue of £1 1,6 million,   control.




                                                                                                                                       5
 Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




    Directors’ report           continued
    for the year ended 31 March 2010


    Investment solutions International                                   MaTErIaL TransacTIons
    Net revenue for the year improved by 22% to £2,8 million             There were no material transactions during the year.
    as investment markets recovered during the year, increasing
    assets under management and associated revenue.                      acquIsITIons anD DIsposaLs
                                                                         There were no material acquisitions within the underlying
    During the year, the Group began consolidating the                   group during the year under review. Certain non-core
    management of its international assets under International           business operations described below were disposed of
    Investment Solutions. Assets under management grew to
                                                                         during the current year.
    £1,4 billion as at 31 March 2010, up from £0,8 billion at the
    end of the prior year as a result of a combination of these
                                                                         The Chambers Townsend Consulting Limited business,
    and other new business flows supplemented by stronger
                                                                         operating within in the United Kingdom, was disposed of
    investment markets.
                                                                         pursuant to a strategic decision by management to exit non-
                                                                         core business lines in the United Kingdom. This disposal was
    International Investment Solutions’ loss from trading results for
                                                                         effective in June 2009.
    the year decreased to £0,2 million, from a loss of £1,3 million
    in the prior year. A focus on new business gains remains the
                                                                         FIHRST Management Services (Proprietary) Limited, an
    key driver in successfully growing assets under management
                                                                         electronic payment and switching business operation within
    to achieve a sustainable level of profitability and critical mass.
                                                                         Alexander Forbes Financial Services in South Africa, was
                                                                         disposed of effective March 2010.
    DIsTrIbuTIon To sharEhoLDErs
    No distribution is proposed to be made to shareholders for
                                                                         The operations of Ticketseg Corretora de Seguros S.A., a
    the year ended 31 March 2010.
                                                                         Brazilian company in which the Alexander Forbes Financial

    sharE capITaL                                                        Services in South Africa held a 50% interest, was disposed

    authorised                                                           of effective March 2010.

    There were no changes to the authorised share capital of
    the company during the year. Details of the authorised share         COIDLink (Proprietary) Limited, a business operating within

    capital are provided in the relevant note to these financial         Alexander Forbes Risk and Insurance Services South
    statements.                                                          Africa, provides claims facilitation services for injury-on-
                                                                         duty medical claims. The operation has been sold effective
    Issued                                                                2
                                                                         1 April 2010 and has been classified as a discontinued
    The company has not issued any shares during the current             operation and is disclosed as a disposal group held for sale
    year.                                                                at year end.


    consoLIDaTED fInancIaL sTaTEMEnTs                                    Our Homeplan securitisation vehicle, which matures in
    These financial statements incorporate the consolidated              July 2010, and the wider Homeplan business continue
    results of Alexander Forbes Limited and its subsidiaries.            to be under strategic consideration and have also been
    The standalone company financial statements for Alexander            classified, where appropriate, as discontinued in line with
    Forbes Limited as required by the Companies Act of South             the required accounting standards. Although this operation
    Africa are not included in these financial statements and are        is a complementary service to the consulting, administration
    available upon request.                                              and advice provided to the retirement funds by other
                                                                         operations, the risks relating to funding (mainly repricing
    hoLDInG coMpany                                                      risk) are significant to the Alexander Forbes group.
    100% of the issued shares of the company are held by
    Alexander Forbes Acquisition (Proprietary) Limited. The
                                                                         Further disclosure of discontinued operations is provided in
    ultimate holding company of the group is Alexander Forbes
                                                                         note 23.
    Equity Holdings (Proprietary) Limited.


6
                                                                                Alexander Forbes LI M ITE D 2010




borrowInG powErs                                                coMpany sEcrETary
In terms of the articles of association, the borrowing          The company secretary at the date of publication of this
powers of the company are unrestricted and the directors        report is Mrs JE Salvado.
may exercise all the powers of the company to borrow
money. However, most entities in the underlying group           rEGIsTErED offIcE
have limited borrowing powers by virtue of an inter-            Details of the registered office of the company are as follows:
creditor agreement with existing financing providers. In
terms of the South African Long-Term Insurance Act, 1998        physical address:                postal address:
and the South African Short-Term Insurance Act, 1998, the       Alexander Forbes Place           PO Box 787240
insurance subsidiaries of the group do not encumber their       61 Katherine Street              Sandton
assets or directly or indirectly borrow funds.                  Sandown, Sandton                 2146
                                                                2196                             South Africa
subsIDIarIEs, JoInT vEnTurEs anD                                South Africa
assocIaTEs
Details of subsidiaries, joint ventures and associates, which   The company’s registration number is 1958/001974/06.
are considered material to the group, and in respect of
which the group has a continuing interest, are provided in      EvEnTs subsEquEnT To rEporTInG DaTE
Annexure B to these financial statements.                       Developments in respect of the legacy issue referred to as
                                                                the Lifecare matter, which in previous years was disclosed
DIrEcTors                                                       as a contingent liability, relating to one of the subsidiaries in
The directors at the date of approval of this report are:       the group is discussed in the CEO’s report. Prior to the end
                                                                of the financial year, the group announced that a substantial
non-executive director                position
MS Moloko                             Chairman                  offer was made to the curator of the affected funds to

Executive directors                   position                  settle the subsidiary’s portion of the liability in this matter.
                                                                As a result of having made the offer, the liability was no
B Campbell (resigned:                 Group chief executive
31 December 2009)                                               longer treated as contingent and full provision was made
E Chr Kieswetter (appointed:          Group chief executive     in these financial statements for the liability arising from
4 January 2010)
                                                                the settlement offer. At the same time an asset was raised
DM Viljoen                            Group finance director
                                                                for recoveries from the various insurance underwriters
                                                                in our errors and omissions insurance programme. This
DIrEcTors’ InTErEsTs In conTracTs                               receivable was raised at year end to the extent that we
During the financial year, no material contracts were entered
                                                                have received confirmation from such insurers that they
into in which directors of the company had an interest and
                                                                support the offer made by the group and that they will,
which significantly affected the business of the group. The
                                                                and to what extent they will, meet their portion of this
directors had no interest in any third party or company
                                                                obligation. At year end the net financial impact to the group
responsible for managing any of the business activities of
                                                                after such confirmed insurance recoveries amounted to
the group.
                                                                  16
                                                                R1 million. It is very pleasing to report that subsequent
                                                                to year end the matter has been resolved with the curator
DIrEcTors’ InTErEsTs In sharEs                                  and we have also received confirmations from additional
No shares in the company are held by directors. All share
                                                                underwriters that they support the offer made and taking
options previously held by directors were cancelled as part
                                                                these confirmations into account, indications are that the
of the private equity transaction.
                                                                net exposure will be reduced to no more than R75 million.

DIrEcTors’ EMoLuMEnTs
Directors’ emoluments are disclosed in the related party
note to these financial statements.


                                                                                                                                    7
 Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




    Directors’ report           continued
    for the year ended 31 March 2010


    capITaL rEquIrEMEnTs                                          The registrar has granted the industry exemption in order
    In January 2010, the Financial Services Board issued a        to afford insurers the opportunity to apply for relaxation of
    notice called the Notice on the Prescribed Requirements       the provisions of the board notice. The group has addressed
    for the Calculation of the Value of Assets, Liabilities and   these provisions and in the case of Investment Solutions has
    Capital Adequacy Requirement (CAR) of Long-Term Insurers,     applied for relaxation in terms of the notice given that all
    2010. This notice has been gazetted with effective            liabilities of this business are directly related to asset values
    date 28 February 2010. The notice sets out additional         and no mortality risk is assumed by the company, therefore
requirements for the calculation of CAR for long-term             the only risk to be considered is expense and operating risk.
insurers to be at a minimum, the higher of:                       The registrar has acknowledged receipt of the application
                                                                  but has not responded to the application itself. The company
(a) R10 million;                                                  is currently still within the general exemption period granted
(b) An amount representing operating expenses, multiplied         by the Registrar.
           3
       by 1 and divided by 52 or, if different, the number of
       weeks included in the reporting period; or                 auDITors
(c) An amount equal to 0,3% of its gross contingent liabilities   PricewaterhouseCoopers Inc. will continue in office in
       under unmatured policies.                                  accordance with section 270(2) of the Companies Act of
                                                                  South Africa, as amended.
Point (c) is a new requirement.




8
                                                                                  Alexander Forbes LI M ITE D 2010




accounting policies
for the year ended 31 March 2010


The principal accounting policies applied in the preparation      The new accounting policy in respect of segmental operating
of the group and company financial statements are set out         disclosure as presented has not changed the comparative
below. These policies are consistent with those applied           segment information since the resulting operating segments
in the previous year, except for the changes required by          in terms of IFRS 8 Operating	Segments are identical to those
Standards and Interpretations effective in 2010.                                                  4
                                                                  previously presented under IAS 1 Segment	 Reporting,
                                                                  therefore there is no impact on earnings per share.
basIs of prEparaTIon
The group and company financial statements have been              The preparation of financial statements in conformity with
prepared    in   accordance    with   International   Financial   IFRSs requires management to make judgements, estimates
Reporting Standards (IFRSs). They have been prepared in           and assumptions that affect the application of accounting
accordance with the going-concern principle under the             policies and the reported amounts of assets, liabilities, income
historical cost basis except for the following:                   and expenses. Actual results may differ from these estimates.
• Derivative financial instruments are measured at fair
   value;                                                         Estimates and underlying assumptions are reviewed on
• Financial instruments at fair value through profit or loss      an ongoing basis. Revisions to accounting estimates are
   are measured at fair value; and                                recognised in the period in which the estimates are revised
• Available-for-sale assets are measured at fair value.           and in any future periods affected.


chanGEs In accounTInG poLIcIEs                                    The areas involving a higher degree of judgement or
Effective 1 April 2009, the group has made the following          complexity, or areas where assumptions and estimates are
changes in accounting policies:                                   significant to the financial statements, are disclosed in the
                                                                  notes to these financial statements.
prEsEnTaTIon of fInancIaL sTaTEMEnTs
The group has applied the revised statement on IAS 1              sTanDarDs anD InTErprETaTIons
Presentation	of	Financial	Statements (2007), which became         EffEcTIvE In 2010
                                                                  The following Standards and Interpretations have been
effective as of 1 January 2009. As a result, the group
                                                                  issued with an effective date applicable to the current
presents in the consolidated statement of changes in equity
                                                                  financial year of the group:
all owner changes in equity, whereas all non-owner changes
in equity are presented in the consolidated statement of
                                                                  Ifrs 1 and Ias 27 amendment to cost of an Investment
comprehensive income.
                                                                  in a subsidiary, Jointly controlled Entity or associate
                                                                  The amendment to IFRS 1 and IAS 27 relates to the dividends
Comparative information has been re-presented so that it
                                                                  received from subsidiaries, jointly controlled entities or
also is in conformity with the revised standard. Since the
                                                                  associates. These dividends will now be recognised as
change in accounting policy only impacts presentation
                                                                  dividend income in the separate financial statements,
aspects, there is no impact on earnings per share.
                                                                  regardless if the dividends were declared from accumulated
                                                                  profits arising before or after an acquisition.
DETErMInaTIon anD prEsEnTaTIon of
opEraTInG sEGMEnTs
                                                                  The impact of this amendment is not considered to be
As of 1 April 2009 the group determines and presents
                                                                  significant for the group.
operating segments based on the information that internally
is provided to the group’s Executive Committee and the
                                                                  Ifrs 2 amendment to Ifrs 2 share-based payment:
board of directors, who are designated as the group’s
chief operating decision maker. This change in accounting         vesting conditions and cancellations
                                                                  The amendment applies to equity-settled share-based
policy is due to the adoption of IFRS 8 Operating	Segments.
                                                                  payment transactions and clarifies the meaning of vesting
Previously operating segments were determined and
                                                                  and non-vesting conditions, and clarifies the accounting
                                  4
presented in accordance with IAS 1 Segment	Reporting.
                                                                  treatment where either the entity or the beneficiary of a
                                                                  grant chooses not to meet the vesting conditions.




                                                                                                                                 9
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     accounting policies             continued
     for the year ended 31 March 2010


 sTanDarDs anD InTErprETaTIons                                           profit or loss income statement and a statement of
                 0
 EffEcTIvE In 201 continued                                              comprehensive income. The components of comprehensive
 Ifrs 2 amendment to Ifrs 2 share-based payment:                         income may not be presented in the statement of changes
     vesting conditions and cancellations	(continued)                    in equity. The income tax effects relating to each component
 The impact of this amendment is not considered to be                    of comprehensive income have to be disclosed as well as
 relevant.                                                               any reclassification adjustments relating to components of
                                                                         comprehensive income.
 Ifrs 7 financial Instruments: Disclosure
 This amendment forms part of the IASB’s response to the                 The amendment also requires that the balance sheet is
 global financial crisis. It requires enhanced disclosures about         presented at the beginning of the earliest comparative
 fair value measurements and liquidity risk. The amendment               period, in a complete set of financial statements, when the
 to IFRS 7 introduces the disclosure of fair value hierarchy.            entity makes a retrospective adjustment.
 The fair value measurement of each financial instrument is
 required to be categorised in its entirety according to the             The revised Standard includes terminology changes in the
 levels within the hierarchy. The levels are defined as follows:         financial statements, however these are not mandatory.
 •	 Level	 1 – Quoted prices (unadjusted) in active markets
        for identical assets or liabilities;                             This amendment changed the presentation of the group’s
 •	 Level 2 – Inputs other than quoted prices included within            financial results and management has decided on the
        level 1 that are either directly (ie, as prices) or indirectly   disclosure option of two statements, ie, a separate income
        (ie, derived from prices) observable for the asset/liability;    statement and a statement of comprehensive income.
        and
 •	 Level 3 – Inputs for the asset or liability that are not             Ias 23 borrowing costs (revised)
        based on observable market data (unobservable inputs).           The amendment to IAS 23 requires an entity to capitalise
                                                                         borrowing costs which are directly attributable to the
 A reconciliation of the opening balance to the closing                  acquisition, construction or production of a qualifying asset
 balance for all fair value measurements in level 3 of the               (those assets that take a substantial period of time to get
 hierarchy is required.                                                  ready for use) as part of the cost of an asset. Previously, the
                                                                         option was given to either immediately expense borrowing
 The impact of this amendment is considered to be significant            costs or capitalise these to the cost of the asset.
 to the group.
                                                                         The impact of this amendment is not considered to be
 Ifrs 8 operating segments                                               relevant to the operations of the group.
     IIFRS 8 replaces IAS 14 and requires segment reporting to be
     based on the information that management uses internally            Ias 32 financial Instruments: presentation and
     for evaluating segment performance and when deciding                Ias 1 presentation of financial statements
     how to allocate resources to operating segments. Such               The amendment to IAS 32 requires certain puttable
     information may be different from what is used to prepare the       instruments that meet the definition of a financial liability to
     income statement, statement of comprehensive income and             be classified as equity if, and only if, they meet the required
     the statement of financial position. The operating segments         conditions.
     reported by the group are the same as the current business
     operations being reported to the board of directors.                The impact of the amendment is not considered to be
                                                                         significant to the group.
     The new statement has not significantly changed the
     segmental reporting of the group.                                   Ias 39 financial Instruments: recognition and
                                                                         Measurement
     Ias 1 presentation of financial statements (revised)                The amendment to IAS 39 prohibits reclassification (from the
     The amendment requires that all non-owner changes                   fair value through profit or loss category) when an entity is
     in equity be presented in either one statement of                   unable to measure separately an embedded derivative that
     comprehensive income or in two statements, ie, a separate           would have to be separated on reclassification of a hybrid


10
                                                                                        Alexander Forbes LI M ITE D 2010




contract. The impact of the amendment is not considered to               cIrcuLar 3/2009 – hEaDLInE EarnInGs
be significant to the group.                                             Circular 3/2009 relates to the calculation of headline
                                                                         earnings for entities that are listed on the JSE Limited. The
IfrIc 15 agreements for construction of real Estate                      main purpose of reconsidering the calculation of headline
       5
IFRIC 1 addresses accounting for agreements for the                      earnings is to ensure consistency of treatment by all
construction of real estate and will have an impact on the               companies listed on the JSE of the same or similar items.
timing of the recognition of revenue resulting from these                The general rule for calculating headline earning per share
contracts.                                                               can be summarised as follows:


This Interpretation is not considered to be relevant to the              1. Start with basic earnings number in terms of IAS 33;
group.                                                                   2. Only remeasurements may be excluded from HEPS; and
                                                                         3. Certain remeasurements are included in HEPS based on
ac 504 Ias 1 The Limit on a Defined benefit asset,
            9                                                            the trading and operating nature thereof.
Minimum funding requirements and their Interaction in
the south african Environment                                            This circular is effective for financial periods (interim or
                                            4
AC 504 provides guidance on applying IFRIC 1 in South                    annual) ending on or after 31 August 2009.
Africa and it is applicable to the entity (employer) and not
the Fund. It focuses on the accounting surplus and statutory             annuaL IMprovEMEnTs proJEcT
surplus. The entity (employer) can only account for the                  The International Accounting Standards Board decided to
surplus if it’s available to the entity in the form of a refund or       initiate an annual improvements project in 2008. The annual
reduction of future contributions.                                       improvements project provides a vehicle for making non-
                                                                         urgent but necessary amendments to IFRS.
This     amendment     is   applicable   for   annual    periods
commencing on or after 1 April 2009.


The following improvements are effective in 2010:
standard or Interpretation                          subject of improvement                                           Effective date
Ifrs 7 (ac1 44) financial Instruments               Presentation of finance costs                                    1 January 2009
Disclosures                                         Amendment dealing with improving disclosures about
                                                    financial instruments
Ias 1 (ac101) presentation of financial             Current/non-current classification of derivatives                1 January 2009
statements
Ias 8 (ac 103) accounting policies,                 Status of implementation guidance                                1 January 2009
changes in accounting Estimates and
Errors
Ias 1 (ac 1
     0     07) Events after the reporting           Dividends declared after the end of the reporting period         1 January 2009
period
Ias 1 (ac 1
     6     23) property, plant and                  Recoverable amount                                               1 January 2009
Equipment                                           Sale of assets held for rental
Ias 1 (ac 1 1) revenue
     8     1                                        Costs of originating a loan                                      1 January 2009
Ias 1 (ac 1 6) Employee benefits
     9     1                                        Curtailments and negative past service cost                      1 January 2009
                                                    Plan administration costs
                                                    Replacement of term “fall due”
                                                    Guidance on contingent liabilities
Ias 20 (ac 134) accounting for                      Government loans with a below-market rate of interest            1 January 2009
Government Grants and Disclosure of                 Consistency of terminology with other IFRSs
Government assistance




                                                                                                                                         11
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     accounting policies             continued
     for the year ended 31 March 2010


     annuaL IMprovEMEnTs proJEcT continued

     standard or Interpretation                      subject of improvement                                              Effective date
     Ias 23 (ac 1 4) borrowing costs
                 1                                   Components of borrowing costs                                       1 January 2009
     Ias 28 (ac 1 0) Investments in associates
                 1                                   Required disclosures when investments in associates are             1 January 2009
                                                     accounted for at fair value through profit or loss
     Ias 29 (ac 1 24) financial reporting in         Description of measurement basis in financial statements            1 January 2009
     hyperinflationary Economies                     Consistency of terminology with other IFRSs
     Ias 31 (ac 1 9) Interests in Joint ventures
                 1                                   Required disclosures when interests in jointly controlled           1 January 2009
                                                     entities are accounted for at fair value through profit or loss
     Ias 34 (ac 127) Interim financial reporting     Earnings per share disclosures in interim financial reports         1 January 2009
     Ias 36 (ac 128) Impairment of assets            Disclosure of estimates used to determine recoverable               1 January 2009
                                                     amount
     Ias 38 (ac 129) Intangible assets               Advertising and promotional activities                              1 January 2009
                                                     Unit of production method of amortisation
     Ias 39 (ac 133) financial Instruments:          Reclassification of derivatives into or out of the classification   1 January 2009
     recognition and Measurement                     of at fair value through profit or loss
                                                     Designating and documenting hedges at the segment level
                                                     Applicable effective interest rate on cessation of fair value
                                                     hedge accounting
     Ias 40 (ac 135) Investment property             Property under construction or development for future use           1 January 2009
                                                     as investment property
                                                     Consistency of terminology with IAS 8
                                                     Investment property held under lease
     Ias 41 (ac 137) agriculture                     Discount rate for fair value calculations                           1 January 2009
                                                     Additional biological transformation
                                                     Examples of agricultural produce and products
                                                     Point-of-sale costs


 sTanDarDs anD InTErprETaTIons noT                                        The impact of these amendments is not considered to be
 yET EffEcTIvE                                                            relevant to the group.
     The following Standards and Interpretations have been
     issued but are not yet effective for the group as at the             Ifrs 2 amendments to Ifrs 2 (ac 139) Group cash-
     reporting date of 31 March 2010.                                     settled share-based payments
                                                                          A share-based payment is a transaction in which an entity

     Ifrs 1 amendments to Ifrs 1 (ac 138) first-Time                      receives goods or services in exchange for a payment in

     adoption of Ifrs                                                     equity instruments or a payment based on price/value of an

     The amendments provide for additional exemptions for first-          equity instrument.

     time adopters of IFRS. Amendments relate to oil and gas
     assets and determining whether an arrangement contains a             The amendment clarifies which company in the group needs

     lease and are effective for annual periods commencing on             to disclose the share-based payment when the goods or
                                                                          services are received by a different company from the one
     or after 1 January 2010.
                                                                          making the payment.

     An amendment relieving first-time adopters of IFRSs from
                                                                          This amendment is effective for annual periods commencing
     providing the additional disclosures introduced through
                                                                          on or after 1 January 2010.
     Amendments to IFRS 7 is effective for annual periods
     commencing on or after 1 July 2010.
                                                                          The impact of this amendment is not considered to be
                                                                          relevant subsequent to restructure of the group.




12
                                                                                 Alexander Forbes LI M ITE D 2010




Ifrs 3 business combinations (revised)                           Ias 24 related party Disclosures
The revised IFRS 3 Business	 Combinations applies to all         The amendment relates to simplification of the disclosure
business combinations with an acquisition date on or after       requirements for government-related entities and clarification
1 July 2009. The group will adopt the revised IFRS 3 Business	   of the definition of a related party and is effective for annual
Combinations for acquisitions from 1 July 2009 onward.           periods commencing on or after 1 January 2011.


The revision requires that all transaction costs be expensed     The amendment is not considered to be significant to the
and contingent purchase consideration be recognised at fair      group.
value at acquisition date. For successive share purchases,
any gain or loss arising due to the difference between the       Ias 27 amendment to consolidated and separate
fair value and the carrying amount of the previously held        financial statements
equity interest in the acquiree will be recognised in profit     Amendments to IAS 27 will be adopted for the first time
and loss.                                                        for the financial reporting period ending 31 March 2011.
                                                                 In accordance with IAS 27 amendments, acquisitions of
The impact of the amendment is considered to be relevant         additional non-controlling equity interests in subsidiaries
to the group.                                                    have to be accounted for as equity transactions. Disposals
                                                                 of equity interests while retaining control are also accounted
Ifrs 9 financial Instruments – recognition and                   for as equity transactions. When control of an investee is
Measurement                                                      lost, the resulting gain or loss relating to the transaction will
The IASB has introduced IFRS 9 Financial	 Instruments	 –	        be recognised in profit and loss.
Recognition	 and	 Measurement as the new statement to
replace IAS 39 Financial	 Instruments:	 Recognition	 and	        It has always been the group’s accounting policy to treat all
Measurement. The objective is to improve the decision-           acquisitions of additional interests in subsidiaries, as well as
usefulness of financial statements by simplifying the            disposals of interests in subsidiaries, as equity transactions.
classification and measurement requirements for financial        The group will, however, change its accounting policy
instruments.                                                     relating to the loss of control when an equity interest is
                                                                 retained. In future, when control is lost, through sale or
IFRS 9 Financial	Instruments will be completed and issued        otherwise, the resulting gain or loss recognised in profit
in three phases. Phase one Recognition	and	Measurement           and loss will include any remeasurement to fair value
has been completed, phase two Impairment	 of	 Financial	         of the retained equity interest. All cash flows relating to
Assets and phase three Hedge	Accounting are expected to          acquisition and sale of interests in subsidiaries currently
be completed by the end of the calendar year 2010.               form part of the cash flows from investing activities. In
                                                                 future, changes in the equity holding in a subsidiary that do
The new IFRS 9 Financial	Instruments is effective for annual     not result in loss of control will form part of cash flow from
periods commencing on or after 1 January 2013.                   financing activities on the basis that these transactions are
                                                                 equity transactions.
The impact of the new Standard is considered to be
significant to the group.


Ias 21 The Effects of changes in foreign Exchange
rates
The amendment relates to consequential amendments from
changes to IFRS 3 Business	Combinations and is considered
to be relevant to the group.




                                                                                                                                    13
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     accounting policies             continued
     for the year ended 31 March 2010


 sTanDarDs anD InTErprETaTIons noT                                       sided risk on a forecast transaction may achieve perfect
 yET EffEcTIvE continued                                                 hedge effectiveness if the principal terms of the forecast
 Ias 27 amendment to consolidated and separate                           transaction and the hedging instrument are the same;
     financial statements	(continued)                                    and
     The amendments to IAS 27 also require that losses (including     •	 an amount other than the entire fair value or cash flow
     negative “other comprehensive income” as detailed in the            changes of a financial instrument can be designated in a
     revised IAS 1) have to be allocated to the non-controlling          hedging relationship.
     shareholders even if doing so causes the non-controlling
     shareholders to be in a deficit position. The group will in      The amendments are to be applied retrospectively but are
     future change its accounting policies on the allocation of       not expected to impact the group’s results.
     losses to non-controlling shareholders. In the past losses
     were allocated only until the non-controlling shareholders       IfrIc 1 Distributions of non-cash assets to owners
                                                                             7
     had a zero balance.                                                     7
                                                                      IFRIC 1 provides guidance on when and how a liability for
                                                                      certain distributions of non-cash assets to owners, acting in
     The impact of this amendment is considered to be material
                                                                      their capacity as owners, are recognised and measured, and
     for the group for any future equity-accounted acquisitions.
                                                                      how to account for settlement of that liability.

     Ias 28 and Ias 29 Investments in associates and
                                                                      This   Interpretation    is   effective    for   annual    periods
     Interests in Joint ventures                                      commencing on or after 1 July 2009 and is not considered
     Consequential amendments from changes to IFRS 3                  to have a significant impact on the group.
     Business	Combinations.

                                                                      IfrIc 1 Transfers of assets from customers
                                                                             8
     Ias 32 financial Instruments: presentation and Ias 1             IFRIC 18 provides guidance on transfers of property, plant
     presentation of financial statements                             and equipment (or cash to acquire it) for entities that receive
     This amendment relates to accounting for rights issues           such contributions from their customers.
     (including rights, options or warrants) that are denominated
     in a currency other than the functional currency of the issuer   This   Interpretation    is   effective    for   annual    periods
     and is effective for annual periods commencing on or after       commencing on or after 1 July 2009 and is not considered
     1 February 2010.                                                 to be relevant to the group.


     Ias 39 financial Instruments: recognition and                    IfrIc 1 Extinguishing financial Liabilities with Equity
                                                                             9
     Measurement                                                      Instruments
     Amendments to IAS 39 will be adopted for the first time          IFRIC 19 provides guidance on the accounting by an entity
     for the financial reporting period ending 31 March 2011.         when the terms of a financial liability are renegotiated and
     New application guidance is added in IAS 39 to clarify the       result in the entity issuing equity instruments to a creditor
     existing principles that determine whether specific risks or     of the entity to extinguish all or part of the financial liability.
     portions of cash flows are eligible for designation in a hedge
     relationship.                                                    This   Interpretation    is   effective    for   annual    periods
                                                                      commencing on or after 1 April 2010 and is not considered
     The additional application guidance clarifies that               to have a significant impact on the group.
     •	 changes in the cash flows or fair value of a hedged item
        above or below a specified price or variable (a one-sided
        risk) can be designated;
     •	 designating only the changes in the intrinsic value of an
        option as a hedging instrument in the hedge of a one-



14
                                                                                         Alexander Forbes LI M ITE D 2010




annuaL IMprovEMEnTs proJEcT (2009)
The International Accounting Standards Board decided to                 improvements project provides a vehicle for making non-
initiate an annual improvements project in 2008. The annual             urgent but necessary amendments to IFRS.



The following improvements are not yet effective, refer to effective dates as indicated below, and are currently being considered
by management:
standard or Interpretation                         subject of improvement                                              Effective date
Ifrs 2 (ac 139) share-based payment                Scope of IFRS 2 and revised IFRS 3                                  1 July 2009
Ifrs 5 (ac 142) non-current assets held            Plan to sell the controlling interest in a subsidiary               1 July 2009
for sale and Discontinued operations*              Disclosure of non-current assets (or disposal groups)               1 January 2010
                                                   classified as held for sale or discontinued operations
Ifrs 8 (ac 145) operating segments                 Disclosure of information about segment assets                      1 January 2010
Ias 1 (ac 101) presentation of financial           Current/non-current classification of convertible instruments       1 January 2010
statements
Ias 7 (ac 118) statement of cash flows             Classification of expenditures in respect of unrecognised           1 January 2010
                                                   assets
Ias 10 (ac 107) Events after the reporting         Amendment resulting from the issue of IFRIC 17                      1 July 2009
period
Ias 17 (ac 105) Leases                             Classification of leases of land and buildings                      1 January 2010
Ias 27 (ac 132) consolidated and                   Measurement of subsidiary held for sale in separate                 1 January 2010
separate financial statements                      financial statements
Ias 36 (ac 128) Impairment of assets               Unit of accounting for goodwill impairment test                     1 January 2010
Ias 38 (ac 129) Intangible assets                  Additional consequential amendments arising from revised            1 July 2009
                                                   IFRS 3
                                                   Measuring the fair value of an intangible asset acquired in a
                                                   business combination
Ias 39 (ac 133) financial Instruments:             Treating loan prepayment penalties as closely related               1 January 2010
recognition and Measurement                        embedded derivatives
                                                   Scope exemption for business combination contracts
                                                   Cash flow hedge accounting
IfrIc 9 (ac 442) reassessment of                   Scope of IFRIC 9 and revised IFRS 3                                 1 July 2009
Embedded Derivatives
IfrIc 16 (ac 449) hedges of a net                  Amendment to the restriction on the entity that can hold            1 July 2009
Investment in a foreign operation                  hedging instruments
  I
*		mprovements	to	IFRS	5	(AC	142)	Non-Current	Assets	Held	for	Sale	and	Discontinued	Operations	have	been	early	adopted	for	the	31	March	
  2010	financial	year	end.




                                                                                                                                           15
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     accounting policies             continued
     for the year ended 31 March 2010


     consoLIDaTIon                                                     SPE is consolidated if, based on an evaluation of the substance
     (a) subsidiaries                                                  of its relationship with the group and the SPE’s risks and
     Subsidiaries are all entities, including special-purpose          rewards, the group concludes that it controls the SPE. SPEs
     entities, controlled by the group. Control exists when the        controlled by the group were established under terms that
     group has the power to govern the financial and operating         impose strict limitations on the decision-making powers of the
     policies of an entity so as to obtain benefits from its           SPE’s management and that results in the group receiving the
     activities. The existence and effect of potential voting rights   majority of the benefits related to the SPE’s operations and
     that are currently exercisable or convertible, are considered     net assets, being exposed to the majority of risks incident to
     when assessing whether the group controls another entity.         the SPE’s activities, and retaining the majority of the residual
     Subsidiaries are fully consolidated from the date on which        or ownership risks related to the SPEs or their assets.
     control is transferred to the group and are no longer
     consolidated from the date on which control ceases.               (c) Joint ventures
                                                                       Joint ventures are all entities in which the group holds a long-
     The group uses the purchase method of accounting to               term interest and which are jointly controlled by the group, and
     account for the acquisition of subsidiaries. The cost of an       one or more other venturer, under a contractual arrangement.
     acquisition is measured at the fair value of the assets given,    Joint ventures are accounted for using the proportionate
     equity instruments issued and liabilities incurred or assumed     consolidation method from the acquisition date until the
     at the date of exchange, plus costs directly attributable to      disposal date. Under this method, the group combines its
     the acquisition. Identifiable assets acquired and liabilities     share of the joint ventures’ individual income and expenses,
     and contingent liabilities assumed in a business combination      assets and liabilities and cash flows on a line-by-line basis with
     are measured initially at their fair values at the acquisition    similar items in the group financial statements.
     date, irrespective of the extent of any non-controlling
     shareholders. The excess of the cost of acquisition over the      Unrealised gains and losses arising from transactions with
     fair value of the group’s share of the identifiable net assets    joint ventures are eliminated to the extent of the group’s
     acquired is recognised as goodwill. If the cost of acquisition    interest in those entities.
     is less than the fair value of the net assets of the subsidiary
     acquired, the difference is recognised immediately in profit      (d) associates
     or loss.                                                          Associates are entities over which the group has significant
                                                                       influence, but not control, generally accompanying a
     All material intra-group transactions, balances and unrealised    shareholding of between 20% and 50% of the voting rights.
     gains on intra-group transactions are eliminated. Unrealised      Investments in associates are accounted for using the equity
     losses are also eliminated unless the transaction provides        method of accounting and are initially recognised at cost. The
     evidence of an impairment of the asset transferred.               group’s investment in associates includes goodwill identified
                                                                       on acquisition, net of any accumulated impairment losses.
     Subsidiaries’ accounting policies have been changed where
     necessary to ensure consistency with the policies adopted         The group’s share of its associates’ post-acquisition profits or
     by the group.                                                     losses is recognised in profit or loss and its share of post-
                                                                       acquisition movements in reserves is recognised in reserves.
     The company financial statements account for subsidiaries         The cumulative post-acquisition movements are adjusted
     at cost less any accumulated impairment losses.                   against the carrying amount of the investment.
                                                                       When the group’s share of losses in an associate equals or
     (b) special-purpose entities                                      exceeds its interest in that associate, including any other
     The group has established a number of special-purpose             unsecured receivables, the group does not recognise any
     entities (SPEs) for business purposes. The group does not         further losses, unless the group has incurred obligations or
     have any direct or indirect shareholdings in these entities. An   made payments on behalf of the associate.



16
                                                                                    Alexander Forbes LI M ITE D 2010




Unrealised gains on transactions between the group and its          •	 	
                                                                       Third	party	cells
associates are eliminated to the extent of the group’s interest     The assets, liabilities and income statement items of these
in the associates. Unrealised losses are also eliminated,           cells are included in the group financial statements. The
unless the transaction provides evidence of an impairment           cell owners’ responsibility for the solvency of their cell is
of the asset transferred. Associates’ accounting policies           recognised and accounted for as a reinsurance transaction.
have been changed where material and necessary to ensure
consistency with the policies adopted by the group.                 •	 Other	policyholder	interests
                                                                    The assets, liabilities and income statement items attributable

The company financial statements account for associates at          to other policyholder interests are included in the group

cost less any accumulated impairment losses.                        financial statements.


(e) collective investment schemes                                   •	 Promoters’	(shareholders’)	interests

Collective investment schemes (or unit trusts) managed by           Assets and liabilities attributable to the promoters’ interests

the group, and for which the group is considered to have            are included in the same line items as other assets and

control through its size of investment, mandates and voting         liabilities of the group, whereas all other assets of the
                                                                    group’s insurance companies are shown separately in the
rights, are consolidated applying the same principles used
                                                                    group balance sheet with a corresponding separate linked
for the consolidation of subsidiary companies. The financial
                                                                    liability to the cell shareholder and policyholders.
assets of the collective investment schemes attributable to
unit holders are shown within “Financial assets held under
                                                                    forEIGn currEncy
multi-manager investment contracts” in the group balance
                                                                    (a) functional and presentation currency
sheet with a matching linked liability to the unit holders
                                                                    Items included in the financial statements of each of the
shown within “Financial liabilities held under multi-manager
                                                                    group’s entities are measured using the currency of the
investment contracts”.
                                                                    primary economic environment in which the entity operates,
                                                                    ie, its functional currency. The group and company financial
Fair value adjustments to the financial assets and liabilities of
                                                                    statements are presented in South African Rand, which is
unit trusts are recognised in profit or loss.
                                                                    the company’s and the group’s functional currency.

(f) cell captive facilities provided to third parties
                                                                    (b) foreign exchange gains and losses arising in entity
The group provides cell captive insurance facilities (“cells”)
                                                                    accounts
for clients through three licensed insurance companies.
                                                                    Foreign currency transactions are translated into the
                                                                    functional currency using the exchange rates prevailing at
The consolidation of the assets, liabilities and income
                                                                    the date of the transactions. Foreign exchange gains and
statement items of the insurance companies depends on
                                                                    losses resulting from the settlement of such transactions are
their nature and the contractual relationship with the cell
                                                                    recognised in profit or loss.
shareholder as follows:

                                                                    Monetary assets and liabilities denominated in foreign
•	 	
   First	party	cells
                                                                    currencies at the reporting date are translated to the
These cells are classified as special-purpose entities and
                                                                    functional currency at the exchange rates at that date.
income statement items are not included in the group
                                                                    Foreign exchange gains and losses resulting from the
financial statements. Assets and linked liabilities are
                                                                    translation of monetary assets are recognised in profit or
consolidated to the extent that investment mandates provide
                                                                    loss, except when deferred in equity as qualifying cash flow
control to the group’s insurance companies.
                                                                    hedges.




                                                                                                                                      17
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     accounting policies             continued
     for the year ended 31 March 2010


     forEIGn currEncy continued                                       propErTy anD EquIpMEnT
 b) foreign exchange gains and losses arising in entity               Items of property and equipment are measured at cost less
 accounts	(continued)                                                 any accumulated depreciation and accumulated impairment
 Translation differences on monetary items, such as financial         losses.
 assets held at fair value through profit or loss, are reported
 as part of the fair value gain or loss on such instruments.          Cost includes expenditure that is directly attributable to the
 Non-monetary assets and liabilities denominated in foreign           acquisition of the asset. Cost may also include transfers from
 currencies that are measured at fair value are translated into       equity of any gains or losses on qualifying cash flow hedges
 the functional currency at the exchange rate at the date that        of foreign currency purchases of property and equipment.
 the fair value was determined. Translation differences on
 non-monetary items, such as equities classified as available-        Subsequent costs are included in the asset’s carrying
 for-sale financial assets, are included in the fair value reserve
                                                                      amount only when it is probable that future economic
 in other comprehensive income.
                                                                      benefits associated with the items will flow to the group and
                                                                      the cost of the item can be measured reliably. All day-to-day
 (c) foreign exchange gains and losses arising on
                                                                      servicing of property and equipment is recognised in profit
 consolidation
                                                                      or loss as incurred.
 The results and financial positions of all the group entities that
 have a functional currency different from the presentation
                                                                      Depreciation is recognised in profit or loss on a straight-line
 currency of the group are translated into South African Rand
                                                                      basis over the estimated useful lives of each part of an item
 as follows:
                                                                      of property and equipment. Leased assets are depreciated
 •	 	 assets and liabilities for each balance sheet item are
    all
                                                                      over the shorter of the lease term and their useful lives. Land
       translated at the reporting date at the exchange rate at
                                                                      is not depreciated. The expected useful lives applied are as
       that date;
                                                                      follows:
 •	 	 ll income and expenses for each income statement
    a
                                                                      Leasehold property and                   Shorter of useful life
       item are translated at the average exchange rates for
                                                                      improvements                             or period of lease
       the relevant financial period (unless this average is not a
                                                                      Computer and network equipment           3 to 5 years
       reasonable approximation of the cumulative effect of the
                                                                      Motor vehicles                           4 to 10 years
       rates prevailing on the transaction dates, in which case
                                                                      Furniture and fittings                   4 to 10 years
       income and expenses are translated using the applicable
       exchange rates at the dates of the transactions); and          Office equipment                         4 to 7 years

 •	 	 ll resulting exchange differences are recognised
    a
       in the foreign currency translation reserve in other           Depreciation methods, residual values and useful lives are

       comprehensive income.                                          reviewed at each reporting date and adjusted if appropriate.
                                                                      If the carrying amount of the asset is greater than its

 Foreign exchange gains and losses on borrowings and                  estimated recoverable amount, the carrying amount is

 other currency instruments designated as hedges of such              written down immediately to its recoverable amount.

 investments are similarly transferred to, and recognised in,
 the foreign currency translation reserve (FCTR) in equity. On        Gains and losses on disposals of property and equipment

 disposal of a foreign entity, in part or in full, the relevant       are determined by comparing proceeds from the disposal

 amount in the FCTR is transferred to profit or loss.                 with the carrying amount of the relevant asset and are
                                                                      recognised in profit or loss. When revalued assets are

 Goodwill and fair value adjustments arising on the acquisition       sold, the amounts included in the revaluation surplus are

 of a foreign entity are treated as the foreign entity’s assets       transferred to retained earnings.

 and liabilities and are translated at the reporting date at the
 exchange rate at that date.



18
                                                                                   Alexander Forbes LI M ITE D 2010




GooDwILL                                                           Expenditure, which enhances and extends the benefits
Goodwill arises on the acquisition of subsidiaries, associates     of computer software programmes beyond their original
and joint ventures.                                                specifications and lives, is recognised as a capital
                                                                   improvement and added to the original cost of the software.
Goodwill represents the excess of the cost of the acquisition      Previously expensed costs are not subsequently capitalised.
over the fair value of the group’s share of the net identifiable
assets, liabilities and contingent liabilities of the acquiree     Computer software development costs recognised as assets
at the acquisition date. When the excess is negative, it           are amortised on a straight-line basis over their estimated
is recognised immediately in profit or loss. Goodwill on           useful lives of between three and five years.
acquisition of subsidiaries and joint ventures is separately
disclosed as a line item on the face of the balance sheet.         (b) contractual customer relationships acquired as part
Goodwill on acquisition of associates is included in the           of a business combination
carrying amount of the investment.                                 Contractual customer relationships acquired as part of a
                                                                   business combination are recognised as intangible assets.
Goodwill is carried at cost less accumulated impairment            The initial recognition of the customer relationship is
losses and is tested annually for impairment. Gains and            determined by estimating the net present value of future
losses on the disposal of an entity are stated after deducting     cash flows (after tax) from the contracts in force at the date
the carrying amount of goodwill relating to the entity sold.       of acquisition. These customer relationships are amortised
                                                                   on a straight-line basis over the estimated life of the acquired
InTanGIbLE assETs                                                  contracts.
Intangible assets are carried at cost less accumulated
amortisation and impairment losses.                                (c) Deferred acquisition costs (“Dac”)
                                                                   Incremental costs directly attributable to securing rights to
(a) purchased and developed computer software                      receive fees for multi-manager investment services sold with
Purchased computer software and the direct costs associated        investment contracts are capitalised as intangible assets if
with the customisation and installation thereof, are capitalised   they can be separately identified, measured reliably and it is
and amortised over the useful life of the asset.                   probable that their value will be recovered. An incremental
                                                                   cost is one that would not have been incurred if the group
Purchased computer software licences are capitalised on the        had not secured the investment contract.
basis of the costs incurred to acquire and bring into use the
specific software. These costs are amortised over the useful       The DAC represents the group’s contractual right to benefit
life of the asset.                                                 from providing multi-manager investment services and is
                                                                   amortised on a straight-line basis over the period in which
Costs that are directly associated with the production of          the group expects to recognise the related revenue, not
identifiable and unique software products, which will be           exceeding five years. The costs of securing the right to
controlled by the group and generate economic benefits             provide these services do not include transaction costs
exceeding costs beyond one year, are recognised as                 relating to the origination of the investment contract.
intangible assets.
                                                                   The accounting policy in respect of DAC relating to insurance
The directly associated costs include employee costs               contracts is described in the relevant accounting policy on
and an appropriate portion of relevant overheads of the            insurance contracts.
system development team. All other costs associated with
developing or maintaining computer software programmes             (d) Trademarks and licences
are recognised in profit or loss as incurred.                      No value is attributed to internally developed trademarks,
                                                                   patents and similar rights. Costs incurred on these items are



                                                                                                                                      19
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     accounting policies             continued
     for the year ended 31 March 2010


     InTanGIbLE assETs continued                                         When a discounted cash flow analysis is used to determine
     (d) Trademarks and licences	(continued)                             the value of financial assets, estimated future cash flows are
     recognised in profit and loss as incurred. Expenditure on the       based on management’s best estimates and the discount
     development and marketing of the group’s brands is also             rate is a market-related rate, at the reporting date, for a
     recognised in profit and loss as incurred.                          financial asset with similar terms and conditions. Where
                                                                         option pricing models are used, inputs based on observable
     fInancIaL assETs                                                    market indicators at the reporting date, and profits or losses
     The group classifies its financial assets into the following        are only recognised to the extent that they relate to changes
     categories:                                                         in factors that market participants will consider in setting a
     •	 	 nancial assets at fair value through profit or loss;
        fi                                                               price.
     •	 	oans and receivables;
        l
     •	 	 eld-to-maturity financial assets; and
        h                                                                (a) financial assets at fair value through profit or loss

     •	 	 vailable-for-sale financial assets.
        a                                                                This category has two subcategories: financial assets held
                                                                         for trading and those designated at fair value through profit
                                                                         or loss at inception.
     The classification depends on the purpose for which the
     financial assets were acquired.
                                                                         A financial asset is classified as held for trading if acquired
                                                                         principally for the purpose of selling in the short term, or if
     All financial assets are initially recognised at fair value plus,
                                                                         it forms part of a portfolio of financial assets in which there
     in the case of financial assets not at fair value through profit
                                                                         is evidence of short-term profit-taking. Derivatives are also
     or loss, any directly attributable transaction costs. The best
                                                                         classified as held for trading, unless they are designated as
     evidence of fair value on initial recognition is the transaction
                                                                         hedges at inception. All classes of financial assets classified
     price, unless the fair value is evidenced by comparison
                                                                         on the balance sheet as “Financial assets held under multi-
     with other observable current market transactions in the
                                                                         manager investment contracts” are classified as held for
     same instrument or based on discounted cash flow models
                                                                         trading.
     and option pricing valuation techniques of which variables
     include only data from observable markets.                          A financial asset is designated as fair value through profit
                                                                         or loss if the group manages such investments and makes
     The purchases and sales of financial assets that require            purchase and sale decisions based on their fair value in
     delivery are recognised on trade date, being the date on            accordance with the group’s documented risk management
     which the group commits to purchase or sell the asset.              or investment strategy. Under these criteria, the main classes
     Financial assets are derecognised when the rights to receive        of financial assets designated by the group are preference
     cash flows from the investments have expired or where they          shares, unit trust and debt securities. All classes of financial
     have been transferred and the group has also transferred            assets classified on the balance sheet as “Assets of cell
     substantially all risks and rewards of ownership.                   captive insurance facilities” are designated at fair value
                                                                         through profit or loss. Financial assets at fair value through
     Subsequent to initial recognition, the fair values of financial     profit or loss are measured at fair value, and changes therein

     assets are based on quoted bid prices, excluding transaction        are recognised in profit or loss.

     costs. If the market for a financial asset is not active or
     an instrument is an unlisted instrument, the fair value is          (b) Loans and receivables
                                                                         Loans and receivables are non-derivative financial assets
     estimated using valuation techniques. These include the
                                                                         with fixed or determinable payments that are not quoted in
     use of recent arm’s-length transactions, reference to other
                                                                         an active market and include purchased loans. This category
     instruments that are substantially the same, discounted cash
                                                                         does not include those loans and receivables that the group
     flow analyses and option pricing models.
                                                                         intends to sell in the short term or that it has designated at fair




20
                                                                                   Alexander Forbes LI M ITE D 2010




value through profit or loss or available-for-sale. Origination   difference between amortised cost and fair value would be
transaction costs and origination fees are capitalised to the     accounted for in equity.
value of the loan.
                                                                  The only class of financial asset classified as held to maturity
Loans and receivables are carried at amortised cost using         is preference shares held for securitisation operations.
the effective interest method, less any impairment losses.
                                                                  Held-to-maturity financial assets are carried at amortised
Receivables arising from insurance contracts are also             cost using the effective interest method, less any impairment
classified into this category and are reviewed for impairment     losses.
as part of the impairment review of loans and receivables.
                                                                  (d) available-for-sale financial assets
Short-term trade receivables are carried at original invoice      Available-for-sale financial assets are those intended to
amount less an estimate made for impairment based on              be held for an indefinite period of time and may be sold
a review of all outstanding amounts at the end of each            in response to liquidity needs or changes in interest rate,
reporting period.                                                 exchange rates or equity prices. Financial assets that are
                                                                  designated in this category or not classified in any of the other
Long-term trade receivables are initially recognised at fair
                                                                  categories are classified as available-for-sale financial assets.
value and subsequently measured at amortised cost using
                                                                  The main classes of financial assets classified as available for
the effective interest method, less any impairment losses.
                                                                  sale are unlisted debt equity and property securities.

Impairment is recognised in profit or loss when there
                                                                  Subsequent to initial recognition, available-for-sale financial
is objective evidence that the group will not be able to
                                                                  assets are carried at fair value, and changes therein, other
collect all amounts due according to the original terms
                                                                  than impairment losses, and foreign currency differences on
of the receivables. Objective evidence that receivables
                                                                  available-for-sale monetary items, are recognised directly in
are impaired includes observable data that comes to the
                                                                  equity. When an investment is derecognised, the cumulative
attention of the company regarding the following events:
                                                                  gain or loss in equity is transferred to profit or loss.
•	 	
   significant financial difficulty of the debtor;
•	 	 breach of contract, such as default or delinquency in
   a
                                                                  Interest and dividend income received on available-for-sale
   payments; and/or
•	 	 becoming probable that the debtor will enter bankruptcy
   it                                                             financial assets are recognised in profit or loss.

   or other financial reorganisation.
                                                                  IMpaIrMEnT of assETs
Other receivables include work-in-progress in respect of          An asset is impaired if its carrying amount is greater than its
unbilled fee-based services, which is stated at net realisable    estimated recoverable amount.
value. Net realisable value is generally based on the unbilled
time incurred to date at the expected charge rates and is the     financial assets
undiscounted value of the receivable.                             A financial asset not carried at fair value through profit
                                                                  or loss is assessed at each reporting date to determine
(c) held-to-maturity financial assets                             whether there is objective evidence that it is impaired. A
Held-to-maturity financial assets are non-derivative financial    financial asset is impaired if objective evidence indicates
assets with fixed or determinable payments and fixed              that a loss event has occurred after the initial recognition
maturities that management has the positive intention and         of the asset, and that the loss event had a negative effect
ability to hold to maturity, other than those that meet the       on the estimated future cash flows of that asset that can be
definition of loans and receivables. If the group were to         estimated reliably.
sell more than an insignificant amount of held-to-maturity
financial assets in a period, the entire category would
be tainted and reclassified as available-for-sale and the


                                                                                                                                      21
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     accounting policies             continued
     for the year ended 31 March 2010


     IMpaIrMEnT of assETs continued                                     loss, measured as the difference between the acquisition
     financial assets	(continued)                                       cost and current fair value, less any impairment loss on

     Objective evidence that financial assets (including equity         the financial asset previously recognised in profit or loss, is

     securities) are impaired can include default or delinquency        removed from equity and recognised in profit or loss.

     by a debtor, restructuring of an amount due to the group
                                                                        If, in a subsequent period, the fair value of a debt instrument
     on terms that the group would not consider otherwise, or
                                                                        classified as available for sale increases and the increase
     disappearance of an active market for a security.
                                                                        can be objectively related to an event occurring after
                                                                        the impairment loss was recognised in profit or loss, the
     (a) financial assets carried at amortised cost
                                                                        impairment loss is reversed through profit or loss.
     The group assesses whether there is objective evidence
     that a financial asset is impaired at each reporting date.
                                                                        Available-for-sale financial assets are regularly assessed
     A financial asset is impaired, and impairment losses are
                                                                        for impairment. As part of this assessment, consideration
     recognised in profit or loss only if there is objective evidence
                                                                        is given to whether or not there has been a significant or
     of impairment as a result of one or more events that have
                                                                        prolonged decline in the fair value of the instrument below
     occurred after the initial recognition of the asset and that       its cost. Impairment of available-for-sale financial assets is
     event has an impact on the estimated future cash flows of          taken directly to equity. This impairment is transferred to
     the financial asset that can be reliably estimated.                profit and loss where there is objective evidence that the
                                                                        asset has suffered a significant or prolonged decrease in
     If there is objective evidence that an impairment loss has         value. Factors considered in determining this include:
     been incurred on loans and receivables or held to-maturity         •   the length of time the asset’s cost has been in excess of
     investments carried at amortised cost, the amount of the               fair value; and
     loss is measured as the difference between the assets’             •   the extent to which fair value has been reduced below
     carrying amount and the present value of estimated future              cost.
     cash flows discounted at the original effective interest rate
     of the financial asset. The carrying amount of the asset is        non-financial assets
     reduced and the amount of the loss is recognised in profit or
     loss. If a held-to-maturity investment or a loan has a variable    (a) Goodwill

     interest rate, the discount rate for measuring any impairment      Goodwill is assessed annually for impairment. For purposes

     loss is the current effective interest rate determined under       of impairment testing, goodwill is allocated to cash-
                                                                        generating units, being the lowest component of the business
     contract. As a practical expedient, the group may measure
                                                                        measured in the management accounts which is expected
     impairment on the basis of an instrument’s fair value using
                                                                        to generate cash flows that are largely independent of any
     an observable market price.
                                                                        other business component. Each of those cash-generating
                                                                        units represents a grouping of assets no higher than a
     If, in a subsequent period, the amount of the impairment
                                                                        reportable as used for segmental reporting purposes in the
     loss decreases and the decrease can be related objectively
                                                                        group financial statements. Impairment losses relating to
     to an event occurring after the impairment was recognised,
                                                                        goodwill are not reversed.
     such as improved credit rating, the previously recognised
     impairment loss is reversed and is recognised in profit or
                                                                        (b) Impairment of other non-financial assets
     loss.
                                                                        Assets that have an indefinite useful life are not subject to
                                                                        amortisation and are tested annually for impairment at each
     (b) financial assets carried at fair value
                                                                        reporting date. Assets that are subject to amortisation are
     The group assesses whether there is objective evidence
                                                                        reviewed for impairment whenever events or changes in
     that a financial asset carried at fair value is impaired at each
                                                                        circumstances indicate that the carrying amount may not be
     reporting date. If any objective evidence of impairment
                                                                        recoverable.
     exists for available-for-sale financial assets, the cumulative



22
                                                                                    Alexander Forbes LI M ITE D 2010




An impairment loss is recognised for the amount by which
the carrying amount of an asset exceeds its recoverable            (a) fair value hedge
amount. The recoverable amount is the higher of the fair           Changes in the fair value of derivatives that are designated
value of the asset less costs to sell and value in use. Value      and qualify as fair value hedges are recorded in profit or
in use is the present value of projected cash flows covering       loss, together with any changes in the fair value of the
the remaining useful life of the asset. For the purposes of        hedged asset or liability that are attributable to the hedged
assessing impairment, assets are grouped at the lowest             risk.
levels for which there are separately identifiable cash flows.
                                                                   (b) cash flow hedge
DErIvaTIvE fInancIaL InsTruMEnTs anD                               The effective portion of changes in the fair value of
hEDGInG                                                            derivatives that are designated and qualify as cash flow
Derivative financial instruments and hedging                       hedges is recognised in the cash flow hedge reserve in
Derivatives are initially recognised at fair value at the date     equity. The gain or loss relating to any ineffective portion
on which a derivative contract is entered into and are
                                                                   is recognised immediately in profit or loss. Amounts
subsequently remeasured to fair value at each reporting
                                                                   accumulated in equity are recycled to profit or loss in the
date. Any attributable transaction costs are recognised in
                                                                   periods in which the hedged item affects profit or loss.
profit or loss as incurred. The fair value of publicly traded
                                                                   However, when the hedged forecast transaction results in
derivatives are based on quoted bid prices for assets held
                                                                   the recognition of a non-financial asset or a liability, the gains
or liabilities to be issued and the current offer prices for
                                                                   and losses previously deferred in equity are transferred from
assets to be acquired and liabilities held. The fair value of
                                                                   equity and included in the initial measurement of the cost of
non-traded derivatives is based on discounted cash flow
                                                                   that asset or liability.
analyses and option pricing models as appropriate.

                                                                   When a hedging instrument expires or is sold, or when a
All derivative instruments of the group are carried as assets
                                                                   hedge no longer meets the criteria for hedge accounting,
when the fair value is positive and as liabilities when the fair
value is negative, subject to offsetting principles.               any cumulative gain or loss existing in equity at that time
                                                                   remains in equity and is recognised when the forecast

The method of recognising the resulting fair value gain or         transaction is ultimately recognised in profit or loss. However,

loss depends on whether the derivative is designated as a          when a forecast transaction is no longer expected to occur,
hedging instrument, and, if so, the nature of the item being       the cumulative gain or loss that was previously reported in
hedged. The group designates derivatives as hedges of              equity is immediately transferred to profit or loss.
the fair value of recognised assets or liabilities or of a firm
commitment (fair value hedge), hedges of highly probable           (c) Derivatives that do not qualify for hedge accounting
forecast transactions (cash flow hedges), and hedges of net        Certain derivative instruments do not qualify for hedge
investments in foreign entities.                                   accounting. Changes in the fair value of all such derivative
                                                                   instruments are recognised immediately in profit or loss.
At the inception of the transaction the group documents
the relationship between hedging instruments and hedged            cash anD cash EquIvaLEnTs
items, as well as its risk management objectives and strategy      Cash and cash equivalents include the following:
for undertaking various hedge transactions. The group also         •	 	 ash on hand;
                                                                      c
documents its assessment, both at hedge inception and              •	 	 eposits held on call with banks;
                                                                      d
on an ongoing basis, of whether the derivatives that are
                                                                   •	 	 ther short-term highly liquid investments with original
                                                                      o
used in hedging transactions are expected to be, and have
                                                                      maturities of three months or less;
been, highly effective in offsetting changes in fair values or
                                                                   •	 	 emand deposits; and
                                                                      d
cash flows of hedged items. The fair values of derivative
                                                                   •	 	 ank overdrafts offset against cash balances in terms of
                                                                      b
instruments used for hedging purposes are disclosed in the
                                                                      cash management arrangements.
notes to the financial statements.


                                                                                                                                        23
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     accounting policies             continued
     for the year ended 31 March 2010


     cash anD cash EquIvaLEnTs continued                                 is the risk of a possible future change in one or more of a
 Cash and cash equivalents backing financial liabilities held            specified interest rate, financial instrument price, commodity

 under multi-manager investment contracts and liabilities                price, foreign exchange rate, index of prices or rates, credit
                                                                         rating or credit index or other variable. Amounts received
 of cell captive insurance facilities are not included in the
                                                                         under investment contracts are recorded as deposits
 definition of cash and cash equivalents. Cash and cash
                                                                         under investment contract liabilities. Amounts paid under
 equivalents are carried at amortised cost in the statement
                                                                         investment contracts are recorded as deductions from
 of financial position.
                                                                         investment contract liabilities.

     EquITy
                                                                         InsurancE conTracTs
     (a) share capital
                                                                         Insurance contracts are classified into two main categories,
     Ordinary shares are classified as equity. Incremental costs
                                                                         depending on the duration of risk and whether or not the
     directly attributable to the issue of ordinary shares and share
     options are recognised as a deduction from equity, net of           terms and conditions are fixed.

     any tax effects. Incremental costs directly attributable to the
     issue of ordinary shares and share options as consideration         (a) short-term insurance contracts
     for the acquisition of a business are included in the cost of       These contracts are casualty, property and short-duration life
     acquisition.                                                        insurance contracts. For all these contracts, premiums are
                                                                         recognised as revenue (earned premiums) in profit or loss
     (b) Dividend distributions                                          proportionally over the period of coverage. Premiums are
     Dividend distributions on ordinary shares are recognised as         shown gross of commission and reinsurance and exclude
     a reduction in equity in the period in which they are approved      any taxes or duties levied on premiums. Claims and related
     by the company’s shareholders. Distributions declared after         claims adjustment expenses are charged to profit or loss as
     the reporting date are not recognised but are disclosed in          incurred based on the estimated liability for compensation
     the financial statements.                                           owed to contract holders or third parties damaged by the
                                                                         contract holders.
     (c) non-controlling shareholders
     The group applies a policy of treating transactions with non-       (b) short-term insurance liabilities
     controlling shareholders as transactions with parties external      The following are classified as short-term insurance
     to the group. Disposals to non-controlling shareholders may
                                                                         liabilities:
     result in gains or losses for the group that are recorded in
     profit or loss. Acquisition of interests from non-controlling
                                                                         Unearned	premiums
     shareholders results in goodwill, being the difference
                                                                         Short-term insurance premiums are recognised in profit or
     between any considerations paid and the relevant share
                                                                         loss proportionately over the period of cover. The portion
     acquired of the carrying value of net assets of the subsidiary.
                                                                         of premium received on in-force contracts that relates
                                                                         to unexpired risks at the reporting date is reported as an
     cLassIfIcaTIon of InsurancE anD
                                                                         unearned premium liability, which is included in insurance-
     InvEsTMEnT conTracTs
                                                                         related payables from underwriting activities.
     The group issues contracts that transfer insurance risk or
     financial risk or both. Insurance contracts are those contracts
     that transfer significant insurance risk. Such contracts may        Outstanding	claims

     also transfer financial risk. As a general guideline, the           Liabilities for unpaid claims are estimated using the input of

     group defines a significant insurance risk as the possibility       assessments for individual cases reported to the group and
     of having to pay benefits, on the occurrence of an insured          statistical analyses of the claims incurred but not reported.
     event, that are at least 10% more than the benefits payable         Outstanding claims liabilities are recognised as liabilities and
     if the insured event did not occur.                                 included in insurance-related payables from underwriting
                                                                         activities. The expense is recognised in profit or loss as
     Investment contracts are those contracts that transfer              a result of the liability being raised. The group does not
     financial risk with no significant insurance risk. Financial risk   discount its liabilities for unpaid claims.



24
                                                                                     Alexander Forbes LI M ITE D 2010




(c) Long-term insurance contracts                                 Discretionary margins unwind as these risks are met over the
These contracts insure events associated with human life          term of each policy. Where insurance contracts have a single
over a long duration. Premiums are recognised as revenue          premium or a limited number of premium payments due over
in profit or loss when they become payable by the contract        a significantly shorter period than the period during which
holder. Premiums are shown gross of commission and                benefits are provided, the excess of the premiums payable
exclude any taxes or duties levied on premiums. Benefits          over the valuation premiums is deferred and recognised as
payable to beneficiaries are recorded as an expense in profit     income in line with the decrease of unexpired insurance risk
or loss when they are paid.                                       of the contracts in force or, for annuities in force, in line with
                                                                  the decrease of the amount of future benefits expected to
(d) Long-term insurance liabilities                               be paid.
In terms of IFRS 4 Insurance	Contracts, insurance liabilities
are permitted to be measured under existing local practice.       The long-term insurance liabilities are recalculated at each
The Long-Term Insurance Act of 1998, as amended in South          reporting date by independent actuaries.
Africa, requires long-term insurance liabilities to be valued
in terms of the financial soundness valuation (FSV) basis as      (e) receivables and payables related to insurance
described in Professional Guidance Note 104 (“PGN 104”)           contracts
issued by the Actuarial Society of South Africa. The result of    Receivables and payables are recognised when due. These
the valuation methodology and assumptions is that profits         include amounts due to and from agents, brokers and
are released appropriately over the term of the policy to         insurance contract holders. If there is objective evidence that
avoid the premature recognition of profits that may give rise     the insurance receivable is impaired, the group reduces the
to losses in future years.
                                                                  carrying amount of the insurance receivable accordingly and
                                                                  recognises the impairment loss in profit or loss. The group
The liability is valued using a discounted cash flow approach.
                                                                  gathers evidence that an insurance receivable is impaired
This approach takes the sum of future expected benefit
                                                                  using the same process adopted for loans and receivables.
payments and administration expenses that are directly
related to the contract, deducts the expected premiums that
                                                                  (f) contingency reserve
would be required to meet the benefits and administration
                                                                  A contingency reserve is provided in accordance with the
expenses based on the valuation assumptions used and then
                                                                  Short-Term Insurance Act of 1998 in South Africa and is
discounts these resultant cash flows at market-related rates
                                                                  determined at a minimum of 10% of net written premium
of interest. The liability is based on assumptions of the best
                                                                  from short-term insurance contracts.
estimates of future experience as to mortality, persistency,
maintenance expenses and investment income.
                                                                  (g) Embedded derivatives

Compulsory margins for adverse deviations (first-tier             The group does not separately measure embedded

margins) increase the liability as required in terms of PGN       derivatives in an insurance contract if the embedded

104. Such margins are intended to provide a minimum               derivative itself qualifies for recognition as an insurance
level of prudence in the liabilities and to ensure that profits   contract. Such an embedded derivative is measured as
are not recognised prematurely. In addition, discretionary        an insurance contract. All other embedded derivatives are
margins (second-tier margins) may be added to the liability       separated and carried at fair value if they are not closely
to ensure that profit and risk margins in the premiums are        related to the host insurance contract and meet the definition
not capitalised prematurely and that profits are recognised       of a derivative.
in line with the risk profile inherent in the contracts and
services provided.




                                                                                                                                       25
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     accounting policies             continued
     for the year ended 31 March 2010


     InsurancE conTracTs continued                                   (k) reinsurance contracts held
 (h) Deferred policy acquisition costs (“Dpac”)                      Contracts entered into by the group with reinsurers, under
 Commissions and other acquisition costs arising from                which the group is compensated for losses on one or more
 property and casualty short-term insurance contracts that           contracts issued by the group and that meet the classification
 vary with, and are related to, securing new contracts and           requirements for insurance contracts, are classified as
 renewing existing contracts are capitalised. All other costs        reinsurance contracts held. Contracts that do not meet
 are recognised in profit or loss when incurred. The DPAC is         these classification requirements are classified as financial
 subsequently amortised and recognised in profit or loss over        assets. The benefits to which the group is entitled under
 the life of the policies as premiums are earned.                    its reinsurance contracts are recognised as reinsurance
                                                                     assets and are included in insurance-related receivables
 For long-term insurance contracts, commissions and other            from underwriting activities. These assets consist of short-
 acquisition costs are recognised in profit or loss when             term balances due from reinsurers, as well as longer-term
 incurred. The portion of the premium which recoups these            receivables that are dependent on the expected claims
 costs is included in the valuation of long-term insurance           and benefits arising under the related reinsured insurance
 contract liabilities. The commission and other acquisition          contracts. Amounts recoverable from, or due to, reinsurers
 costs are therefore implicitly deferred over the period of the      are measured consistently with the amounts associated with
 contract in the calculation of the liabilities under long-term      the reinsured insurance contracts and in accordance with
 insurance contracts.                                                the terms of each reinsurance contract.


 (i) value of business acquired                                      Reinsurance liabilities are primarily premiums payable for
 On acquisition of a portfolio of contracts, either directly from    reinsurance contracts and are recognised in profit or loss
 another insurer or through the acquisition of a subsidiary          when due. The group assesses its reinsurance assets for
 company, the group recognises an intangible asset                   impairment at each reporting date. If there is objective
 representing the value of business acquired (“VOBA”).               evidence that the reinsurance asset is impaired, the group
                                                                     reduces the carrying amount of the reinsurance asset to its
 The VOBA represents the present value of future profits             recoverable amount and recognises the impairment loss in
 embedded in acquired insurance contracts. The group                 profit or loss. The group gathers evidence that a reinsurance
 amortises the VOBA over the effective life of the acquired          asset is impaired using the same process adopted for
 contracts on the same basis as DPAC. This amortisation is           financial assets held at amortised cost.
 recognised in profit and loss.
                                                                     (l) salvage and subrogation reimbursements
 (j) Liability adequacy test                                         Some insurance contracts permit the group to sell property
 At each balance sheet date, for contracts measured on a             acquired in settling a claim (i.e. salvage). Estimates of
 retrospective basis, liability adequacy tests for insurance         salvage recoveries are included as an allowance in the
 contracts are performed to ensure the adequacy of the               measurement of the insurance liability for claims. Salvage
 contract liabilities. In performing these tests, current best       property is recognised in assets when the liability is settled.
 estimates of future contractual cash flows and claims handling      The allowance is the amount that can reasonably be
 and administration expenses, as well as investment income           recovered from the disposal of the property.
 from the assets backing such liabilities, are used. For contracts
 measured on the financial soundness valuation basis, the            The group may also have the right to pursue third parties for
 financial soundness basis is a discounted cash flow method,         payment of some or all costs (i.e. subrogation). Subrogation
 which meets the requirements of a liability adequacy test. Any      reimbursements are also considered as an allowance in
 deficiency is immediately charged to profit or loss.                the measurement of the insurance liability for claims and
                                                                     are recognised in assets when the liability is settled. The
                                                                     allowance is based on an assessment of the amount that can
                                                                     be recovered from the action against the liable third party.

26
                                                                                       Alexander Forbes LI M ITE D 2010




InvEsTMEnT conTracTs                                                   transactions in the same instrument or based on
The group issues investment contracts without fixed terms              discounted cash flow models and option pricing valuation
(unit linked) and investment contracts with fixed and                  techniques whose variables include only data from
guaranteed terms (capital guarantees). Investment contracts            observable markets.
without fixed terms and investment contracts with fixed
and guaranteed terms are financial liabilities whose fair              (a) financial liabilities at fair value through profit or loss
value is dependent on the fair value of underlying financial           This category has two subcategories:
assets, derivatives or investment property (unit linked) and           •	 	 nancial liabilities held for trading; and
                                                                          fi
are designated at inception as financial assets at fair value          •	 	hose designated at fair value through profit or loss at
                                                                          t
through profit or loss.                                                   inception.


Valuation techniques are used to establish the fair value              A financial liability is classified as held for trading if the
at inception and at each reporting date. The group’s main              linked financial asset associated with this liability is acquired
valuation techniques incorporate all factors that market               principally for the purpose of selling in the short term or if it
participants would consider and are based on observable                forms part of a portfolio of financial assets in which there is
market data. The fair value of a unit-linked financial liability is    evidence of short-term profit-taking. Derivative liabilities are
determined using the current unit values that reflect the fair         also classified as held for trading, unless they are designated
values of the financial assets contained within the group’s            as hedges at inception.
unitised investment funds linked to the financial liability,
multiplied by the number of units attributed to the contract           All classes of financial liabilities classified on the statement
holder at the reporting date. If the investment contract is            of financial position as “Financial liabilities held under multi-
subject to a put or surrender option, the fair value of the            manager investment contracts” are classified as held for
financial liability is never less than the amount payable on           trading.
surrender, discounted for the required notice period, where
applicable.                                                            A financial liability is designated as fair value through
                                                                       profit and loss if the group manages such investments
fInancIaL LIabILITIEs                                                  and makes purchase and sale decisions based on their
The group classifies its financial liabilities into the following      fair value in accordance with the group’s documented risk
categories:                                                            management or investment strategy. All classes of financial
•	 	 nancial liabilities at fair value through profit or loss; and
   fi                                                                  liabilities classified on the statement of financial position as

•	 	 nancial liabilities at amortised cost.
   fi                                                                  “Liabilities of cell captive insurance facilities” are designated
                                                                       as fair value through profit or loss. Financial liabilities at fair

The classification depends on the purpose for which the                value through profit or loss are measured at fair value, with

financial liabilities were acquired. Management determines             subsequent changes in fair value recognised in profit or loss.

the classification of financial liabilities at initial recognition.
                                                                       (b) financial liabilities at amortised cost

Financial liabilities are recognised when the group becomes            Financial liabilities at amortised cost are non-derivative

a party to the contractual provisions of the instrument.               financial liabilities with fixed or determinable payments and

Financial liabilities are initially recognised at fair value, net of   fixed maturities.

transaction costs incurred in the case of financial liabilities
not at fair value through profit or loss.                              Financial liabilities classified as financial liabilities at
                                                                       amortised cost comprise securitisation funding for housing

The best evidence of fair value on initial recognition is              loans, borrowings, deferred consideration for acquisitions

the transaction price, unless the fair value is evidenced              and trade and other payables.

by comparison with other observable current market



                                                                                                                                             27
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     accounting policies             continued
     for the year ended 31 March 2010


     fInancIaL LIabILITIEs continued                                       Deferred tax relating to fair value remeasurements of
 (b) financial liabilities at amortised cost (continued)                   available-for-sale assets and cash flow hedges, which are
 Subsequent to initial recognition, these financial liabilities            taken directly to equity, is also taken directly to equity and is
 are measured at amortised cost and any difference between                 subsequently recognised in profit or loss together with the
 the proceeds, net of transaction costs, and the redemption                deferred gain or loss.
 value is recognised in profit or loss over the period of the
 borrowings, using the effective interest method.                          EMpLoyEE bEnEfITs
                                                                           (a) pension obligations
     DEfErrED TaxaTIon                                                     Group companies operate various pension schemes. The
     Deferred tax is recognised using the balance sheet method,            schemes are generally funded through trustee-administered
     providing for temporary differences between the carrying              funds, determined by periodic actuarial calculations. The
     amounts of assets and liabilities for financial reporting             group has both defined benefit and defined contribution
     purposes and the amounts used for taxation purposes.                  plans. The pension plans are funded by payment from the
     Deferred tax is not recognised for the following temporary            relevant group companies or by employees.
     differences: the initial recognition of assets and liabilities in
     a transaction that is not a business combination and that             A defined contribution plan is a post-employment benefit
     affects neither accounting nor taxable profit or loss, and            plan under which the group or employees pay fixed
     differences relating to investments in subsidiaries and jointly       contributions into a separate entity. The group has no legal
     controlled entities to the extent that it is probable that they       or constructive obligations to pay further contributions if the
     will not reverse in the foreseeable future.                           fund does not hold sufficient assets to pay all employees
                                                                           the benefits relating to current or prior employee service.
     In addition, deferred tax is not recognised for taxable               The group pays contributions to the plan on a mandatory,
     temporary differences arising on the initial recognition of           contractual or voluntary basis. The group has no further
     goodwill. Deferred tax is measured at the tax rates that              payment obligation once the contributions have been paid.
     are expected to be applied to temporary differences when              Obligations for contributions to defined contribution pension
     they reverse, based on the laws that have been enacted or             plans are recognised as an employee benefit expense in
     substantively enacted by the reporting date.                          profit or loss when they are due. Prepaid contributions are
                                                                           recognised as an asset to the extent that a cash refund or a
     Deferred tax assets and liabilities are offset if there is a          reduction in future payments is available.
     legally enforceable right to offset current tax assets and
     liabilities, and they relate to income taxes levied by the            A defined benefit plan is a post-employment benefit plan that
     same tax authority on the same taxable entity, or on different        defines an amount of pension benefit that an employee will
     tax entities, but they intend to settle current tax assets and        receive on retirement, usually dependent on one or more
     liabilities on a net basis or their tax assets and liabilities will   factors such as age, years of service and compensation.
     be settled simultaneously.
                                                                           The liability (or asset) recognised in the balance sheet is the
     A deferred tax asset is recognised to the extent that it is           present value of the defined benefit obligation at reporting
     probable that future taxable profits will be available against        date less the fair value of plan assets and unrecognised past
     which the temporary differences can be utilised. Deferred             service costs. If the plan assets exceed the plan obligation,
     tax assets are reviewed at each reporting date and are                the group does not recognise the asset in the balance sheet,
     reduced to the extent that it is no longer probable that the          which is in line with IAS 19 Employee	Benefits.
     related tax benefit will be realised.
                                                                           The present value of the defined benefit obligation is
                                                                           determined by discounting the estimated future cash
                                                                           outflows. The discount rate is the yield at the reporting



28
                                                                                     Alexander Forbes LI M ITE D 2010




date on high-quality corporate bonds that are denominated          The post-retirement medical obligation has been partly
in the currency in which the benefits will be paid and that        funded through an insurance arrangement with a subsidiary
have terms to maturity that approximate the terms of the           company of the group.
group’s obligation. The calculation is performed annually by
qualified actuaries using the projected unit credit method.        (c) Leave pay provision
The group’s current service costs of the defined benefit           Short-term employee benefit obligations are measured on
plans are recognised in profit or loss in the current year.        an undiscounted basis and are recognised in profit or loss
Past service costs and actuarial gains and losses arising          as the related service is provided. A liability is recognised
from experience adjustments are recognised in profit or loss       for the amount that is expected to be paid in the form of
in the current year to the extent that they relate to retired      annual leave entitlements if the group has a present legal or
employees or past service. For active employees, actuarial         constructive obligation to pay this amount as a result of past
gains and losses arising from experience adjustments and           services provided by the employee and the obligation can
changes in actuarial assumptions, which exceed the greater         be estimated reliably.
of 10% of the fair value of plan assets or 10% of the defined
benefit obligation (the corridor limit), both measured at the      (d) Termination benefits
beginning of the financial year, are recognised on a straight-     Termination benefits are payable when employment is
line basis over the remaining working lives of participating       terminated before the normal retirement date or whenever
employees. Actuarial gains and losses below the corridor           an employee accepts voluntary redundancy in exchange for
limit are not recognised in the current year and are deferred      these benefits.
to future periods.
                                                                   The group recognises termination benefits in profit or
When the calculation results in a benefit for the group,           loss when it is demonstrably committed, without realistic
ie, plan assets exceed the defined benefit obligation, the         possibility of withdrawal, to a detailed formal plan to either
recognised asset is limited to the total of unrecognised past      terminate employment before the normal retirement date, or
service costs and the present value of economic benefits           to provide termination benefits as a result of an offer made
available in the form of any future refunds from the plan or       to encourage voluntary redundancy. Termination benefits
reductions in future contributions to the plan. An economic        for voluntary redundancies are recognised as an expense
benefit is available to the group if it is realisable during the   if the group has made an offer of voluntary redundancy, it is
life of the plan, or on settlement of the plan liabilities.        probable that the offer will be accepted, and the number of
                                                                   acceptances can be estimated reliably.
(b) post-retirement medical obligations
In terms of certain employment contracts, the group                provIsIons
provides post-retirement medical benefits to qualifying            Provisions are recognised when the group has a present
employees and retired personnel by subsidising a portion of        legal or constructive obligation, as a result of past events,
their medical aid contributions.                                   for which it is more likely than not that an outflow of
                                                                   resources will be required to settle the obligation. Provisions
The entitlement to these benefits is based upon employment         are determined by discounting the expected future cash
prior to a certain date and is conditional on employees            flows at a pre-tax discount rate that reflects the current
remaining in service up to retirement age. New employees           market assessment of the time value of money and, where
are not entitled to this benefit. The expected costs of these      appropriate, the risks specific to the liability.
benefits are accrued over the period of employment, using
an accounting methodology similar to that for defined              A provision for onerous contracts is recognised when
benefit pension plans.                                             the expected benefits to be derived by the group from a
                                                                   contract are lower than the unavoidable costs of meeting
                                                                   the obligations under the contract. The provision is



                                                                                                                                   29
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     accounting policies             continued
     for the year ended 31 March 2010


     provIsIons continued                                             periodic rate of interest on the remaining balance of the
 measured at the present value of the lower of the expected           liability. Finance costs are charged to profit or loss over the
 cost of terminating the contract and the expected net                lease period.
 cost of continuing with the contract. Before a provision is
 established, the group recognises any impairment loss on             (b) operating leases
 the assets associated with that contract.                            Other leases are operating leases and the leased assets
                                                                      are not recognised on the group’s balance sheet. Payments
 A provision for restructuring is recognised when the group           made under operating leases, net of any incentives received
 has approved a detailed and formal restructuring plan,               from the lessor, are charged to profit or loss on a straight-
 and the restructuring either has commenced or has been               line basis over the period of the lease. Lease incentives
 announced publicly. Future operating costs are not provided          received are recognised as an integral part of the total lease
 for. Where there are a number of similar obligations, the            expense over the term of the lease. When an operating
 likelihood that an outflow will be required in settlement is         lease is terminated before the lease period has expired,
 determined by considering the class of obligations as a              any payment required to be made to the lessor by way of a
 whole. A provision is recognised even if the likelihood of an        penalty is recognised as an expense in the period in which
 outflow, with respect to any one item included in the same           termination takes place.
 class of obligations, may be small.
                                                                      conTInGEncIEs anD coMMITMEnTs
 Where the group expects a provision to be reimbursed, for            Transactions are classified as contingencies when the group’s
 example under an insurance contract, the reimbursement               obligations depend on uncertain future events not within the
 is recognised as a separate asset, but only when the                 group’s control. Items are classified as commitments when
 reimbursement is virtually certain.                                  the group commits itself to future transactions with external
                                                                      parties.
 Provisions are reviewed at the end of each financial year and
 are adjusted to reflect current best estimates.                      offsETTInG
                                                                      Financial assets and liabilities are offset and the net amount
     LEasEs                                                           reported on the balance sheet, only when there is a legally
     (a) finance leases                                               enforceable right to offset the assets and liabilities and there
     Assets acquired under lease agreements that transfer             is an intention to settle on a net basis or to realise the asset
     substantially all the risks and rewards of ownership to the      and settle the liability simultaneously.
     group are accounted for as finance leases. The asset is
     capitalised at the lower of the fair value of the asset or the   IncoME froM opEraTIons
     present value of the minimum lease payments upon initial         Income from operations, which excludes value added tax,
     recognition, with an equivalent amount being stated as a         comprises:
     finance lease liability. The capitalised asset is depreciated    •	 	 ommission
                                                                         c                 and   fees   in   respect   of   brokerage,
     over the shorter of the useful life of the asset or the lease       administration, management and consultancy services;
     term. Lease payments are apportioned between finance             •	 	 et underwriting profit from the risk-taking activities of
                                                                         n
     costs and capital repayments using the effective interest           insurance operations; and
     method.                                                          •	 	 et interest income from financing operations.
                                                                         n


     Minimum lease payments made under finance leases are             Income recognition – general operations
     apportioned between the finance cost and the reduction of        (a)	 Risk	Services
     the outstanding liability. Finance costs are allocated to each   •	 	nsurance	 broking	 commission	 and	 fee	 income –
                                                                         I
     period during the lease term so as to produce a constant            comprises commission income and negotiated fees
                                                                         earned in respect of the placement of insurance and



30
                                                                                 Alexander Forbes LI M ITE D 2010




   servicing of clients under insurance programmes.              (b)	 Financial	Services
   Income is recorded on the effective commencement              •	  onsulting	 fees – comprise fees earned in respect
                                                                    C
   or renewal dates of the related insurance programme.             of actuarial and other advisory services. Income is
   When further servicing is required to be rendered to the         recognised based on the stage of completion as the
   client, a portion of the income is deferred. The amount          related services are rendered. The stage of completion is
   deferred is that which will cover the expected future            determined with reference to the services performed to
   servicing costs, together with a reasonable profit thereon,      date as a percentage of total services to be performed.
   and is recognised as a liability. The deferred income is      •	 	 dministration	 fees – comprise fees earned for the
                                                                    A
   recognised in profit or loss over the servicing period           administration of retirement funds. Income is recognised
   on a consistent basis reflecting the pattern of servicing        as services are provided.
   activities.                                                   •	 	 ommission	 income – comprises commissions earned
                                                                    C
•	 	 onsulting	fees – comprise negotiated fees for advisory
   C                                                                in respect of insurance and investment products.
   services. Income is recognised based on the stage of             Commission income is recognised on the effective
   completion as the related services are rendered. The             commencement or renewal date of the insurance or
   stage of completion is determined with reference to              investment policy. A portion of the income is deferred
   the services performed to date as a percentage of total          when further servicing is required to be rendered. The
   services to be performed.                                        amount deferred is that which will cover the expected
•	 	 laims	facilitation	fees – comprise fees earned in respect
   C                                                                future servicing costs, together with a reasonable profit
   of the preparation, submission and collection of insurance       thereon, and is recognised as a liability. Deferred income
   claims. Income is recognised based on the stage of               is recognised in profit or loss evenly over the period
   completion determined with reference to the proportion           of the policy. Where commission income is earned on
   that costs incurred to date bear to the estimated total          an indemnity basis, provision is made for the potential
   costs. Only costs that reflect services performed or to be       repayment of commissions.
   performed are included in the estimated costs.                •	 	 ealthcare	commission	income	– comprises commissions
                                                                    H
•	 	 nderwriting	agency	income – comprises commissions,
   U                                                                earned in respect of healthcare products. Commission
   fee income and profit shares earned from insurance               income is recognised on the effective commencement
   binders       and   underwriting   agency     agreements.        or renewal date of the healthcare product.
   Commission and fee income is recorded on the effective        •	 	 und	annuity	purchase	fees – comprise fees earned on
                                                                    F
   commencement or renewal dates of the related                     fund annuity purchases. Income is recognised based on
   insurance policy. When further servicing is required to          the stage of completion determined by reference to the
   be rendered, a portion of the income is deferred. The            value of the assets transferred.
   amount deferred is that which will cover the expected
   future servicing costs, together with a reasonable profit     (c)	 Multi-manager	investment	(Investment	Solutions)
   thereon, and is recognised as a liability. The deferred       •	  ulti-manager	investment	fees – comprise fees earned
                                                                    M
   income is recognised in profit or loss over the servicing        for   multi-manager    investment   and   administration.
   period on a consistent basis reflecting the pattern of           Initial administration fees are brought to account upon
   servicing activities. Income which is dependent on               inception of the investment contract and are recognised
   underwriting performance is recognised when it can be            on a straight-line basis over the expected period of
   measured reliably.                                               the contract. Ongoing multi-manager investment and
•	 	 perational	 interest	 income – comprises interest
   O                                                                administration fees are calculated on a daily basis as a
   income earned from insurance broking operations and              percentage of assets under management. These fees are
   is recognised on a time proportionate basis using the            recognised as services are provided.
   effective interest method.                                    •	 	 tructured	 product	 fees – comprise fees earned on the
                                                                    S
                                                                    structuring and administration of portfolios of financial
                                                                    instruments designed to hedge specific financial risks.



                                                                                                                                31
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     accounting policies             continued
     for the year ended 31 March 2010


     IncoME froM opEraTIons continued                                      Deferred income is recognised in profit or loss evenly
 (c) Multi-manager	        investment	     (Investment	   Solutions)	      over the period of the policy.
 (continued)                                                            •	  rofit	commission – comprises negotiated profit shares
                                                                           P
        These fees are recognised in profit or loss evenly over            with reinsurers. Income is recognised on declaration by
        the expected period of the contract.                               reinsurers.
 •	 	 ransition	management	fees – comprise fees earned for
    T                                                                   •	 	nvestment	 management	 fees	 on	 cell	 captive	 insurance	
                                                                           I
        services provided in relation to the transfer of investment        facilities – income is calculated as a percentage of
        assets. Income is recognised based on the stage of                 investment income. These fees are recognised as
        completion determined with reference to the value of the           services are provided.
        assets transferred.                                             •	 	 anagement	 fees	 on	 cell	 captive	 insurance	 facilities
                                                                           M
                                                                           – income is calculated as a percentage of premiums
 (d)	 Direct	Marketing                                                     received. Income is recognised on the effective
 •	 	 ommission	 income – comprises commissions earned
    C                                                                      commencement or renewal dates of the related
        on the direct marketing of insurance products. Income is           insurance programme. A portion of the management
        recognised on the effective commencement or renewal                fees is deferred to cover the expected future servicing
        date of the insurance policy. Where commission income              costs, together with a reasonable profit thereon, and
        is earned on an indemnity basis, provision is made for the         is recognised as a liability. The deferred income is
        potential repayment of commissions.                                recognised over the servicing period on a consistent
 •	 	 nderwriting	 agency	 income – comprises commission
    U                                                                      basis reflecting the pattern of servicing activities.
        and fee income earned from the direct marketing and
        administration of insurance products under insurance            profit from operations before non-trading
        binder agreements. Income is recognised on the                  and capital items
        effective commencement or renewal dates of the related          The profit from operations before non-trading and capital
        insurance policy. Upfront direct marketing costs are            items is made up of trading activities of the group. The trading
        recognised in profit or loss immediately.                       activities are those revenues and expenses generated by
                                                                        the business operations of the group which are regularly
     Income recognition – financing operations                          reported to the board of directors when making resource
     Interest and other finance income received in the form of          allocation decisions and assessing operational performance.
     an interest margin are recognised in profit or loss on a time
     proportionate basis using the effective interest method. Any       Items of an exceptional nature which are not considered to
     directly related interest expense is recognised on the same        be fundamental to the resource allocation and performance
     basis.                                                             of business operations are thus disclosed separately as non-
                                                                        trading and capital items. The separate disclosure of these
     Income recognition – insurance operations                          items consequently achieves representative disclosure of
     •	 ncome	from	insurance	activities – refer to the accounting
        I                                                               activities normally regarded as operating in nature.
        policies on insurance contracts.
 •	 	 ommission	 income – comprises commissions earned
    C                                                                   Non-trading activities relate to items such as the group
        in respect of insurance referred to reinsurers. Income is       professional indemnity insurance cell, adjustments arising
        recognised on the effective commencement or renewal             due to business combinations, non-recurring items linked
        date of the insurance policy. A portion of the income           to corporate finance activities, items related to historical
        is deferred when further servicing is required to be            client settlement, impairment losses and recoveries and
        rendered. The amount deferred is that which will cover          capital gains or losses on sale of non-current assets. Items
        the expected future servicing costs, together with a            of a non-trading nature do not form part of management’s
        reasonable profit thereon, and is recognised as a liability.    consideration of the operational performance or allocation
                                                                        of resources of the group.



32
                                                                                    Alexander Forbes LI M ITE D 2010




Income recognition – investment income                              a liability. The STC liability is reduced by dividends received
Interest income is recognised on a time proportionate basis         during the dividend cycle. Where dividends declared exceed
using the effective interest method. Dividend income earned         the dividends received during a cycle, STC is payable at
on preference share investments held as money market                the current STC rate on the net amount. Where dividends
investments is also recognised on a time proportionate basis        received exceed dividends declared within a cycle, there
using the effective interest method. All other dividend income      is no liability to pay STC. The potential tax benefit related
is recognised when the right to receive payment is established,     to excess dividends received is carried forward to the next
which is the ex-dividend date for equity securities.                dividend cycle as an STC credit. Deferred tax assets are
                                                                    recognised on unutilised STC credits to the extent that it
fInancE cosTs                                                       is probable that the group will declare future dividends to
Finance costs comprise interest expense on borrowings and           utilise such STC credits.
unwinding of discount on liabilities. All borrowing costs are
recognised in profit or loss using the effective interest method.   sEGMEnTaL InforMaTIon
                                                                    An operating segment is a component of the group that
TaxaTIon                                                            engages in business activities from which it may earn
Income tax expense comprises current and deferred taxes,            revenues and incur expenses, including revenues and
capital gains tax, as well as secondary tax on companies            expenses that relate to transactions with any of the group’s
applicable in South Africa. Due to the nature of indirect taxes,    other components.
including non-recoverable value added tax, stamp duty,
skills development levies, these are included in operating          All operating segments’ operating results are reviewed
expenses in profit or loss.                                         regularly by the groups key decision maker to make
                                                                    decisions about resources to be allocated to the segments
(a) current tax                                                     and assess its performance and for which discrete financial
The current income tax and capital gains tax charges are the        information is available.
expected tax payable on the taxable income for the year,
using applicable tax rates enacted or substantively enacted         Segment results that are reported to the key decision maker
at the reporting date, and any adjustment to tax payable in         include operating income net of direct expenses (“net
respect of prior years.                                             revenue”) and profit from operations before non-trading
                                                                    and capital items (“trading result”) directly attributable to a
(b) Deferred tax                                                    segment.
Deferred tax is provided for on all temporary differences as
detailed in the relevant accounting policy note.                    DIsconTInuED opEraTIons
                                                                    A discontinued operation is a component of the group’s
(c) secondary tax on companies (“sTc”)                              business that represents a separate major line of business
South African resident companies are subject to a dual              or geographical area of operations that has been disposed
corporate tax system, one part of the tax being levied on           of or is held for sale. Classification as a discontinued
taxable income and the other, a secondary tax (“STC”), on           operation occurs upon disposal or when the operation
distributed income. A company incurs STC charges on the             meets the criteria to be classified as held for sale, if earlier.
declaration or deemed declaration of dividends (as defined          When an operation is classified as a discontinued operation,
under tax law) to its shareholders. STC is not a withholding        the comparative income statement and statement of other
tax on shareholders, but a tax on companies.                        comprehensive income is re-presented as if the operation
                                                                    had been discontinued from the start of the comparative
The STC tax consequence of dividends is recognised as               period.
a taxation charge in profit or loss in the same period that
the related dividend has been declared and is accrued as



                                                                                                                                      33
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     critical accounting assumptions and judgements
     for the year ended 31 March 2010


     The   following     critical   accounting   assumptions    and    adjusted for salary scales and country-specific conditions.
     judgements have been applied when preparing these                 The inflation rate used is a rate within the government’s
     financial statements.                                             monetary policy target for inflation and is calculated as the
                                                                       difference between the yields on portfolios of fixed interest
     1 Impairment of goodwill
      .                                                                government bonds and a portfolio of index-linked bonds of
     The recoverable amount of goodwill is tested annually             a similar term.
     for impairment in accordance with the group’s stated
     accounting policy. The recoverable amounts of the cash-           Additional information is provided in the relevant note to
     generating units (“CGUs”) have been primarily determined          these financial statements on retirement benefit obligations.
     based on value-in-use calculations, being the net present
     value of the discounted cash flows of the CGU. Details of the     3. provisions
     main assumptions applied in determining the net present           Provisions are, by definition, liabilities of uncertain timing
     value of the CGU are provided in the relevant note on             or amount. In order to establish a provision, management
     goodwill in these financial statements.                           makes assessments of the expected amount of any future
                                                                       cash outflows and the estimated timing thereof. Where the
     2. retirement benefit obligations                                 effect of discounting is material, provisions payable in more
     The cost of the benefits and the present value of the             than one year are discounted using pre-tax discount rates
     defined   benefit    pension     funds    and   post-retirement   that reflect the current market assessment of the time value
     medical obligations depend on a number of factors that            of money and, where appropriate, the risks specific to the
     are determined on an actuarial basis using a number of            liability. Provisions for impairment of a trade receivable are
     assumptions. The assumptions used in determining the              established when there is objective evidence that the group
     charge to profit or loss arising from these obligations include   will not be able to collect all amounts due according to the
     the expected long-term rate of return on the relevant plan        original terms of the receivable.
     assets, the discount rate and the expected salary and
     pension increase rates. Any changes in these assumptions          Other than claims provisions of insurance licensed entities
     will impact the charge to profit or loss and may affect           which are based on the probability weighted expected
     planned funding of the pension plans.                             amount of future cash flows irrespective of the probability
                                                                       rating, provisions are only raised for contingent liabilities if
     The assumptions relating to the expected return on plan           the probability of loss is more likely than not.
     assets are determined on a uniform basis, considering long-
     term historical returns, asset allocation and future estimates    4. Deferred income
     of long-term investment returns. The group determines             Fee and commission income is earned by the group for
     the appropriate discount rate at the end of each year,            placing insurance cover and providing an ongoing service
     which represents the interest rate that should be used to         to clients under insurance programmes and insurance and
     determine the present value of the estimated future cash          investment contracts. This income is brought to account
     outflows expected to be required to settle the pension and        on the effective inception or renewal dates of the related
     post-retirement medical obligations. In determining the           insurance programme and insurance investment contracts.
     appropriate discount rate, the group considers the interest       The group defers a portion of this income to cover the
     rate on high-quality corporate bonds and government bonds         cost of post-placement servicing activities, together with a
     that are denominated in the currency in which the benefits        reasonable profit margin thereon. The portion of income
     will be paid and that have terms to maturity approximating        deferred varies depending on the nature of the service
     the terms of the related pension liability. The expected salary   provided. Management makes assumptions in determining
     and pension increase rates are based on inflation rates,          the amount of post-placement servicing required and




34
                                                                                    Alexander Forbes LI M ITE D 2010




these assumptions may vary between different products.          •	 	 he best estimate for a particular assumption is
                                                                   T
The assumptions are reassessed at each reporting date                 determined.
based on actual post-placement experience and business          •	 	 rescribed margins are then applied, as required by
                                                                   P
conditions, and adjustments are made to the deferred                  the Long-Term Insurance Act in South Africa and Board
income calculation, where necessary. Deferred income to               Notice 72 issued in terms of the Act.
be earned in more than one year is discounted using pre-tax     •	 	 iscretionary margins may be applied, as required by
                                                                   D
discount rates that reflect the current market assessment of          the valuation methodology or if the statutory actuary
the time value of money and, where appropriate, the risks             considers such margins necessary to cover the risks
specific to the liability.                                            inherent in the contracts.


5. Taxation                                                     Best estimate assumptions as to mortality and morbidity,
The group is subject to income tax in numerous jurisdictions    expenses, investment income and tax are used which may
and has many transactions and calculations for which the        vary at each balance sheet date. A margin for adverse
ultimate tax determination may be uncertain during the          deviations is included in the assumptions. Improvements in
ordinary course of business. The group recognises liabilities   estimates have a positive impact on the value of the liabilities
for anticipated tax charges. Where the outcome of a             and related assets, while deteriorations in estimates have a
transaction is different from the amounts that were initially   negative impact.
recorded, such differences will impact the tax provisions in
the period in which such determination is made.                 The process for determining the assumptions used are as
                                                                follows:
6. Investment in associate                                      •	 	 ortality and morbidity
                                                                   M
The valuation of the associate is based on the directors’       For group life insurance contracts, the rate of recovery
assessment of the expected amount of any future earnings        from disability is derived from industry experience studies
and cash flows from the underlying investment in the            adjusted, where appropriate, for the group’s own experience.
Alexander Forbes group. The valuation is reassessed at          For    individual    life   insurance   contracts,   demographic
each reporting date.                                            assumptions are set with reference to reinsurer rates and
                                                                industry experience.
7. valuation of financial liabilities under multi-manager
    investment and unit trust contracts                         •	 	 xpenses
                                                                   E
The valuation of these financial liabilities is linked to the   Expense assumptions are based on an expense analysis,
fair value of the supporting assets. Therefore, deviations      using a functional cost approach. This analysis allocates
from investment return assumptions have no impact on the        expenses between policy and overhead expenses and within
group’s reported results.                                       policy expenses, between new business, maintenance and
                                                                claims.
8. valuation of policyholder assets and liabilities in
    respect of long-term insurance contracts                    •	 	nvestment income
                                                                   I
The actuarial value of policyholder assets and liabilities      Estimates are made as to future investment income and
arising from long-term insurance contracts is determined        are tested against market conditions as at the valuation
using the financial soundness valuation method as described     date taking into account the terms of the liabilities. Inflation
in the actuarial guidance note PGN 104 of the Actuarial         assumptions are tested against market conditions and,
Society of South Africa. The method requires a number of        with regard to consistency, are tested against interest rate
assumptions as inputs to the valuation model. The following     assumption.
process is followed to determine the valuation assumptions:




                                                                                                                                   35
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     critical accounting assumptions and judgements
     for the year ended 31 March 2010


     8. valuation of policyholder assets and liabilities in          uncertainty. The risk environment can change suddenly and
        respect of long-term insurance contracts (continued)         unexpectedly owing to a wide range of events or influences.
     •	 	 axation
        T                                                            There is no absolute certainty in respect of identifying risks
     Allowance is made for future taxation and taxation relief.      at an early stage, measuring them sufficiently or correctly
                                                                     estimating their real hazard potential.
     9. cash flow hedge
     The cash flow hedge arrangement entered into by the South         .
                                                                     11 Errors and omissions in the ordinary course of
     African multi-manager investment subsidiary of the group,          business
     Investment Solutions, hedges the amount of future fee           The group is exposed to various actual and potential claims,
     income earned on local equities included in assets under        lawsuits and other proceedings relating to alleged errors
     management and administration. Management makes                 and omissions or non-compliance with laws and regulations
     assumptions when assessing the hedge’s effectiveness in         in the conduct of its ordinary course of business. As with
     offsetting the exposure to changes in local equities markets.   any business with similar operations to the group, the risk
                                                                     exists that new claims relating to past events and significant
      0.
     1 ultimate liability arising from claims under short-term       adverse developments in past claims could result in material
        insurance contracts                                          changes to provisions made in respect of prior years.
     The estimation of the ultimate liability arising from claims
     under short-term insurance contracts has several sources of




36
                                                                          Alexander Forbes LI M ITE D 2010




Group statement of comprehensive income
for the year ended 31 March 2010


                                                                                        2010         2009
                                                                           Notes          rm           Rm

 continuing operations
 Fee and commission income                                                    2        4 726        4 954
 Less: Direct expenses attributable to fee and commission income              2         (586)         (578)
 Net income from insurance operations                                         3          309          281
   Insurance premiums earned                                                           3 481        2 955
   Less: Amounts ceded to reinsurers                                                   (2 416)      (2 090)
   Investment income from insurance operations                                           128          176
   Less: Insurance claims and withdrawals                                              (2 228)      (1 760)
 	 Plus: Insurance claims and benefits covered by reinsurance contracts                1 344        1 000

 operating income net of direct expenses                                               4 449        4 657
 Operating expenses                                                           4        (3 415)     (3 694)
 profit from operations before non-trading and capital items                           1 034          963
 Non-trading and capital items                                                5           44          (124)
 operating profit                                                                      1 078          839
 Investment income                                                            6           76          121
 Finance costs                                                                7         (457)         (427)
 Share of net profit of associates (net of income tax)                       19             2            1
 profit before taxation                                                                  699          534
 Income tax expense                                                           8         (203)        (160)
 profit for the year from continuing operations                                          496          374
 Discontinued operations
 Profit on discontinued operations (net of income tax)                       23             3          10
 accumulated profit for the year                                                         499          384
 Foreign currency translation differences of foreign operations                         (291)        (260)
 Changes in cash flow value of cash flow hedges                                            (5)         23
 Taxation effect on the fee income hedge                                                   (3)           –
 Total other comprehensive loss for the year                                            (299)         (237)
 Total comprehensive profit for the year                                                 200           147
 Profit	attributable	to:
 Equity holders                                                                          442          324
 Non-controlling shareholders                                                 9           57           60
                                                                                         499          384
 Total	comprehensive	profit	attributable	to:
 Equity holders                                                                          152           87
 Non-controlling shareholders                                                             48           60
 Total comprehensive profit for the year                                                 200           147




                                                                                                              37
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     Group statement of financial position
     at 31 March 2010


                                                                                      2010       2009
                                                                            Notes       rm         Rm

      assETs
      Financial assets held under multi-manager investment contracts          10    161 660    134 718
      Financial assets of cell captive insurance facilities                   11      7 582      7 498
      Housing loans secured by retirement fund assets                         12         –        750
      Property and equipment                                                  13       205        208
      Purchased and developed computer software                               14        24         31
      Goodwill                                                                15      1 350      1 557
      Intangible assets                                                       16        23         31
      Investments in associates                                               18         7           7
      Deferred tax assets                                                     30       158        148
      Financial assets                                                        19       270        365
      Insurance receivables                                                   20       528        330
      Trade and other receivables                                             21      1 106      1 109
      Cash and cash equivalents                                               22      2 383      2 434
      Assets of disposal group classified as held for sale                    23       948           –
      Total assets                                                                  176 244    149 186
      Equity and liabilities
      Share capital and premium                                                        225        225
      Accumulated loss                                                                   (6)      (436)
      Other reserves                                                                   245        523
      Total equity holders’ funds                                             24       464        312
      Non-controlling shareholders                                                     128        147
      Total equity                                                                     592        459
      Financial liabilities held under multi-manager investment contracts     25    161 614    134 686
      Liabilities of cell captive insurance facilities                        26      7 582      7 498
        Insurance liabilities of cell captive insurance facilities                    4 609      4 698
        Other liabilities of cell captive insurance facilities                        2 973      2 800
      Securitisation funding for housing loans                                27         –        750
      Borrowings                                                              28      2 034      2 243
      Employee benefits                                                       29       158        155
      Deferred tax liabilities                                                30        49         87
      Provisions                                                              31       634        542
      Deferred income                                                         32       210        263
      Insurance payables                                                      33      1 610      1 379
      Trade and other payables                                                34       933       1 124
      Liabilities of disposal group classified as held for sale               23       828           –
      Total liabilities                                                             175 652    148 727
      Total equity and liabilities                                                  176 244    149 186




38
                                                                             Alexander Forbes LI M ITE D 2010




Group statement of changes in equity
for the year ended 31 March 2010


                                                                                   Total
                                                                                 equity
                                                         Non-                    share-           Non-
                                 Share capital   distributable   Retained       holders’     controlling    Total
                                 and premium         reserves    earnings         funds    shareholders    equity
                                          Rm               Rm         Rm            Rm               Rm      Rm

 at 31 april 2008                        225             757        (757)          225              171     396
   Profit for the year                      –               –        324           324               60     384
   Other comprehensive loss
   for the year                             –            (237)         –           (237)            (17)    (254)
 Total comprehensive (loss)/
 income for the year                        –            (237)       324             87              43      130
 Movement in contingency
 reserve for short-term
 insurance company                          –               3          (3)            –               –             –
 Distributions to shareholders              –               –          –              –             (70)     (70)
 Addition as a result of
 business acquired                          –               –          –              –               3        3
 at 31 March 2009                        225             523        (436)          312              147     459
   Profit for the year                      –               –        442           442               57     499
   Other comprehensive
   (loss) for the year                      –           (290)          –           (290)             (9)    (299)
 Total comprehensive (loss)/
 income for the year                        –           (290)        442            152              48     200
 Movement in contingency
 reserve for short-term
 insurance company                          –              12         (12)            –               –        –
 Distribution to shareholders
 and other movements                        –               –          –              –             (67)     (67)
 at 31 March 2010                        225             245           (6)         464              128     592




                                                                                                                    39
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     Group statement of cash flows
     for the year ended 31 March 2010


                                                                                            2010       2009
                                                                                  Notes       rm         Rm

      cash flows from operating activities of continued operations
      Cash generated from trading operations                                        37     1 019      1 116
      Interest received                                                                        76        121
      Finance costs paid                                                                     (456)     (450)
      Movement in working capital and insurance balances                            38       (127)      (651)
      Cash settlement of provision for client settlements                                     (31)       (87)
      Cash settlement of retirement benefit obligations                                        (5)        (5)
      Taxation paid                                                                 39       (178)     (232)
      net cash inflow/(outflow) from operating activities                                    298       (188)
      cash flows from investing activities of continuing operations
      Acquisition of subsidiaries and businesses                                   40.1         –        (13)
      Disposal of subsidiaries and businesses                                      40.2       45           –
      Investment in financial assets                                                          (39)       (48)
      Disposal/redemption of financial assets                                                   5        58
      Capital expenditure incurred on property, equipment and computer software               (95)     (102)
      Proceeds on disposal of property and equipment                                          58         10
      net cash outflow from investing activities                                              (26)       (95)
      cash flows from financing activities of continuing operations
      Repayment of borrowings                                                                 (64)      (227)
      Payments made to non-controlling interests                                              (67)       (84)
      net cash outflow from financing activities                                             (131)      (311)
      cash flows from multi-manager investment contracts
      Premium inflows                                                                     30 558     60 718
      Investments made net of disinvestments                                              (10 537)      (613)
      Movement in insurance liabilities                                                       (24)      275
      Investment withdrawals                                                              (31 884)   (56 173)
      net cash (outflow)/inflow from multi-manager investment contracts                   (11 887)    4 207
      net cash inflow/(outflow) from discontinued operations                        23        48          (9)
      (Decrease)/increase in cash and cash equivalents                                    (11 698)    3 604
      Cash and cash equivalents at beginning of year                                      32 432     28 933
      Foreign subsidiaries exchange differences                                              (141)     (105)
      cash and cash equivalents at end of year                                            20 593     32 432
      Analysed	as	follows:
      Cash and cash equivalents for discontinued operations                                   99         85
      Cash and cash equivalents for continuing operations                                  2 383      2 349
      Cash held under multi-manager investment contracts                                  17 393     29 256
      Cash held under cell captive insurance facilities                                      718        742
                                                                                          20 593     32 432
      Analysed	as	follows:
      Cash related to client investment and insurance activities                          19 954     31 794
      Free cash available to group                                                           639        638
                                                                                          20 593     32 432




40
                                                                                  Alexander Forbes LI M ITE D 2010




notes to the group financial statements
for the year ended 31 March 2010


                                                                                               2010         2009

 1.   forEIGn currEncy ExchanGE raTEs
      The income statements and balance sheets of material foreign subsidiaries have
      been translated to Rand in line with IAS 21 The	Effect	of	Changes	in	Foreign	
      Exchange	Rates, using the following exchange rates:
      rand : sterling                                                                          r:£           R:£
      Weighted average rate                                                                    12,3          14,3
      Closing rate                                                                              11,1         13,8
      swiss franc : sterling                                                                 chf : £       CHF : £
      Weighted average rate                                                                      1,7          1,8
      Closing rate                                                                               1,6          1,6
      Other less material foreign subsidiaries have been translated to Rand in line with
      IAS 21 The	Effect	of	Changes	in	Foreign	Exchange	Rates, using the weighted
      average rates for income statement items and the closing rates for balance sheet
      items.
      Certain transactions of the group occur in foreign currencies. The most material
      of these currencies is the euro. These transactions have been translated using
      the following exchange rates:
      rand : euro                                                                              r:€           R:€
      Weighted average rate                                                                     11,0         12,3
      Closing rate                                                                             10,0          12,9

                                                                                               2010         2009
                                                                                                 rm           Rm

 2.   fEE anD coMMIssIon IncoME
      Brokerage fees and commission income                                                      600         1 005
      Fee income from consulting and administration services                                  3 047         2 854
      Revenue from multi-manager investment activities                                        1 000         1 005
      Interest income from lending operations                                                    20            23
      Operational interest income                                                                37            55
      Other income                                                                               22            12
                                                                                              4 726         4 954
      The direct expenses related to fees and commission income relate to sub-agent
      expenses, commissions paid and management fees.                                          (586)         (578)
      Operational interest income comprises interest earnings of insurance broking
      businesses, consisting primarily of interest income earned on premiums
      collected from clients on behalf of insurers.
      Fee income from multi-manager activities is based on financial assets held at fair
      value through profit and loss.




                                                                                                                     41
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     notes to the group financial statements continued
 for the year ended 31 March 2010


                                                     Long-term insurance    Short-term insurance         Total
                                                       2010        2009        2010        2009      2010         2009
                                                         rm          Rm          rm          Rm        rm           Rm

      3.   nET prEMIuM anD InvEsTMEnT
           IncoME froM InsurancE
           opEraTIons
           Gross earned premiums                         728        551       2 753       2 404     3 481        2 955
             Gross written premiums                      728        551       2 889       2 531     3 617        3 082
             Less: Movement in unearned
             premium provision                             –           –       (136)        (127)     (136)        (127)
           Reinsurers’ share thereof                    (626)       (472)    (1 790)      (1 618)   (2 416)      (2 090)
           Net earned premiums                           102          79        963         786     1 065          865
           Net investment income from
           insurance operations                            8          11        120         165       128          176
           Net expenses of insurance contracts            (11)        (9)      (218)         (94)    (229)        (103)
           net premium and investment
           income (per income statement)                  99          81        865         857       964          938
           Gross claims and transfers to
           policyholders’ funds                         (270)       (193)    (1 729)      (1 464)   (1 999)      (1 657)
           Reinsurers’ share thereof                     230        162       1 114         838     1 344        1 000
           net claims and transfers to
           policyholders’ funds (per income
           statement)                                    (40)        (31)       (615)       (626)    (655)         (657)
           net income from insurance
           operations                                     59          50        250         231       309          281




42
                                                                                               Alexander Forbes LI M ITE D 2010




                                                                                                            2010         2009
                                                                                                              rm           Rm

4.   opEraTInG ExpEnsEs
     Operating expenses classified by nature are as follows:
     Amortisation                                                                                             (14)          (15)
       Purchased and developed computer software (refer note 14)                                              (10)          (11)
       Intangible assets (refer note 16)                                                                       (4)           (4)
     Computer and IT costs                                                                                  (208)         (207)
     Depreciation (refer note 13)                                                                             (78)          (77)
       Leasehold property and improvements                                                                     (8)           (9)
       Computer equipment                                                                                     (51)          (50)
       Furniture, office equipment and other assets                                                           (19)          (18)
     External auditors’ remuneration                                                                          (31)          (32)
       Audit service                                                                                          (26)          (29)
       Non-audit service                                                                                       (5)           (3)
     Insurance costs                                                                                         (114)         (122)

     Operating lease charges                                                                                 (216)         (213)
       Premises                                                                                              (214)         (211)
       Equipment                                                                                               (2)           (2)
     Staff costs*                                                                                          (2 442)       (2 611)
       Salaries, wages and other benefits                                                                  (2 380)      (2 543)
       Termination benefits                                                                                    (9)          (11)
       Retirement benefit contributions                                                                       (53)          (57)
     Other operating costs                                                                                   (312)         (417)
     Total operating expenses                                                                              (3 415)      (3 694)
       S
     *		 taff	costs	include	executive	directors’	and	directors’	remuneration	and	are	set	out	in	detail	
       in	a	note	to	these	financial	statements	(refer	to	the	related	party	note	41).




                                                                                                                                   43
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     notes to the group financial statements continued
 for the year ended 31 March 2010


                                                                                               2010       2009
                                                                                                 rm         Rm

      5.   non-TraDInG anD capITaL ITEMs
           Non-trading:
           Professional indemnity insurance cell                                                 26         (11)
           Realised profit on early cancellation of hedge contracts                                –        77
           Legal and consulting fees on debt structuring transactions                            (14)       (13)
           Movements in provisions for client settlements net of insurance recoveries            20           –
           Road Accident Fund receivable for legal fees written off                              (26)         –
           Other non-trading items                                                                 –        (14)
           Capital	items:
           Goodwill impairment losses                                                            (35)     (166)
           Capital gain on sale of subsidiary and other                                          73           3
                                                                                                 44        (124)

      6.   InvEsTMEnT IncoME
           General	operations:
           Interest income                                                                       23         36
           Investment and dividend income                                                        39         80
                                                                                                 62        116
           Multi-manager	and	unit	trust	investments:
           Investment income – investment contracts                                          38 225     (13 149)
           Fair value adjustment on financial liability linked to investment contracts       (38 211)   13 154
                                                                                                  14          5
           Total investment income                                                               76        121
           Finance income is derived from the following categories of financial assets:
           Loans receivable                                                                      42         73
           Fair value financial assets                                                           34         48
                                                                                                 76        121

      7.   fInancE cosTs
           Finance	costs	derived	from	financial	liabilities	designated	as	amortised	costs:
           Interest on term debt issued                                                         (412)     (386)
           Interest on proposed client settlements                                               (20)       (34)
           Capacity fee revolving credit facility                                                (14)         –
           Interest on other borrowings                                                          (11)        (7)
                                                                                                (457)     (427)




44
                                                                                           Alexander Forbes LI M ITE D 2010




                                                                                                        2010         2009
                                                                                                          rm           Rm

8.   IncoME Tax ExpEnsE
     south african income tax
     Current tax                                                                                        (194)         (181)
       Current year                                                                                     (158)         (199)
       Prior years                                                                                       (36)           18
     Deferred tax                                                                                         81            30
       Current year                                                                                       (8)           30
       Prior years                                                                                        89             –
     foreign income tax
     Current tax                                                                                         (65)           (4)
       Current year                                                                                      (37)          (47)
       Prior years                                                                                       (28)           43
     Deferred tax                                                                                         (6)            5
       Current year                                                                                       (7)           12
       Prior years                                                                                         1            (7)
     foreign withholding tax                                                                              (6)           (5)
     Tax attributable to policyholders                                                                   (13)           (5)
                                                                                                        (203)         (160)
     No material capital gains tax was incurred by the group in the current or
     previous years.
     The standard South African income tax rate for companies is reconciled to the
     group’s actual tax rate as follows:
     South African income tax rate for companies                                                        28%           28%
     Adjusted	for	the	effects	of:
       Foreign withholding tax                                                                          0,9%          0,8%
       South African secondary tax on companies                                                            –          0,2%
       Policyholder tax                                                                                 1,9%          5,5%
       Unutilised tax losses (net of prior year assessment loss utilised)*                              6,1%          0,2%
       Exempt income net of disallowed expenditure                                                     (3,8%)        (4,2%)
       Foreign tax rates                                                                               (2,8%)         (10%)
       Prior year under provision (net of prior year over provision)                                   (1,8%)         8,8%
       Impairment charges and other capital gains and losses with no material tax
       effects                                                                                          1,1%             –
     Effective tax rate per income statement                                                           29,6%         29,3%
     *	Unutilised	tax	losses	for	the	current	year	amounted	to	R60	million	(2009:	R58	million).




                                                                                                                              45
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     notes to the group financial statements continued
 for the year ended 31 March 2010


                                                                                                                 2010       2009
                                                                                                                   rm         Rm

      9.    profIT aTTrIbuTabLE To ouTsIDE sharEhoLDErs
            Profit attributable to non-controlling shareholders*
            Non-controlling shareholders                                                                            57        60
              T
            *		 he	non-controlling	shareholders’	share	of	profits	results	mainly	from	outside	shareholders’	
              in	Lane	Clark	&	Peacock	(in	the	United	Kingdom,	Belgium	and	Switzerland)	and	in	
              Media	Insurance	Services	(the	UK	direct	marketing	entity).	Details	of	non-wholly	owned	
              subsidiaries	are	provided	in	Annexure	B	to	these	financial	statements.


      10.   fInancIaL assETs hELD unDEr MuLTI-ManaGEr InvEsTMEnT
            conTracTs
            The policyholder assets held by the group’s multi-manager investment
            subsidiaries in South Africa, Namibia and the United Kingdom are analysed
            below. These policyholder assets are directly matched by linked obligations to
            policyholders.
            Financial assets held in collective investment schemes managed by the group’s
            multi-manager investment subsidiaries in South Africa and the United Kingdom
            are also included in the consolidated statement of financial position of the group.
            These financial assets are directly matched to linked obligations to unit holders.
            10.1 Movement in multi-manager and unit trust investment
                 contracts assets
                   A reconciliation between financial assets held under multi-
                   manager and unit trust investment contracts:
                   Opening balance                                                                             134 718    143 501
                   Movement	during	the	year:*
                      Premium inflow                                                                           30 558     60 718
                      Withdrawals                                                                              (31 884)   (56 173)
                      Investment returns after tax                                                             38 225     (13 149)
                      Effect of movements in exchange rates                                                     (4 101)      (450)
                      Other                                                                                     (5 856)      271
                   Closing balance                                                                             161 660    134 718
              T
            *		 his	amount	is	offset	by	a	corresponding	movement	in	multi-manager	and	unit	trust	
              investment	contract	liabilities	which	is	disclosed	in	note	25.




46
                                                                                            Alexander Forbes LI M ITE D 2010




                                                                                                         2010         2009
                                                                                                           rm           Rm


10.   fInancIaL assETs hELD unDEr MuLTI-ManaGEr InvEsTMEnT
      conTracTs (continued)
      10.2 analysis of multi-manager and unit trust investment contract
           assets
             An analysis of the aggregate financial assets of multi-manager and
             unit trust investment contracts is set out below:
             Financial assets classified as “fair value through profit or loss”
               Equity securities – listed                                                               46 676       34 962
               Equity securities – unlisted                                                               377          192
               Preference shares – listed                                                                 673          538
               Unit trusts                                                                             34 890        27 202
               Debt securities – listed                                                                  2
                                                                                                        1 267         4 822
               Debt securities – government stock                                                        7 890        9 225
               Debentures – listed                                                                       1 979        1 050
               Debentures – unlisted                                                                        –         2 216
               Policy of insurance                                                                      23 784       18 130
               Derivative financial instruments                                                           625         1 487
               Receivables                                                                                  6         1 944
             Cash and cash equivalents
               Money market                                                                             15 100        3 694
               Cash                                                                                     17 393       29 256
             Total financial assets held under multi-manager investment
             contracts                                                                                 161 660      134 718
      A reconciliation of the assets held under multi-manager investment contracts
      with the linked liabilities under such contracts is as follows:
      Total financial assets held under multi-manager investment contracts                             161 660      134 718
      Adjusted	for:
      Tax on policyholder assets included in deferred tax liability of the group                           (46)         (32)
      Adjusted total financial assets held for policyholders under multi-manager                       161 614      134 686
      investment contracts matched with the linked liabilities under such contracts*
        F
      *		 inancial	asset	disclosure	on	maturity	and	currency	is	not	provided	as	these	multi-manager	
        and	unit	trust	investment	contract	assets	are	directly	matched	to	linked	obligations.




                                                                                                                               47
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     notes to the group financial statements continued
 for the year ended 31 March 2010


                                                                                                   2010    2009
                                                                                                     rm      Rm

       1
      1.   fInancIaL assETs of cELL capTIvE InsurancE facILITIEs
           All financial assets held by Guardrisk Insurance and Guardrisk Life in South
           Africa, Namibia and Mauritius and Euroguard Insurance in Gibraltar are included
           in the consolidated statement of financial position of the group. An analysis of
           the financial assets attributable to policyholders and cell shareholders’ interests
           in the cell captive insurance companies is provided below. These financial
           assets are directly matched to linked obligations to the policyholders and cell
           shareholders of the cell captive insurance companies. The promoter cell (or
           shareholder’s interest) in the other financial assets of the cell captive insurance
           companies are included in the relevant line items of the group statement of
           financial position.
           financial assets designated as “fair value through profit or loss”
             Equity securities – unlisted                                                           638     629
             Preference shares – unlisted                                                           365     382
             Collective investment schemes                                                           70      56
             Debt securities – listed                                                               740     928
             Receivables                                                                            826     589
           Cash and cash equivalents
             Money market                                                                          3 805   3 569
             Cash                                                                                   718     742
           Reinsurance assets
             Reinsurers’ share of unearned premium provision                                        273     308
             Reinsurers’ share of outstanding claims provision                                       135    273
             Reinsurers’ share of IBNR provision                                                     12      22
           Total financial assets attributable to policyholders and cell shareholders’ interests
           in cell captive insurance companies                                                     7 582   7 498
           Financial asset disclosure on maturity and currency is not provided as these cell
           captive insurance facility assets are directly matched to linked obligations.




48
                                                                                    Alexander Forbes LI M ITE D 2010




                                                                                                 2010         2009
                                                                                                   rm           Rm

12.   housInG Loans sEcurED by rETIrEMEnT funDs assETs
      A subsidiary company of the South African group provides housing loans
      secured by retirement fund assets to members of retirement funds. The funding
      for these loans is provided through securitised funding from corporate investors
      and through funding provided by the joint venture banking partner, which
      assumes the credit risk on its portion of the housing loans book. The portion
      of the housing loans funded through the securitisation is set out below. This is
      matched by a securitisation liability. The group assumes the first R75 million of
      credit risk under the securitisation arrangement.
      financial assets classified as loans and receivables
      Housing loans secured over clients’ retirement fund assets yielding market-
      related interest rates linked to the prime lending rate                                       –          750
      In terms of the Pension Fund Act, 24 of 1956 as amended, the monies advanced
      are required to be used for housing purposes only. The retirement funds, in
      respect of which the borrowers are members, have bound themselves as
      surety and co-principal debtor, with the borrowers, in respect of the borrower’s
      obligations. Such suretyship is secured by a pledge by the borrowers to the
      retirement funds, of the withdrawal benefits, to which the borrowers are entitled
      in terms of the rules of the retirement funds.
      The assets in this subsidiary company form part of the Homeplan operations
      within Alexander Forbes Financial Services in South Africa. In line with
      management’s review of the operations and the classification of these operations
      as a disposal group held for sale at year end, the assets, liabilities, income,
      expenses and cash flows of this subsidiary company, Homeplan Financial
      Solutions (Proprietary) Limited, have been classified as held for sale in order to
      achieve strategic alignment of core business operations within the group. Refer
      to note 23 for disclosure of all non-current assets and liabilities held for sale and
      results of all discontinued operations.




                                                                                                                     49
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     notes to the group financial statements continued
 for the year ended 31 March 2010


                                                                                     Furniture and
                                                                                     fittings, office
                                                                                         equipment
                                                           Leasehold     Computer         and other
                                                        improvements    equipment             assets    Total
                                                                 Rm           Rm                  Rm     Rm

      13.   propErTy anD EquIpMEnT
            2010
            carrying value
            Cost                                                 88          204                197     489
            Accumulated depreciation and accumulated
            impairment losses                                    (43)        (105)             (136)    (284)
            Carrying value at 31 March 2010                      45           99                 61     205
            cost
            Balance at 1 April 2009                              99          254               200      553
            Additions to enhance existing operations               8          61                 17      86
            Disposals                                             (4)         (95)                (9)   (108)
            Foreign subsidiaries exchange differences            (15)         (16)               (15)    (46)
            Revaluation of investment property                     –            –                  4       4
            Balance at 31 March 2010                             88          204                197     489
            accumulated depreciation and accumulated
            impairment losses
            Balance at 1 April 2009                              (48)        (162)             (135)    (345)
            Depreciation charge for the year                      (8)         (51)               (19)    (78)
            Depreciation on disposals                              3          94                   8    105
            Foreign subsidiaries exchange differences            10           14                 10      34
            Balance at 31 March 2010                             (43)        (105)             (136)    (284)
            2009
            carrying value
            Cost                                                 99          254               200      553
            Accumulated depreciation and accumulated
            impairment losses                                    (48)       (162)              (135)    (345)
            Carrying value at 31 March 2009                      51           92                 65     208




50
                                                                            Alexander Forbes LI M ITE D 2010




                                                                                         Furniture and
                                                                                         fittings, office
                                                                                             equipment
                                                               Leasehold     Computer         and other
                                                            improvements    equipment             assets    Total
                                                                     Rm           Rm                  Rm     Rm

13.   propErTy anD EquIpMEnT (continued)
      2009
      cost
      Balance at 1 April 2008                                       104          226               194      524
      Additions to enhance existing operations                        6           55                 21      82
      Additions as a result of business combinations                  –            1                   1       2
      Disposals                                                       –           (16)                (5)    (21)
      Effect of movements in exchange rates                          (11)         (12)               (11)    (34)
      Balance at 31 March 2009                                       99          254               200      553
      accumulated depreciation and accumulated
      impairment losses
      Balance at 1 April 2008                                        (46)        (137)             (126)    (309)
      Depreciation charge for the year                                (9)         (51)              (18)     (78)
      Disposals                                                       –           14                   3      17
      Effect of movements in exchange rates                           7           12                   6      25
      Balance at 31 March 2009                                       (48)       (162)              (135)    (345)
      Furniture and fittings, office equipment and other
      assets include freehold land and buildings owned
      by the group, which have a carrying value of
      R10 million (2009: R6 million). A register of
      freehold land and buildings is available for
      inspection at the registered office of the company.




                                                                                                                    51
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     notes to the group financial statements continued
 for the year ended 31 March 2010


                                                                         2010    2009
                                                                           rm      Rm

      14.   purchasED anD DEvELopED coMpuTEr sofTwarE


            carrying value
            Cost                                                          78      142
            Accumulated amortisation and accumulated impairment losses    (54)   (111)
            balance at 31 March                                           24       31
            cost
            Opening balance                                               142     144
            Movement	during	the	year:
              Additions to enhance existing operations                      8      20

              Disposals                                                   (63)    (17)
              Effect of movements in exchange rates                        (9)     (5)
            Closing balance                                               78      142
            accumulated amortisation and accumulated impairment losses
            Opening balance                                              (111)   (116)
            Movement	during	the	year:
              Amortisation charge for the year                            (10)    (11)
              Amortisation charged on disposal group held for sale          –      (2)
              Disposal of businesses                                      63        –
              Disposals                                                     –      12
              Effect of movements in exchange rates                         4       6
            Closing balance                                               (54)   (111)




52
                                                                              Alexander Forbes LI M ITE D 2010




                                                                                           2010         2009
                                                                                             rm           Rm


15.   GooDwILL
      15.1 carrying value
           Cost                                                                           1 829         1 847
           Accumulated impairment losses                                                   (479)         (290)
           balance at 31 March                                                            1 350         1 557
      15.2 reconciliation of movement in carrying value
           Opening balance                                                                1 557         1 868
           Movement	during	the	year:
              Additions as a result of subsidiaries and businesses acquired                   –            14
              Impairment loss                                                               (35)         (166)
              Disposals of businesses                                                       (18)            –
              Effect of movements in exchange rates                                        (154)         (159)
           Closing balance                                                                1 350         1 557
      15.3 analysis of goodwill balances by principal business segment
           South Africa                                                                     730          752
              Risk and Insurance Services                                                    53            74
              Financial Services                                                             23           24
              Multi-manager investment                                                      654          654
           Afrinet (Africa excluding South Africa)                                           19           19
              Risk Services                                                                  15            15
              Financial Services                                                              4             4
           International                                                                    601          786
              Financial Services                                                            574           742
              Multi-manager investment                                                       14           19
              Direct marketing entity in run-off                                             13           25

                                                                                          1 350         1 557




                                                                                                                 53
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     notes to the group financial statements continued
 for the year ended 31 March 2010


                                                                                              2010   2009
                                                                                                rm     Rm

      15.   GooDwILL (continued)
            15.4 valuation of goodwill balances
                 Goodwill is allocated to cash-generating units (“CGUs”) in accordance
                 with the group’s accounting policies. The recoverable amount of a CGU
                 is determined based on value-in-use calculations. These calculations use
                 cash flow projections based on financial budgets approved by the board of
                 the directors for the forthcoming year and forecasts for up to three years
                 which are based on assumptions of the business, industry and economic
                 growth. Cash flows beyond this period are extrapolated using terminal
                 growth rates, which do not exceed the expected long-term economic
                 growth rate for the geographic segment. Terminal growth rates of 3,5%
                 (2009: 3,5%) have been applied to the International businesses and rates
                 of between 4,5% and 6% (2009: 4,5% and 6%) have been applied to the
                 South African and Afrinet businesses.
                 The discount rate used was the weighted average cost of capital for the
                 specific segment, adjusted for specific risks relating to that segment.
                 Discount rates, before adjustment for specific risks relating to the
                 segment, of between 11,5% and 15,1% (2009: 11,5% and 15,6%), have
                 been applied in the valuations of the United Kingdom and South African
                 businesses respectively.
                 The valuation of the goodwill balances resulted in a goodwill impairment
                 charge of R35 million for the year for continuing operations (2009:
                 R166 million). The current year charge relates mainly to a write-off of
                 a goodwill balance from the acquisition of the International Financial
                 Services business and various small balances in SA Financial Services.




54
                                                                               Alexander Forbes LI M ITE D 2010




                                                                                            2010         2009
                                                                                              rm           Rm

16.   InTanGIbLE assETs
      Intangible assets comprise mainly contractual customer relationships acquired
      through business acquisitions.
      16.1 carrying value
            Cost                                                                              44            47
            Accumulated amortisation and accumulated impairment losses                       (21)          (16)
            balance at 31 March                                                               23           31
      16.2 reconciliation of movement in carrying value
            Opening balance                                                                   31           35
            Movement	during	the	year:
              Addition as a result of business acquired                                        –             1
              Amortisation charge for the year                                                (4)           (4)
              Disposal                                                                        (3)            –
              Effect of movements in exchange rates                                           (1)           (1)
            Closing balance                                                                   23           31




                                                                                                                  55
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     notes to the group financial statements continued
 for the year ended 31 March 2010


                                                                                                 2010    2009
                                                                                                   rm      Rm

      17.   JoInT vEnTurEs
            17.1 proportionate consolidation
                 The group’s proportionate share of the income statement, statement of
                 financial position and cash flow effects of joint ventures are included under
                 the appropriate captions in the financial statements using the proportionate
                 consolidation method of accounting.
            17.2 aggregate summarised income statements of joint ventures (group’s
                 share):
                 Income from operations                                                           31       37
                 Operating expenses                                                                (8)    (27)
                 Profit before tax                                                                23       10
                 Income tax expense                                                                (7)     (2)
                 Profit for the year                                                               16       8
            17.3 aggregate summarised balance sheets of joint ventures (group’s share):
                 assets
                 Non-current assets                                                                1       4
                 Current assets                                                                   34       15
                 Total assets                                                                     35      19
                 Equity and liabilities
                 Equity                                                                           22       12
                 Non-current liabilities                                                           1       1
                 Current liabilities                                                               12      6
                 Total equity and liabilities                                                     35      19
                 At 31 March 2010, the group had a financial interest in Alexander Forbes
                 UK Direct Limited, an unlisted joint venture. The 50% financial interest in
                 the unlisted joint venture Ticketseg Corretora de Seguros SA was disposed
                 of during the year in order to achieve strategic alignment of core business
                 operations within the group, refer to note 23 for disclosure of discontinued
                 operations including Ticketseg Corretora de Seguros SA.

      18.   InvEsTMEnT In assocIaTEs
            18.1 Equity-accounted carrying value
                 Cost                                                                              6       6
                 Share of cumulative post-acquisition reserves                                     1       1
                                                                                                   7       7
                 Directors’ valuation of associates                                               24       17
                 The valuation of associates is determined using the approach of deriving a
                 multiple by reference to a market-based multiple by identifying companies
                 that are similar in terms of risk attributes and earnings growth prospects to
                 the companies being valued.
                 No such companies are available in the South African market. The
                 approach taken was therefore to start with an appropriate industry
                 multiple.
                                5
                 The Financial 1 Index of 1 2,5 was used and a number of adjustments
                 made for non-marketability, political risk and growth rate. The final
                 adjusted multiple used is 5.




56
                                                                               Alexander Forbes LI M ITE D 2010




                                                                                            2010         2009
                                                                                              rm           Rm

18.   InvEsTMEnT In assocIaTEs (continued)
      18.2 reconciliation of movement in equity-accounted carrying value
           Opening balance                                                                     7            13
           Movement	during	the	year:
             Additions as result of business acquired                                          –            3
             Dividends received from associates                                               (2)           (2)
             Share of profits of associates                                                    2            1
             – Profit before tax (including impairment charges)                                2            1
             – Income tax expense                                                              –            –
             Disposal                                                                          –            (8)
           Closing balance                                                                     7            7
      18.3 aggregate summarised income statements of associates (group’s
           share):
           Income from operations                                                             12            9
           Operating expenses                                                                (10)           (9)
           Trading results                                                                     2            –
           Net finance income                                                                  –            1
           Profit before tax                                                                   2            1
           Income tax expense                                                                  –            –
           Profit for the year                                                                 2            1
      18.4 aggregate summarised statement of financial position of associates
           (group’s share):
           assets
           Non-current assets                                                                  5            3
           Current assets                                                                     26            13
           Total assets                                                                       31           16
           Equity and liabilities
           Equity                                                                              9            3
           Non-current liabilities                                                            22            3
           Current liabilities                                                                 –           10
           Total equity and liabilities                                                       31           16
           At 31 March 2010, the group had a financial interest in three unlisted
           associates, Tibiyo Insurance Brokers (Proprietary) Limited, Alexander Forbes
           Insurance Brokers Kenya Limited and Alexander Forbes Healthcare Kenya
           Limited, the details of which are provided in Annexure B to these financial
           statements.




                                                                                                                  57
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     notes to the group financial statements continued
 for the year ended 31 March 2010


                                                                                              2010   2009
                                                                                                rm     Rm

      19.   fInancIaL assETs
            19.1 Total financial assets
                  Current financial assets                                                     148    175
                  Non-current financial assets                                                 122    190
                                                                                               270    365
            19.2 analysis of financial assets
                  Financial assets classified as available for sale
                    Equity securities – unlisted                                                9       9
                  Financial assets designated as fair value through profit or loss             80      76
                    Preference shares                                                          44      43
                    Unit trusts                                                                 27     25
                    Bonds                                                                        9      8
                  Financial assets classified as held to maturity
                    Preference shares                                                          75      75
                  Financial assets classified as loans and receivables                         106    205
                     Premium finance receivables                                               51      53
                     COID receivables                                                            –    100
                     Loan note part of the consideration for the sale of International
                     Risk Services business                                                     14     15
                     Equity housing loans                                                      39      34
                     Loans to participants of the employee share purchase trusts                 1      1
                     Other loans (mainly staff loans)                                            1      2

                                                                                               270    365

      20. InsurancE rEcEIvabLEs
            Insurance brokerage income receivable and other insurance balances                 46       2
            Reinsurance brokerage income receivables                                           71      59
            Receivables from short-term insurance contracts                                   206     125
              Premium debtors                                                                  38      14
              Reinsurers’ share of unearned premium provision                                  41      24
              Reinsurers’ share of outstanding claims provision                                111     73
              Reinsurers’ share of IBNR provision                                               16     14
            Receivable from long-term insurance contracts                                      187    131
              Premium debtors                                                                   19     13
              Reinsurers’ share of policyholder liability (group life)                         155    108
              Policyholder asset under long-term insurance contract (individual life)          13      10
            Other insurance-related receivables                                                 18     13
                                                                                              528     330
            A reconciliation of the receivables from short-term and long-term insurance
            contracts with the payables from such contracts is provided in note 33 to these
            financial statements.




58
                                                                                    Alexander Forbes LI M ITE D 2010




                                                                                                 2010          2009
                                                                                                   rm            Rm

21.   TraDE anD oThEr rEcEIvabLEs
      Financial	assets:
      Trade receivables                                                                           494           706
      Work-in-progress                                                                            185           177
      Corporate claim receivable from insurance underwriters                                      220             —
      Other receivables                                                                           145            88
                                                                                                1 044           971
      Non-financial	assets:
      Accrued income and prepayments                                                               44            89
      Prepaid taxation                                                                              18           49
                                                                                                1106          1 109

22. cash anD cash EquIvaLEnTs
      22.1 Total cash and cash equivalents
            Cash and bank balances                                                              1 827         1 875
            Short-term deposits                                                                   564           573
            Bank overdraft under cash management arrangements                                       (8)          (14)
                                                                                                2 383         2 434
      22.2 analysis of cash resources
            Total cash and cash equivalents                                                     2 383         2 434
            Less: Fiduciary cash balances                                                       (1 103)       (1 129)
              Insurance payables                                                                  (475)        (532)
              Policyholder and securitisation payables included in other payables                (628)         (597)
            Less: Capital adequacy and regulatory requirements                                   (360)         (303)
            Less: Cash held against current payables of insurance and other regulated
            entities                                                                             (138)         (144)
            Less: Restricted cash balances held within group insurance facilities                (240)         (281)
            available cash resources                                                              542           577




                                                                                                                        59
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     notes to the group financial statements continued
 for the year ended 31 March 2010


                                                                                               2010   2009
                                                                                                 rm     Rm

      23. assETs anD LIabILITIEs of DIsposaL Group cLassIfIED as hELD for
          saLE anD DIsconTInuED opEraTIons
          The assets and liabilities related to the discontinued operations have been
          classified as held for sale. An analysis of the assets and liabilities are shown
          below:
          23.1 assets and liabilities of disposal group classified as held for sale
                 Housing loans secured by retirement fund assets                               720       –
                 Goodwill                                                                        4       –
                 Financial assets                                                               92       –
                 Trade and other receivables                                                    127      –
                 Other current assets                                                            5       –
                 Total assets                                                                  948       –
                 Securitisation funding for housing loans                                      750       –
                 Deferred income                                                                 13      –
                 Trade and other payables                                                       64       –
                 Other current liabilities                                                       1       –
                 Total liabilities                                                             828       –
                 During 2010, the group disposed of three of its non-core business
                 operations, namely Chambers Townsend Consulting Limited, FIHRST
                 Management Services (Proprietary) Limited and the operations within
                 Ticketseg Corretora de Seguros S.A., and classified the Homeplan
                 securitisation vehicle which matures in July 2010 as well as the Homeplan
                 operations within Alexander Forbes Financial Services in South Africa and
                 the COIDLink operations within Alexander Forbes Risk and Insurance
                 Services in South Africa as held for sale. These business operations
                 have been classified and accounted for as discontinued operations in
                 accordance with IFRS 5 Non-Current	Assets	Held	for	Sale	and	Discontinued	
                 Operations. An analysis of the results of discontinued operations, and the
                 result recognised on the remeasurement of the disposal groups, is provided
                 below.
                 Chambers Townsend Consulting Limited, previously disclosed as part
                 of the International Financial Service reportable segment, was sold
                 on 31 May 2009 for proceeds of R34 million, resulting in the profit of
                 R33 million.
                 FIHRST Management Services (Proprietary) Limited, previously disclosed
                 as part of the South African Financial Services reportable segment, was
                 sold on 31 March 2010 for proceeds of R15 million, resulting in the profit
                 of R11 million.
                 Ticketseg Corretora de Seguros S.A. previously disclosed as part of the
                 South African Financial Services reportable segment was sold on 8 March
                 2010 for proceeds of R30 million resulting in the profit of R15 million
                 being the group’s share in the joint venture.
                 The COIDLink sale was completed on 12 April 2010 with various
                 conditions precedent. The expected proceeds on sale are R70 million
                 which has resulted in a loss of R23 million, this was recognised in profit
                 and loss in the year ended 31 March 2010 based on fair value of assets
                 held for sale. COIDLink is included in the South African Risk and Insurance
                 reportable segment at year end.




60
                                                                            Alexander Forbes LI M ITE D 2010




                                                                                         2010         2009
                                                                                           rm           Rm

23. assETs anD LIabILITIEs of DIsposaL Group cLassIfIED as hELD for
    saLE anD DIsconTInuED opEraTIons (continued)
    23.2 net loss of business units discontinued in 2010 up to effective date of
         disposal
          Income from operations                                                          121          161
          Operating expenses                                                             (107)         (134)
          Trading results from operations                                                  14           27
          Net interest cost                                                                 –            (9)
          Profit before taxation                                                           14           18
          Taxation credit                                                                 (11)           (8)
          Profit before non-controlling shareholders                                        3           10
          Net profit for the period                                                         3           10
          Included in operating expenses above are the following disclosable
          items:
          Amortisation of purchased and developed computer software (refer note 14)        (2)           (2)
          Depreciation (refer note 13)                                                      –            (1)
    23.3 cash flows of discontinued operations
          Cash generated from operations                                                   48           31
          Net interest cost                                                                 –            (9)
          Movement in working capital and insurance balances (refer note 38)              139           (15)
          Taxation paid                                                                     –           (11)
          Net cash inflow/(outflow) from operating activities                             187            (4)
          Net cash inflow/(outflow) from investing activities                               8           (12)
          Net cash (outflow)/inflow from financing activities                            (147)            7
          Net cash inflow/(outflow) from discontinued operations                           48            (9)

24. ToTaL EquITy hoLDErs’ funDs
    24.1 Total ordinary shareholders’ funds
          Share capital (note 24.2)                                                         5             5
          Share premium (note 24.3)                                                       220          220
          Non-distributable reserves (note 24.4)                                          245          523
          Accumulated loss                                                                 (6)         (436)
                                                                                          464           312




                                                                                                               61
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     notes to the group financial statements continued
 for the year ended 31 March 2010


                                                                                 2010                            2009
                                                                       number of share capital         Number of    Share capital
                                                                          shares        at par            shares           at par
                                                                            ‘000        r’000               ‘000          R’000

      24. ToTaL EquITy hoLDErs’ funDs (continued)
          24.2 analysis of share capital
                 Authorised:
                 Ordinary shares of 1 cent each                          600 000               6 000    600 000           6 000
                 Ordinary shares of 1 cent each
                 Balance at 31 March                                     461 506               4 615    461 506           4 615



                                                                                                        2010               2009
                                                                                                          rm                 Rm

          24.3 share premium

                 Balance at 31 March                                                                       220                220
          24.4 non-distributable reserves
                 Share option cancellation reserve                                                       124                124
                 Available-for-sale financial assets reserve                                                9                  9
                 Capital redemption cancellation reserve                                                    2                  2
                 Capital distribution reserve                                                            161                161
                 Cash flow hedge reserve                                                                    –                  5
                 Other reserves                                                                           28                  28
                 Foreign currency translation reserve                                                    (119)               173
                 Contingency reserve                                                                      40                  21
                                                                                                         245                523
                 cash flow hedge reserve
                 The South African multi-manager investment subsidiary of the group,
                 Investment Solutions Holdings Limited, previously entered into a hedge
                 arrangement to protect future fee income earned on local equities
                 included in assets under management and administration against a
                 deterioration of the markets.
                 A hedge was taken out with a local financial institution to cover a rolling
                 12-month period, covering approximately 85% of the fee income from
                 local equities included in assets under management and administration
                                2                                                 2
                 for the first 1 months and approximately 75% for the second 1 months.
                 The contracts covered successive months over the hedge period and
                 expired one month apart. Settlement under the hedge occurred monthly
                 at the maturity of each contract. The hedging instrument was a monthly
                 zero coupon spot forward contract on the SWIX40.
                 During the previous financial year hedge contracts beyond 30 June
                 2009 were closed out and Investment Solutions did not enter into any
                 further hedge contracts. A net profit after related costs of R77 million
                 was realised from this transaction (refer note 5).
                 contingency reserve
                 All short-term insurers are required, in terms of the provisions of the
                 Short-Term Insurance Act, 53 of 1998, to maintain a contingency
                 reserve for adverse claims development. This reserve is determined at a
                 minimum of 10% of net written premium as prescribed by the legislation.
                 No distribution of this reserve may be made without the prior consent of
                 the Registrar of Short-Term Insurance


62
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                                                                                                   2010          2009
                                                                                                     rm            Rm

25. fInancIaL LIabILITIEs hELD unDEr MuLTI-ManaGEr InvEsTMEnT
    conTracTs
    25.1 Movement in liabilities under multi-manager and unit trust investment
         contracts
          Opening balance                                                                       134 686        43
                                                                                                              1 473
          Movement	during	the	year:*
          Premium inflows                                                                        30 558        60 718
          Withdrawals                                                                            (31 884)      (56 173)
          Investment return net of taxation                                                      38 211        (13 154)
          Effect of movements in exchange rates                                                   (4 101)        (450)
          Other                                                                                   (5 856)         272
          Closing balance                                                                       161 614       134 686
            T
          *		 his	amount	is	offset	by	a	corresponding	movement	in	multi-manager	and	unit	
            trust	investment	contract	assets	(refer	note	10).

    25.2 Maturity analysis of liabilities under multi-manager and unit trust
         investment contract
          Due within one year                                                                     2 353         2 025
          Due between two and five years                                                             40            31
          Due after five years                                                                         –           10
          Open ended                                                                            159 221       132 620
                                                                                                161 614       134 686
          These policyholder liabilities arise from multi-manager and unit trust
          investment contracts issued by the group’s multi-manager investment
          subsidiaries in South Africa, Namibia and the United Kingdom. The
          policyholder liabilities are directly matched to the linked policyholder
          assets.
          These are financial liabilities classified at fair value through profit or loss –
          held for trading.
          Financial liabilities linked to investment contracts                                  161 574       134 645
          Financial liabilities linked to investment contracts – non-current                         40            41
                                                                                                161 614       134 686




                                                                                                                          63
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     notes to the group financial statements continued
 for the year ended 31 March 2010


                                                                                                     2010    2009
                                                                                                       rm      Rm

      26. LIabILITIEs of cELL capTIvE InsurancE facILITIEs
            Under IFRS, all financial liabilities of Guardrisk Insurance and Guardrisk Life in
            South Africa, Namibia and Mauritius and Euroguard Insurance in Gibraltar are
            included in the consolidated statement of financial position of the group. An
            analysis of the policyholders’ and cell owners’ interests in the financial liabilities
            of these cell captive insurance companies is provided below. The promoter
            cell (or shareholder’s interest) in the other financial liabilities of the cell
            captive insurance companies is included in the relevant line item in the group
            statement of financial position.
            Short-term insurance technical liabilities                                               3 335   3 478
              Gross unearned premium provision                                                       1 804   1 716
              Gross outstanding claims provision                                                     1 087   1 233
              Gross IBNR provision                                                                    444     529
            Long-term insurance technical liabilities
              Policyholder liability                                                                 1 274   1 220
            Insurance liabilities of cell captive insurance facilities                               4 609   4 698
            Other liabilities attributable to policyholders and cell owners*                         2 973   2 800
              Cell owners’ equity                                                                    1 998   1 950
              Payables                                                                                934     830
              Taxation payable                                                                         41      20

                                                                                                     7 582   7 498
            *These	are	designated	as	financial	liabilities	at	fair	value	through	profit	or	loss.

      27.   sEcurITIsaTIon funDInG for housInG Loans
            A subsidiary company of the group issued AAA paper to corporate investors
            through a private placing securitised by housing loans granted to clients in
            2006. The housing loans are secured by the clients’ retirement fund assets
            in terms of the Pension Funds Act, 24 of 1956 as amended. The instruments
            bear interest at market-related rates and are classified as financial liabilities
            at amortised cost. The funding in this subsidiary company forms part of the
            Homeplan operations within Alexander Forbes Financial Services in South
            Africa. In line with management’s review of the operations and the classification
            of these operations as a disposal group held for sale at year end, the assets,
            liabilities, income, expenses and cash flows of this subsidiary company,
            Homeplan Financial Solutions (Proprietary) Limited, have been classified
            as held for sale in order to achieve strategic alignment of core business
            operations within the group. Refer to note 23 for disclosure of all non-current
            assets and liabilities held for sale and results of all discontinued operations.
            Subordinated loan                                                                           –      75
            AAA paper issued to corporate investors                                                     –     675
            Securitised funding for housing loans                                                       –     750
            27.1 Terms of housing loan paper
                   The securitised funding for housing loans is redeemable on 25 July
                   2045. Interest is charged at a variable rate linked to JIBAR and is
                   payable quarterly in arrears on the 25th day of January, April, July and
                   October of each year.




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                                                                                              2010         2009
                                                                                                rm           Rm


27.   sEcurITIsaTIon funDInG for housInG Loans (continued)
      27.2 Maturity analysis of securitisation funding for housing loans
            The securitised funding within Homeplan Financial Solutions (Proprietary)
            Limited matures in July 2010, being the amortisation date of the first
            issue of AAA paper under the securitised funding programme. It is
            anticipated that an external party will repay the note holders at maturity
            and an undertaking has been granted to this effect.

28. borrowInGs
      28.1 Total borrowings
            Current borrowings                                                               2 033         2 242
            Non-current borrowings                                                               1             1
                                                                                             2 034         2 243
      28.2 reconciliation of movement in borrowings
            Opening balance                                                                  2 243         2 477
            Movement	during	the	year:
            Loans repaid                                                                      (209)         (234)
            Closing balance                                                                  2 034         2 243
            There was no breach or default of the covenants of the borrowings
            during the current and prior financial years.
      28.3 analysis of borrowings
            Secured interest-bearing borrowings
              Loan from holding company                                                      2 033         2 242
            Unsecured interest-bearing borrowings
              Other loans                                                                        1             1
            Total interest-bearing borrowings                                                2 034         2 243
      28.4 Loan from holding company
            A loan from the group’s holding company, Alexander Forbes Acquisition
            (Proprietary) Limited, has been provided to various subsidiary companies
            within the group. The loan and all accrued and unpaid interest on the
            loan is repayable (in whole or in part) on demand. The loan bears interest
            as follows: one-third of the unpaid principal balance bears interest at
            17% compounded on a semi-annual basis and two-thirds of the unpaid
            principal balance bears interest at 16,8% compounded on a semi-annual
            basis. The total amount advanced was R2 250 million.
      28.5 Maturity analysis of borrowings
            Payable on demand                                                                2 034         2 243
            Due within one year                                                                  –             –
            Due between two and five years                                                       –             –
                                                                                             2 034         2 243




                                                                                                                    65
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     notes to the group financial statements continued
 for the year ended 31 March 2010


                                                                                                       2010    2009
                                                                                                         rm      Rm

      29. EMpLoyEE bEnEfITs
          29.1 Total employee benefits
                 Defined benefit pension fund obligation – South Africa (note 29.2)                       –       –
                 Defined benefit pension fund obligation – LCP Libera (note 29.3)                         –       –
                 Post-retirement medical benefit obligation – South Africa (note 29.4)                  98      89
                 Provision for leave pay (note 29.5)                                                    60      66
                                                                                                        158     155
                 Substantially all employees are covered by defined contribution
                 retirement fund arrangements in the major territories in which the
                 group operates. The group also has a defined benefit pension fund in
                 South Africa (which is closed to new entrants). Provisions for pension
                 obligations are established for benefits payable in the form of retirement,
                 disability and surviving dependant pensions.
                 The defined contribution and defined benefit pension funds in South
                 Africa are both governed by the Pension Funds Act.
          29.2 Defined benefit pension fund obligation – south africa
                 The closed defined benefit pension fund provides a pension of 2% of
                 final pensionable salary for each year of pensionable service plus 0,5%
                 of final pensionable salary for each year of pensionable service in excess
                 of 25 years. The fund was closed to new members on 31 December
                 1992.
                 The pension fund is funded with the assets of the fund being held
                 independently of the group’s assets in a separate trustee-administered
                 fund.
                 The fund is valued by a statutory actuary on a triannual basis, with a
                 full actuarial assessment being completed on 31 March 2010. The
                 actuary is of the opinion that the fund is in a sound financial position. For
                 accounting reporting, the projected unit credit method is used to value
                 the liability.
                 The membership of the fund as at the last statutory actuarial valuation at
                 31 March 2010 comprised 31 active members and 74 pensioners.
                 The	latest	actuarial	valuation	reflected	the	following:
                 Defined benefit obligation                                                             111     88
                 Fair market value of fund assets                                                      (158)   (141)
                 Funded status – surplus                                                                (47)    (53)
                 Less: Unrecognised amount*                                                              47     53
                 Amount recognised in the statement of financial position                                 –       –
                   I
                 *		n	terms	of	paragraph	58	of	IAS	1 9	Employee	Benefits,	ownership	of	the	surplus	
                   in	the	defined	benefit	pension	fund	cannot	be	recognised	by,	nor	is	it	currently	
                   available,	to	the	group.




66
                                                                                            Alexander Forbes LI M ITE D 2010




                                                                                                         2010         2009
                                                                                                           rm           Rm

29. EMpLoyEE bEnEfITs (continued)
    29.2 Defined benefit pension fund obligation – south africa (continued)
         The nil surplus position for the pension fund at the surplus
         apportionment date, being 1 March 2004, was recorded by the South
         African Financial Services Board.
         The use of any future surplus has not yet been decided but will be
         agreed after consultation between the company and the fund trustees.
         A	reconciliation	of	the	movement	in	the	pension	fund	obligation	is	as	
         follows:
         Opening unrecognised asset                                                                         –             –
         Movement	during	the	year:
            Charge per income statement                                                                     3             3
            Contribution paid*                                                                             (3)           (3)
         Closing unrecognised asset                                                                         –             –
         *	Expected	contributions	to	be	paid	for	the	2011	financial	year	are	R3	million.	

         A	reconciliation	of	the	movement	in	fair	market	value	of	fund	assets	is	as	
         follows:
         Opening balance                                                                                  141           141
         Movement	during	the	year:
            Expected return on plan assets                                                                 13           10
            Contributions                                                                                   3            3
            Risk premiums                                                                                  (1)           (1)
            Benefits paid                                                                                  (6)           (4)
            Actuarial gain/(loss)                                                                           8            (8)
         Closing balance                                                                                  158           141
         A	reconciliation	of	the	movement	of	the	present	value	of	the	defined	
         benefit	obligation	is	as	follows:
         Opening balance                                                                                   88           86
         Movement	during	the	year:
            Current service cost                                                                            2             3
            Interest cost                                                                                   8             8
            Actuarial (gain)/loss                                                                          20            (4)
            Benefits paid                                                                                  (6)           (4)
            Risk premiums                                                                                  (1)           (1)
         Closing balance                                                                                  111           88
         The	charge	per	the	income	statement	is	made	up	as	follows:
         Current service cost                                                                               2             3
         Member contributions                                                                               –             –
         Interest cost                                                                                      8             8
         Expected return on plan assets                                                                   (13)          (10)
         Amortisation charge in terms of paragraph 58 of IAS 19                                             6            2
         Charge per income statement                                                                        3            3




                                                                                                                               67
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     notes to the group financial statements continued
 for the year ended 31 March 2010


                                                                                             2010     2009
                                                                                               rm       Rm

      29. EMpLoyEE bEnEfITs (continued)
          29.2 Defined benefit pension fund obligation – south africa (continued)
                 The	principal	actuarial	assumptions	applied	are	as	follows:
                 Discount rate                                                              9,00%     9,00%
                 Inflation rate                                                             5,25%     5,75%
                 Salary increase rate                                                       6,25%     6,75%
                 Pension increase allowance                                                  3,81%    2,83%
                 Expected rate of return on assets                                          9,25%     9,25%
                 The	mortality	rates	are	assumed	as	follows:
                 Pre-retirement: SA85-90 (Light) table
                 Post-retirement: PA(90) ultimate table rated down two years plus 1%
                                  improvement per annum from 28 February 2004
                 Expected return on assets
                 The fund's expected long-term return is a function of the expected long-
                 term returns on equities, cash and bonds. In setting these assumptions,
                 the group made use of the asset split as at 28 February 2010 (2009:
                 28 February 2009). The expected long-term rate of the return on bonds
                 was set at the same level as the discount rate. This implies a yield on
                 government bonds of 9% (2009: 9%) per annum as at 31 March. The
                 expected long-term rate of return on equities was set at a level of 3%
                 (2009: 3%) above the bond rate, whilst the expected long-term rate of
                 return on cash was set at a level of 2% (2009: 2%) below the bond rate.
                 Adjustments are made to reflect the effect of expenses.
                 The	plan	assets	of	AF	Staff	Pension	Fund	were	invested	as	follows:
                 Cash                                                                        9,70%   15,21%
                 Equity                                                                     26,91%   23,40%
                 Bonds                                                                      40,76%   35,97%
                 Property                                                                    2,07%    1,59%
                 International                                                               7,04%    8,50%
                 Other                                                                      13,52%   15,33%
                                                                                             100%     100%
          29.3 Defined benefit pension fund obligation – Lcp Libera
                 The employees of LCP Libera (Switzerland) contribute to a defined
                 contribution pension fund which provides a minimum pension fund
                 obligation based on the Pensionskasse ATAG Treuhand (PK ATAG). There
                 are 78 active members in this fund.
                 The pension fund is funded with the assets of the fund being held
                 independently of the group’s assets in a separate trustee-administered
                 fund. At 31 March 2010 and 31 March 2009, all pension fund assets
                 were invested in money market instruments.
                 The fund is valued by a statutory actuary on a triannual basis, with the
                 last full actuarial assessment being completed on 1 June 2008. For
                 accounting reporting, the projected unit credit method is used to value
                 the liability. This is based on an actuarial projection of the statutory
                 valuation updated to 31 March 2010 taking into account market
                 conditions and the fund's experience to date.




68
                                                                                        Alexander Forbes LI M ITE D 2010




                                                                                                     2010         2009
                                                                                                    chf m        CHF m

29. EMpLoyEE bEnEfITs (continued)
    29.3 Defined benefit pension fund obligation – Lcp Libera (continued)
         The	latest	actuarial	valuation	reflected	the	following:
         Defined benefit obligation                                                                    24           23
         Fair market value of fund assets                                                             (22)          (20)
         Funded status deficit                                                                          2             3
         Less: Unrecognised actuarial gain                                                             (2)           (3)
         Amount recognised in the statement of financial position                                       –             –
         A	reconciliation	of	the	movement	in	the	pension	fund	obligation	is	as	
         follows:
         Opening unrecognised asset                                                                     –             –
         Movement	during	the	year:
            Charge per income statement                                                                 1             1
            Contribution paid*                                                                         (1)           (1)
         Closing unrecognised asset                                                                     –             –
         *	Expected	contributions	to	be	paid	for	the	2011	financial	year	are	CHF1.3	million.

         A	reconciliation	of	the	movement	in	fair	market	value	of	fund	assets	is	as	
         follows:
         Opening balance                                                                               20           23
         Movement	during	year:
            Expected return on plan assets                                                              1            1
            Contributions paid by employer                                                              2            1
            Contributions paid by employees                                                             1            1
            Benefits paid                                                                              (1)           –
            Actuarial loss                                                                             (1)           (6)
         Closing balance                                                                               22           20
         The	charge	per	the	income	statement	is	made	up	as	follows:
         Current service cost                                                                           1            1
         Interest cost                                                                                  1            1
         Expected return on plan assets                                                                (1)           (1)
         Expense recognised in profit and loss                                                          1            1
         The	principal	actuarial	assumptions	applied	are	as	follows:
         Discount rate                                                                              3,25%         3,75%
         Salary increase rate                                                                       1,50%         2,00%
         Pension increase allowance                                                                 0,00%         0,00%
         Expected rate of return on assets                                                          4,00%         4,25%




                                                                                                                           69
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     notes to the group financial statements continued
     for the year ended 31 March 2010


                                                                                                                 2010           2009
                                                                                                                   rm             Rm

      29. EMpLoyEE bEnEfITs (continued)
          29.4 post-retirement medical benefit obligation – south africa
                 In South Africa, certain employees, who joined the group prior to
                 1 March 1997, are entitled to a post-retirement medical aid subsidy.
                 At 31 March 2010, this applies to a total of 367 people (2009: 384)
                 and comprises 107 active employees (2009: 119) and 260 pensioners
                 (2009: 265). Employees who joined the group after 1 March 1997 are
                 not eligible for post-retirement medical aid subsidies.
                 The post-retirement medical aid subsidy paid to pensioners is linked to
                 the inflation (CPIX) rate. In order to compensate for the subsidy increase
                 being different to medical aid inflation, a hardship fund was established
                 by the group in 2004 to provide assistance to specifically identified
                 pensioners in financial need.
                 The obligation is valued annually by actuaries using the projected unit
                 credit method. The date of the last actuarial valuation was 31 March
                 2009. The post-retirement medical obligation is partly funded through
                 a cell captive insurance arrangement with a subsidiary company of the
                 group (the assets of the insurance cell totalled R75 million at 31 March
                 2010 (2009: R71 million).
                 The	latest	actuarial	valuation	reflected	the	following:
                 Medical benefit obligation                                                                        82             73
                 Hardship fund liability                                                                           12             12
                 Add: Unrecognised past service cost                                                                4              4
                 Recognised liability in the statement of financial position                                       98             89
                 A	reconciliation	of	the	movement	in	the	post-retirement	medical	benefit	
                 obligation	in	South	Africa	is	as	follows:
                 Opening balance                                                                                   89             85
                 Movement	during	the	year:
                 Charge per income statement                                                                        8              9
                 Additional provision                                                                               6              –
                 Contributions paid*                                                                                (5)            (5)
                 Closing balance                                                                                   98             89
                   E
                 *		 xpected	contributions	to	be	paid	for	the	2011	financial	year	are	R6	million	(2010:	
                   R6	million).

                 The	charge	per	the	income	statement	is	made	up	as	follows:
                 Current service cost                                                                               1              2
                 Interest cost                                                                                      7              7
                 Charge per income statement                                                                        8              9


                 The	principal	actuarial	assumptions	applied	are	as	follows:
                 Discount rate                                                                                  9,00%          9,25%
                 Inflation (CPIX) rate                                                                          5,25%          6,25%
                 Retirement age                                                                            60/65 years    60/65 years




70
                                                                              Alexander Forbes LI M ITE D 2010




29. EMpLoyEE bEnEfITs (continued)
    29.4 post-retirement medical benefit obligation – south africa (continued)
         Withdrawal and mortality rates
         Withdrawal	rates	are	assumed	to	be	as	follows:
                                                                                   2010                       2009
                                                                                annual rate                      Annual rate
                                                                          age of withdrawal             Age    of withdrawal

                                                                              20             15%         20            15%
                                                                              25             10%         25            10%
                                                                              30             7%          30             7%
                                                                              35             4%          35             4%
                                                                              40             2%          40             2%
                                                                          45+                0%         45+             0%
         Mortality	rates	are	assumed	as	follows:
         During employment: SA85-90 (Light) ultimate table
         Post-employment: PA(90) ultimate table rated down two years plus 1% improvement per annum (from a base
                          year of 2006).
                                                                                               CPI
                                                                                                 Central
                                                                                             assumption
                                                                                    -1%          5,25%                 +1%

           The	effects	of	a	(decrease)/increase	of	a	one	percent	
           change	in	the	assumed	medical	cost	trend	rates	on:
           Accrued liability 31 March 2010 – Rm                                      74                 82              91
           Accrued liability 31 March 2010 – % change                              -9,5%                 –           +11,3%
                                                        1
           Current service cost and interest cost 2010/1 – Rm                         7                  8                9
                                                        1
           Current service cost and interest cost 2010/1 – %
           change                                                              -10,6%                    –           +12,7%

          The	trend	information,	for	the	current	annual	period	and	
          the	previous	for	annual	periods,	is	presented	as	follows:	
                                                                       2010         2009      2008           2007      2006
                                                                        rm            Rm        Rm             Rm        Rm

            Present value of obligations                                82            86           86         88         76
            Fair value of plan assets                                    –             –            –          –          –
            Deficit in the plan                                         82            86           86         88         76
            Experience	adjustments:
            Present value of obligations                                 6             (3)          3          (5)        (3)
            Fair value of plan assets                                    –             –            –          –          –
                                                                         6             (3)          3          (5)        (3)




                                                                                                                                71
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     notes to the group financial statements continued
     for the year ended 31 March 2010


                                                                                             2010    2009
                                                                                               rm      Rm

      29. EMpLoyEE bEnEfITs (continued)
          29.5 provision for leave pay
                 Opening balance                                                              66      65
                 Movement	during	the	year:
                    Increase in provision                                                       8      2
                    Decrease in provision                                                     (12)     –
                    Foreign subsidiaries exchange differences                                  (2)     (1)
                 Closing balance                                                              60      66
                  The group’s policy is that leave days are forfeited at the end of each
                  annual leave cycle, unless a carry-forward of leave days is specifically
                  authorised or provided for in an employment agreement. The timing of
                  the utilisation of the leave pay provision depends on employees’ leave
                  plans and resignations from employment during the year.

      30. DEfErrED TaxaTIon
          30.1 net deferred tax asset/(liability) balance
                 Deferred tax assets (note 30.3)                                              158     148
                 Deferred tax liabilities (note 30.4)                                         (49)    (87)
                                                                                              109      61
          30.2 reconciliation of movement in the net deferred tax asset/(liability)
               balance
                 Opening balance                                                              61       (8)
                 Movement	during	the	year:
                    Charged per income statement                                               57     35
                    Charge directly to equity                                                  (3)      –
                    Degrouping tax charge resulting from the sale of IRS business               –      32
                    Foreign subsidiaries exchange differences                                  (6)      2
                 Closing balance                                                              109      61
          30.3 analysis of deferred tax assets
                 Retirement benefit obligations                                               25      24
                 Deferred income                                                              59       74
                 Unrecognised tax losses                                                      49      30
                 Provisions                                                                   46       17
                 Other items                                                                  (21)     3
                 Total deferred tax assets                                                    158     148
          30.4 analysis of deferred tax liabilities
                 Work-in-progress                                                             (18)    (50)
                 Deferred tax on policyholder assets                                          (46)    (32)
                 Accelerated tax allowances, provisions and other items                        15      (5)
                 Total deferred tax liabilities                                               (49)    (87)




72
                                                                                    Alexander Forbes LI M ITE D 2010




                                                                          Proposed Provision for
                                                                              client professional
                                                                        settlements    indemnity             Other           Total
                                                                                 Rm           Rm               Rm             Rm

31.   provIsIons
      31.1 analysis and reconciliation of movement in
           provisions
            Opening balance at 1 April 2008                                     338            257              63           658
            Movement	during	the	year:
              Increase in provision                                                –            45               –             45
              Interest accrued                                                   34               –              –             34
              Decrease in provision                                              (87)           (51)           (19)          (157)
              Foreign subsidiaries exchange differences                            –            (32)            (6)           (38)
            Closing balance at 31 March 2009                                    285            219              38           542
            Movement	during	the	year:
              Increase in provision                                             325               3             48           376
              Interest accrued                                                   20               –              –             20
              Decrease in provision                                            (176)            (54)           (26)          (256)
              Foreign subsidiaries exchange differences                            –            (30)           (18)           (48)
            Closing balance at 31 March 2010                                    454            138              42           634


            The provision for proposed client settlements is current in nature while all other provisions are considered to be
            non-current. Uncertainties affecting the timing and amount of the settlement of provisions are discussed in the
            relevant note below.
      31.2 provision for client settlements and other legal claims
           In the past, the company voluntarily appointed independent legal advisors to conduct a full review of past and
           current business practices across all of the South African operations. The results of the review were fully disclosed
           to the regulator and published on the group’s website. Following this review in 2006, the provision for proposed
           client settlements for historical business practices, including the practice referred to as “bulking”, was made.
           Interest accrues on this provision at the prime lending rate less 4% up to the date of settlement payments.
            To date, the company has made substantial progress in relation to the client settlement process regarding bulking,
            with the vast majority of all retirement funds who received offers having accepted the settlement offer. The
            settlement offers are made in full and final settlement of the matter, however, a contingent liability will remain in
            respect of any clients who do not accept the settlement offer.
            Alexander Forbes Financial Services (Proprietary) Limited, resolved its liability in respect of the Lifecare civil claim
            by the curators/liquidators. The settlement amount has been provided in full and will be substantially covered
            through insurance which has been raised as a receivable.
      31.3 provision for professional indemnity exposure
           The group’s professional indemnity risk is insured in the London market with a limit of £100 million for each claim
           and in the annual aggregate in excess of £7,5 million. The first £7,5 million of each claim (subject to a deductible
           of £65 000/R1 million per claim and in the annual aggregate) is insured with a third party cell captive insurer,
           Mannequin Insurance PCC Limited (“the Mannequin policy”). In the event that the £7,5 million is utilised in any one
           year, a deductible of £250 000 per claim will be applied by the international market.
            The international market policy covers all subsidiary and associate companies, except for Lane Clark & Peacock.
            The Mannequin policy excludes associates and non-wholly owned operations, with some exceptions. Such
            operations are required to insure their own risk up to a limit of £1,25 million, after which they are included in the
            group’s London market policy up to an additional limit of £8,75 million, providing them total cover of £10 million.
            Lane Clark & Peacock effect their own cover with a limit of £50 million.




                                                                                                                                     73
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     notes to the group financial statements continued
     for the year ended 31 March 2010

      31.   provIsIons (continued)
            31.3 provision for professional indemnity exposure (continued)
                 The group has an equity investment in a cell in Mannequin Insurance PCC Limited, which entitles the group to the
                 underwriting profits earned by this insurance cell. The group is required to maintain the insurance cell adequately
                 capitalised. Additional capital is required to be paid in the event that underwriting losses are incurred by the
                 insurance cell.
                  The assets, liabilities, income statement and cash flow effects attributable to the group’s investment in the
                  Mannequin insurance cell are included in the consolidated financial statements of the group. The effect is to
                  eliminate the premium payments to the cell captive insurer on consolidation and to recognise the assets, liabilities,
                  cash flows and net operating result of the insurance cell in the consolidated financial statements of the group. The
                  insurance premiums charged to the various group operations continue to be allocated to the relevant businesses
                  in determining the trading results of operations reflected in the segmental profit analysis.
                  The consolidation of the Mannequin insurance cell increases the potential for greater volatility in reported earnings.
                  For this reason, the net operating result arising from the consolidation of the insurance cell is shown as a separate
                  line item in the income statement.
            31.4 other provisions
                  Other	provisions	include	the	following:
                  – Provision for clawback of commissions received by the group. This provision is based on historical client lapse
                    experience; however it may not be representative of future client lapse experience which will affect the quantum
                    of commission required to be repaid to insurers.
                  – Provision for contractual obligations in relation to premises leases entered into in the United Kingdom, which
                    require the relevant buildings to be refurbished at the end of the lease term. The nature of the actual expenditure
                    and quantum thereof will only be determined at the end of the lease term.
                  – Provision for onerous premises leases. This provision is based on management’s best estimate but conditions
                    may change regarding the likelihood, timing and commercial terms of sublease arrangements in respect of
                    unoccupied office space.


                                                                                                            2010                2009
                                                                                                              rm                  Rm

      32. DEfErrED IncoME
            non-current deferred income
            premises lease deferral: Accelerated recognition of lease costs resulting from
            straight-lining of lease expenses (with no recognition of time value of money) in
            terms of IAS 17                                                                                   103                 135
            current deferred income
            risk services: Insurance broking commission and fee income – income deferred
            to cover future servicing costs, together with a reasonable margin thereon                         70                  79
            risk services: Underwriting agency income – income deferred to cover future
            servicing costs, together with a reasonable margin thereon                                         17                  20
            financial services: Commission income on insurance and investment products
            – income deferred to cover future servicing costs, together with a reasonable
            margin thereon                                                                                     19                  28
            Multi-manager Investment and financial services: Structured product fees
            spread evenly over the expected period of the contract                                              1                   1
                                                                                                              210                 263




74
                                                                                         Alexander Forbes LI M ITE D 2010




                                                                                                      2010         2009
                                                                                                        rm           Rm

33. InsurancE payabLEs
    33.1 Total insurance payables
          Insurance payables from broking activities                                                   423          445
          Reinsurance creditors                                                                        163           95
          Claims float held for insurance operations                                                    18           23
          Payable from short-term insurance contracts                                                  279          209
            Gross unearned premium provision                                                            66           41
            Gross outstanding claims provision                                                         185           150
            Gross IBNR provision                                                                        28           18
          Payable from long-term insurance contracts
            Policyholder liability under long-term insurance contracts – Group life                    181           126
            Payable from umbrella fund activities*                                                     546          481
                                                                                                     1 610         1 379
            A
          *		 	substantial	portion	of	the	payables	from	umbrella	fund	activities	results	from	a	
            timing	difference	between	the	receipt	of	funds	from	new	clients	at	year	end	and	the	
            investment	of	these	funds	with	the	group's	multi-manager	investment	subsidiary	
            subsequent	to	year	end.

    33.2 policyholder liability under long-term insurance contracts – Group life
          The policyholder liability arises from group life business written by a long-
          term insurance subsidiary of the group. The net liability position comprises:
          Gross policyholder liability (refer note 33.1 above)                                         181           126
          Less: Reinsurance assets relating to the policyholder liability (refer note 20)             (155)         (108)
          Net liability to policyholders                                                                26           18
          A reconciliation of the movement in the net policyholder liability is as
          follows:
          Opening balance                                                                               18            14
          Movement	during	the	year:
            Net increase in claims experience                                                           11             6
            Benefits payments and withdrawals                                                           (4)           (3)
            Investment income                                                                            1             1
          Closing balance                                                                               26           18
    33.3 net payables from short-term insurance contracts
          The net payables from short-term insurance contracts arise from short-term
          insurance business written by the short-term insurance subsidiaries of the
          group. The net payables position comprises:
          Payable from short-term insurance contracts (refer note 33.1 above)                          279          209
          Less: Receivable from short-term insurance contracts (refer note 20)                        (206)         (125)
          Net payable from short-term insurance contracts                                               73           84
          A reconciliation of the movement in the net policyholder liability is as
          follows:
          Opening balance                                                                               84           82
          Movement	during	year:
            Net claims incurred                                                                         28           27
            Other movements                                                                            (39)          (25)
          Closing balance                                                                               73           84


                                                                                                                            75
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     notes to the group financial statements continued
     for the year ended 31 March 2010


                                                                                                    2010               2009
                                                                                                      rm                 Rm

      34. TraDE anD oThEr payabLEs
          Financial	liabilities:
          Trade payables                                                                              195               262
          Accrued expenses                                                                            185               136
          Other payables                                                                              154               317
                                                                                                     534                715
          Non-financial	liabilities:
          Employee-based accruals                                                                    308                364
          Taxation payable                                                                             91                45
                                                                                                     933              1 124




                                                                                    Furniture
                                                                              fittings, office
                                                                                  equipment         Total               Total
                                                                  Premises         and other        2010               2009
                                                                       Rm                  Rm         rm                 Rm

      35. coMMITMEnTs
          35.1 operating lease commitments
                 The	future	minimum	lease	payments	under	
                 non-cancellable	operating	leases	are	as	
                 follows:
                 Due within one year                                   175                17          192               148
                 Due between two to five years                         335                19         354                327
                 Due after five years                                  143                  4         147                 30
                                                                       653                40         693                505


                 The funds to meet these commitments will be provided from internal cash resources generated by operations.

                                                                                                    2010              2009
                                                                                                      rm                Rm

          35.2 capital commitments
                 Commitments in respect of capital expenditure approved by directors:
                 Contracted for                                                                         7                     7
                 Not contracted for                                                                     3                     4
                                                                                                       10                 11
                 The funds to meet these commitments will be provided from internal cash
                 resources generated by operations.




76
                                                                                 Alexander Forbes LI M ITE D 2010




35. coMMITMEnTs (continued)
    35.3   revolving credit facility
           Alexander Forbes International Limited (“AFIL”) and Alexander Forbes Acquisition (Proprietary) Limited
           (“AF Acquisition”), the direct holding company of Alexander Forbes Limited, entered into a revolving credit facility
           agreement with the FirstRand Group of companies for a maximum aggregate amount of R200 million. The
           maximum Sterling amount available to AFIL is £7 million with the Rand equivalent of the remaining aggregate
           balance available to AF Acquisition.
           This Rand-denominated facility to AF Acquisition bears interest at a variable rate equal to the Rand overnight
           deposit run plus an applicable margin and accrues on a one-, three- or six-month period, as determined by AFIL.
           The margin applied to both facilities is 4% until certain undertakings have been fulfilled, at which time the margin
                                                                                                 4
           reduces to 3.5%. The revolving credit facility is available for drawing until July 201 and drawings are permitted
           as and when required during the availability period, upon satisfaction of customer conditions.
           Under the revolving credit facility, a commitment fee is payable to the lender in respect of each calendar quarter
           until the final payment date. The commitment fee is calculated as 0,9% of the average amount available for
           drawdown during the quarter, calculated daily and payable in arrears on 31 May and 30 November each calendar
           year.
           The outstanding balance on the revolving credit facility is obliged to be repaid upon a “mandatory redemption
           event” or an “early redemption event”, both as defined in the preference share agreement. The repayment must
           occur within 30 days of demand of such repayment.
           This facility ranks pari	passu with senior debt preference shares issued by AF Acquisition as set out in the inter-
           creditor agreement. The Sterling revolving credit facility has a guarantee by AF Acquisition which has irrevocably
           and unconditionally guaranteed punctual performance by AFIL of its obligations. AF Acquisition will, whenever
           AFIL does not pay any amount due, immediately pay such obligation on demand.
    35.4   Intercreditor agreement
           To establish the relative rights of certain of the creditors within the group under the financing arrangement,
           various companies within the group entered into an intercreditor agreement with the debt funders, including the
           funders of the preference share, revolving credit facility, high-yield bridge loan and Pay-in-Kind debentures. The
           inter-creditor agreement sets out the relative ranking of the financing obtained and of the security granted within
           the subsidiary companies of the group. The inter-creditor agreement also sets out when payments can be made
           in respect of the debt, when enforcement action can be taken in respect of the debt, the terms pursuant to which
           certain of the debt will be subordinated upon the occurrence of certain insolvency events, turnover provisions
           and when security and guarantees can be released to permit an enforcement sale.
    35.5   Guarantors under the high-yield bridge loan agreement
           Various subsidiary companies within the group are guarantors under the high-yield bridge loan agreement.
           As such, these subsidiary companies have absolutely, unconditionally and irrevocably guaranteed the full and
           punctual payment of the principal and interest, fees and premium (if any) on the bridge loan and any other
           obligation under this agreement.

36. conTInGEncIEs
    36.1   overview
           In the conduct of its ordinary course of business, the group is exposed to various actual and potential claims,
           lawsuits and other proceedings relating to alleged errors and omissions, or non-compliance with laws and
           regulations. The directors are satisfied, based on present information and the assessed probability of claims
           eventuating, that the group has adequate insurance programmes and provisions in place to meet such claims.
           However, like all businesses of this type, the risk exists that significant adverse developments in past claims, or a
           significant increase in the frequency or severity of future claims for errors and omissions, could have a material
           effect on the group’s reported results.
           The structure of the group’s professional indemnity insurance programme is explained in note 31.3 to these
           financial statements.
    36.2   proposed client settlement arising from historical business practices
           Through the South African Financial Services business, Alexander Forbes acts as administrators for a large number
           of retirement funds. ‘‘Bulking’’ is the term used to describe the practice of aggregating, on a notional basis, the
           total value of all retirement funds’ bank current accounts in order to negotiate better interest rates with the banks
           on behalf of the retirement funds. From 1996 through 2004, approximately 1 700 of the retirement funds’ clients
           benefited significantly from the practice of bulking with the total amount of interest attributable to the bulking
           arrangements that was earned by these retirement funds exceeding R1 billion. In addition, as administrator for
           these funds, Alexander Forbes also received income from the bulking arrangements which, management is now
           aware, was historically not adequately disclosed to clients. Alexander Forbes undertook a comprehensive review
           of these practices beginning in late 2003 and voluntarily terminated the practice of receiving income from bulking
           in September 2004.


                                                                                                                                 77
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     notes to the group financial statements continued
     for the year ended 31 March 2010

      36. conTInGEncIEs (continued)
          36.2    proposed client settlement arising from historical business practices (continued)
                  In order to resolve any potential claims related to this bulking matter, Alexander Forbes is in the process of making
                  settlement offers to all of the affected retirement funds, in terms of which the retirement funds will be placed in
                  the position they would have been in had a full corporate cash management rate of interest been paid on their
                  current account balances over the relevant period. In determining this calculation, allowance has been made for
                  additional interest, as well as retirement fund taxes that would have been earned and incurred by the funds, had
                  they been paid at the full corporate cash management rate of interest.
                  The aggregate settlement amount that the company proposes to be paid to the retirement funds equates to the
                  total net amount of income earned by the company from the bulking practice together with interest thereon over
                  the entire period that the group historically benefited from the arrangements. The aggregate cost thereof was
                  determined in the 2006 financial year and amounted to R380 million, which included a R12 million voluntary
                  contribution to the South African Financial Services Board (“SAFSB”) Consumer Education Fund, which is in part
                  being used for the training of trustees of retirement funds. During the settlement process, interest will continue to
                  accrue on settlement amounts up to the date of payment.
                  To date, the company has made substantial progress in relation to the client settlement process regarding bulking,
                  with approximately 95% of active retirement fund clients having accepted the settlement offer. The settlement
                  offers have been made in full and final settlement of the bulking matter, however a contingent liability will remain
                  in the event that all clients do not accept the settlement offer.
                  In response to the bulking matter, as part of the commitment to meet the highest standards of governance and
                  integrity, Alexander Forbes appointed independent legal advisers and auditors to conduct a full review of the
                  past and current business practices across all of the South African operations of the group during 2006. The
                  results of this review were fully disclosed to the regulator and published on the group’s website. As a result of this
                  review and on advice from the independent advisers, the company made provision for an additional R120 million
                  in respect of additional specific proposed client settlements relating to potential exposures reported following
                  completion of this wider review. Interest accrues on these settlement amounts up to the date of payment. As of
                  the date of these financial statements, the group has continued to make progress with settlement payments to
                  clients in respect of these other past practice issues. In order to expedite this process, these payments will not be
                  conditional upon clients accepting that the matter has been fully and finally settled. A contingent liability remains
                  in this regard.
          36.3    Lifecare matter
                  During the period 1992 to 1997, and through its Financial Services business unit, the company provided
                  consulting, actuarial and administrative services to the Lifecare Group Holdings Pension Fund (“the Lifecare
                  Fund’’). According to a civil application brought by the curators of the relevant funds for in excess of R1 billion,
                  the Lifecare Fund was used in an alleged unlawful scheme devised by certain external parties to obtain access to
                  the surpluses in a number of transferor funds, and to transfer such surpluses for the ultimate benefit of persons
                  other than the members or pensioners of the transferor funds in question. There is no allegation and no evidence
                  that either the company or any of its employees or former employees received any of the surpluses that allegedly
                  left these funds
                  As a result of the same matter, a number of individuals and entities have been criminally charged by the State,
                  including two former employees of the company. As a result, the company itself has been charged in terms
                  of section 332 of the Criminal Procedure Act. In summary, section 332 provides that a company may be held
                  criminally liable for the unlawful conduct of its employees, servants and/or directors.
                  In respect of the civil matter, a without-admission-of-liability settlement agreement has been entered into between
                  Alexander Forbes Financial Services (Proprietary) Limited and the curator of the relevant funds. This settlement will
                  be substantially covered through insurance. The liability arising from the settlement offer made is not considered
                  contingent and has been fully provided in these financial statements. In addition, a receivable from insurers to
                  the extent that they have confirmed their support and amount of their portion of the liability has been raised as
                  a receivable in these financial statements. The net financial impact to the group after such insurance recoveries
                  amounts to R116 million.
          36.4    road accident fund (“raf”) matter
                  In October 2007 the RAF announced that it was discontinuing (with retrospective effect) the payment of a legal
                  cost contribution to attorneys for work done on behalf of the group’s clients. The RAF decision was based on
                  a change in the interpretation of legislation governing the RAF. Attorneys contracted on behalf of the group’s
                  clients are due outstanding fees from the RAF as a result. In the interests of protecting its clients, the group has
                  agreed to reimburse the attorney fees as and when the RAF settles the clients’ claims. Management strongly
                  disagrees with the RAF interpretation of the legislation and in particular its attempt to retrospectively apply the
                  new interpretation. We have been advised by senior counsel that a claim can be instituted against the RAF. In
                  view of sustaining a continued working relationship with the RAF and the risks involved in litigation, the Group
                  has taken the view not to pursue this matter through legal recourse. Alexander Forbes Compensation Technology
                  (Proprietary) Limited will therefore continue to pay the attorneys their fees as the claims are settled by the RAF.


78
                                                                   Alexander Forbes LI M ITE D 2010




                                                                                2010         2009
                                                                                  rm           Rm

37.   cash GEnEraTED froM TraDInG opEraTIons
      Profit before taxation from continuing operations                          699          536
      Cash	items:
      Net interest paid                                                          380          329
      Dividend received – associates                                               2             2
      Non-cash	items:
      Share of net profits of associates                                          (2)           (1)
      Depreciation of property and equipment                                      78           75
      Amortisation of intangible assets                                           14            15
      Impairment losses and recoveries                                            35           157
      Capital gains                                                              (73)           (3)
      Income statement charge for retirement benefit obligations                  14             9
      Movement in borrowings                                                                     –
      Movement in provisions                                                     (40)           11
      Movement in other non-cash items                                           (88)          (14)
                                                                               1 019         1 116

38. MovEMEnT In worKInG capITaL anD InsurancE baLancEs
      Continuing	operations:
      Movement	in	working	capital	balances
      Trade and other receivables                                                132          167
      Trade and other payables                                                  (240)         (150)
      Movement	in	insurance	balances
      Insurance receivables                                                     (198)           (6)
      Insurance payables                                                         227          (664)
      Foreign subsidiaries exchange differences                                  (48)            2
                                                                                (127)         (651)
      Discontinued	operations:
      Movement	in	working	capital	balances
      Trade and other receivables                                                103            (2)
      Trade and other payables                                                    32           (12)
      Movement	in	insurance	balances
      Insurance receivables                                                       (2)            –
      Insurance payables                                                           6             –
      Foreign subsidiaries exchange differences                                    –            (1)
                                                                                 139           (15)
                                                                                  12          (666)




                                                                                                      79
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     notes to the group financial statements continued
 for the year ended 31 March 2010


                                                                                            2010    2009
                                                                                              rm      Rm

      39. TaxaTIon paID
          Taxation payable at beginning of year                                              (45)    (12)
          Prepaid taxation at beginning of year                                              49      18
          Charge in income statement                                                        (203)   (160)
          Adjusted	for:
          Tax attributable to policyholders                                                   13       5
          Deferred tax charge per income statement                                           (75)    (35)
          Reclassification of degrouping tax charge                                            –     (32)
          Tax payable in UK partnership                                                       14     (15)
          Foreign subsidiaries exchange differences                                           (4)      3
          Prepaid taxation at end of year                                                    (18)    (49)
          Taxation payable at end of year                                                    91       45
                                                                                            (178)   (232)

      40. acquIsITIon of subsIDIarIEs anD busInEssEs
          40.1 acquisition
                 During the previous financial year the group acquired 60% of Femi
                 Johnson & Company Limited in Nigeria, a well-established short-term
                 insurance broker, and 100% of a payroll bureau business in South Africa.
                 Fair value of net assets acquired                                             –      17
                 Non-controlling shareholders                                                  –       –
                 Fair value of net assets attributable to equity holders                       –      17
                 Liabilities recognised in terms of IFRS 3 Business	Combinations               –     (10)
                 Purchase of non-controlling shareholders                                      –      (3)
                 Intangible assets arising on acquisition                                      –       1
                 Goodwill arising on acquisition                                               –      15
                 Total purchase consideration                                                  –     20
                 Cash flows arising from acquisition of subsidiaries and businesses
                 Total purchase consideration                                                  –     (20)
                 Less: Deferred purchase consideration payable in future periods               –       2
                 Total cash consideration paid for acquisitions                                –     (18)
                 Less: Cash balances of subsidiaries and businesses acquired                   –       5
                 Net cash outflow from subsidiaries and businesses acquired                    –     (13)
          40.2 Disposals
                 During 2010, the group disposed of three of its non-core business
                 operations, namely Chambers Townsend Consulting Limited, FIHRST
                 Management Services (Proprietary) Limited and the operations within
                 Ticketseg Corretora de Seguros S.A.
                 Fair value of net assets sold                                                17       –
                 Consideration received in cash                                              59        –
                 Cash and cash equivalents disposed of                                       (14)      –
                 Net cash inflow                                                             45        –




80
                                                                                     Alexander Forbes LI M ITE D 2010




41.   rELaTED parTy DIscLosurE
      List of related party disclosure
      41.1 Major equity holders
           Alexander Forbes Acquisition (Proprietary) Limited owns 100% of the issued share capital of Alexander Forbes
           Limited.
            The ultimate holding company of the group is Alexander Forbes Equity Holdings (Proprietary) Limited.
      41.2 subsidiaries, joint ventures and associates
           Details of subsidiaries, joint ventures and associates, which are considered material to the group and in respect of
           which the group has a continuing interest, are provided in Annexure B to these financial statements.
      41.3 post-employment benefit plans
           Details of retirement benefit plans are provided in the relevant note to these financial statements.
      41.4 Directors
           Details of the directors of the company are provided in the directors’ report.
      41.5 Key management personnel
           Key management personnel have been defined as group executive directors on the Alexander Forbes Limited
           board and executive directors on the Alexander Forbes South Africa and International boards.
            summary of related party transaction
      41.6 Transactions with shareholders
           Alexander Forbes Limited has a loan with its holding company of R2 034 million at year end. This loan consists of
           two portions, namely a Rand-based loan of an initial amount of R750 million bearing interest at 17% compounded
           semi-annually and a Rand-based loan of an initial value of R1 500 million bearing interest of 16,8% compounded
           semi-annually. For more details on the above loan, refer to note 28.
      41.7 Transactions with subsidiaries, joint ventures and associates
           Details of dividends and fees received from subsidiary companies are provided in the company financial statements.
           The company has loans to and from its subsidiary companies, details of which are provided in Annexure B to these
           financial statements. All transactions and balances with subsidiaries are eliminated on consolidation in line with
           the group’s accounting policies.
            There have been no material transactions with joint ventures or associates during the year.
      41.8 Transactions with post-employment benefit plans
           Contributions to retirement benefit plans amounted to R4 million to the defined benefit fund and R5 million to the
           post-retirement medical obligation plan, as detailed in the relevant note to these financial statements. There are no
           amounts outstanding at year end. Assets of the retirement benefit plans are invested through Investment Solutions
           Limited, these assets amout to R941 million (2009: R721 million).

            The retirement benefit plans of the company are compulsory funds and as such key management are participants
            in the fund. At 31 March 2010, the investments held through the retirement benefit plans by key management are
            R1 2,6 million (2009: R8,7 million).
      41.9 Transactions with directors
           The remuneration of executive directors is determined and approved by the Remuneration Committee. The remuneration
           of non-executive directors, in the form of fees, is approved by shareholders at each annual general meeting.
            The Remuneration Committee consists entirely of non-executive directors. As a committee of the board, the
            committee determines, agrees and develops the general policy on executive directors’ and senior management’s
            remuneration. The objective is to ensure that such remuneration is fair, responsible and appropriate and that the
            conditions of employment and remuneration scales, including share and other incentive schemes, are market related
            and at levels sufficient to attract, retain and motivate individuals of quality, taking account of the fact that the group
            is an international business. The Remuneration Committee is also mandated to determine the criteria necessary to
            measure the performance of the executive directors in discharging their responsibilities. There are no management,
            consulting, technical or other fees, nor any commission paid to directors other than what is disclosed below.

                                                                                                         2010                 2009
                                                                                                           rm                   Rm

        .1
      41 0 Transactions with key management personnel
            Compensation	paid	to	key	management	personnel	is	as	follows:
            Short-term employee benefits (salary, bonus and other benefits)                                 56                   36
            Post-employment benefits                                                                          3                   2
            Other long-term employee benefits                                                                 1                   1
                                                                                                            60                   39

            Certain levels of management participate in the Alexander Forbes
            Management Trust and the Alexander Forbes Management Co-investment
            Trust. Both trusts hold ordinary shares in the ultimate holding company,
            Alexander Forbes Equity Holdings (Proprietary) Limited.                                                                   81
  Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




     notes to the group financial statements continued
 for the year ended 31 March 2010

      42. rEconcILIaTIon of rEporTED IncoME froM opEraTIons
          The group has applied the revised statement on IAS1 Presentation	 of	 Financial	 Statements (2007), which became
          effective as of 1 January 2009. Comparative information has been re-presented so that it also is in conformity with
          the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on
          earnings per share. In addition certain operations were reclassified in terms of IFRS 5 to discontinued operations. The
          effect of this reclassification is also shown below.
          In order to facilitate a comparison to the reported income in the prior year financial statements the following analysis is
          presented:
                                                                                                      Reclassified to       2009
                                                                      Reported in     Reclassified     discontinued      currently
                                                                        prior year   presentation        operations      reported
                                                                               Rm              Rm                Rm           rm

          Income from operations
          Fee and commission income                                        4 994              121               (161)       4 954
          – Brokerage fees and commission income                             589              428                (12)       1 005
          – Fee income from consulting activities                          3 253             (273)              (126)       2 854
          – Revenue from multi-manager activities                          1 005                 –                 –        1 005
          – Other income                                                       46              (34)                –            12
          – Operational interest income                                        50                5                 –            55
          – Finance income from finance operations                            142              (96)              (23)           23
          – Less: Directly related interest cost                              (91)             91                  –             –
          Net income from insurance operations                               402             (121)                 –          281
          – Income from insurance operations                               1 059             (121)                 –          938
          – Claims and transfers to policyholders                            (657)               –                 –          (657)

          Total                                                            5 396                 –              (161)       5 235




82
                                                                                     Alexander Forbes LI M ITE D 2010




43. InsurancE rIsK
    43.1 overview
         The group issues contracts that transfer insurance risk or financial risk or both. Insurance contracts are those
         that transfer significant insurance risk, being the possibility of having to pay benefits on the occurrence of an
         insured event that are at least 10% more than the benefits payable if the insured event did not occur. Such
         insurance contracts are issued by the group’s five insurance subsidiary companies, namely Guardrisk Insurance,
         Guardrisk Life, Euroguard Insurance, Alexander Forbes Insurance and Alexander Forbes Life, as detailed below.
         These insurance companies are authorised and regulated by the Financial Services Board (“FSB”) in South Africa
         and Namibia, the Financial Services Authority (“FSA”) in Gibraltar and the FSA in the United Kingdom.
          The group also issues contracts which are classified as investment contracts. These contracts transfer financial risk
          with no significant insurance risk. Financial risk is defined as the risk of a possible future change in one or more of
          a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of process or
          rates or credit index or other variable. The group’s multi-manager investment subsidiaries operate under long-term
          insurance licences and they too are authorised and regulated by the FSB in South Africa and Namibia and the FSA
          in the United Kingdom. These licences are issued in order for the multi-manager to issue only linked investment
          policies and thus these businesses do not assume any underwriting risk. For accounting purposes, the contracts
          issued to policyholders are classified as investment contracts. The assets arising from these investment contracts
          are directly matched by linked obligations to the policyholders and the assets and linked obligations are separately
          reflected in the group balance sheet as “Financial assets held under multi-manager investment contracts” and
          “Financial liabilities held under multi-manager investment contracts” respectively.
          Three of the group’s insurance subsidiaries, namely Guardrisk Insurance, Guardrisk Life and Euroguard Insurance,
          provide cell captive insurance facilities for clients. These facilities are classified as special-purpose entities and the
          recognition of transactions relating to these facilities in the financial statements depends on the nature of the cell
          captive insurance arrangement. The insurance companies participate with some of the cell shareholders in the
          underwriting risks of the business written in the cells. The assets and liabilities relating to these risk-taking activities
          are included in the relevant line items in the group financial statements and are included in the insurance-related
          liabilities shown below. Surplus funds in the cells are invested in investment portfolios and are separately reflected
          in the group balance sheet as “Financial assets of cell captive insurance facilities” with a corresponding liability
          reflected as “Liabilities of cell captive insurance facilities”.
          The remaining two insurance subsidiaries, namely Alexander Forbes Insurance and Alexander Forbes Life, transact
          conventional short-term and long-term insurance business under limited risk-taking mandates.
          The names of the insurance subsidiaries and the nature of their respective insurance operations are detailed
          below.
          name of subsidiary company (and country of                          nature of insurance operations
          incorporation)
          Guardrisk Insurance Company Limited (South Africa,                  Cell captive and contingency short-term insurance
          Namibia and Mauritius)
          Guardrisk Life Limited (South Africa and Mauritius)                 Cell captive and promoter long-term insurance
          Euroguard Insurance Company PCC Limited (Gibraltar)                 Cell captive short-term insurance
          Alexander Forbes Insurance Company Limited (South                   Personal lines short-term insurance
          Africa)
          Alexander Forbes Life Limited (South Africa)                        Long-term insurance




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     notes to the group financial statements continued
 for the year ended 31 March 2010


                                                                                                           2010                2009
                                                                                                             rm                  Rm

      43. InsurancE rIsK (continued)
          43.2 Insurance contract liabilities of insurance subsidiaries included in the
               balance sheet (by nature of liability)
                 Net unearned premium provision from short-term insurance contracts                           25                  17
                    Gross unearned premium provision                                                          66                  41
                    Less:	Reinsurers’ share of unearned premium provision                                    (41)                (24)
                 Net outstanding claims provision from short-term insurance contracts                         74                  77
                    Gross unearned premium provision                                                         185                 150
                    Less: Reinsurers’ share of unearned premium provision                                   (111)                (73)
                 Net IBNR provision from short-term insurance contracts                                       12                   4
                    Gross IBNR provision                                                                      28                  18
                    Less: Reinsurers’ share of IBNR provision                                                 (16)                 (4)
                 Policyholder liability under long-term insurance contracts (group life)                      26                  18
                    Gross policyholder liability                                                             181                 126
                    Less: Reinsurers’ share of policyholder liability                                       (155)               (108)
                 Policyholder asset under long-term insurance contracts (individual life)                     (13)               (10)
                 Net liabilities under insurance contracts                                                   124                106


          43.3 General management of insurance risk
               In addition to the management of insurance risk by each subsidiary (as detailed in the sections below), the group
               has the following general insurance risk management controls:
                 Underwriting	committees
                 The group has underwriting committees which consider both underwriting and counterparty exposures of short-
                 term and long-term insurance contracts in order to control the risk exposure of the group. These committees
                 review the underwriting processes of the insurance subsidiaries, including the pricing and acceptance criteria,
                 underwriting limits and monitor the emerging trends and issues, and the appropriateness and results of the
                 reinsurance programmes relevant to the insurance contracts and the matching of assets and liabilities arising
                 from the insurance contracts. These committees also review counterparty exposures and the appropriateness and
                 viability of major product development initiatives to confirm regulatory, legal, tax and accounting standards, where
                 necessary.
                 These committees include non-executive directors of the insurance subsidiaries with appropriate industry
                 expertise, independent directors and independent specialists.
                 The underwriting committees and the operational boards of the insurance subsidiaries monitor compliance by the
                 insurance subsidiaries with their limited risk-taking mandates.
                 Audit	committees
                 There is an audit committee for each business division within the group. These audit committees report to the
                 group Audit Committee and to the operational boards of directors. The relevant business audit committee deals
                 with the insurance subsidiary that reports into that business operation. These committees serve to satisfy the group
                 and operational boards of directors that adequate internal and financial controls are in place and that material
                 risks are managed appropriately. More specifically, these committees are responsible for reviewing the financial
                 statements and accounting policies, the effectiveness of the management information and systems of internal
                 control, compliance with statutory and regulatory requirements, interim and final reports, the effectiveness of the
                 internal audit function, external audit plans and findings on the internal audit and external audits. These committees
                 report directly to the relevant board of directors and comprise three non-executive directors, including a chairman.
                 The committee meetings are attended by the external and internal auditors and are held at least three times a year.
                 Statutory	actuaries
                 The statutory actuaries of the long-term insurance subsidiaries report annually on the capital adequacy and the
                 financial soundness at the year end date and for the foreseeable future. All new premium rates are reviewed by the
                 statutory actuaries and dividends are approved prior to payment to ensure that the insurance subsidiaries remain
                 financially sound thereafter.




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43. InsurancE rIsK (continued)
    43.3 General management of insurance risk (continued)
         Capital	adequacy	requirements
         A minimum level of solvency is held within each insurance subsidiary to meet the regulatory capital adequacy
         requirements. For the long-term insurance subsidiaries, the capital adequacy requirement (“CAR”) is calculated to
         determine whether the excess of assets over liabilities is sufficient to provide for the possibility of actual future
         experience departing from the assumptions made in calculating the policyholder liabilities and against fluctuations
         in the value of assets. CAR statutory returns are submitted to the Registrar of Long-Term Insurance on a quarterly
         basis and valuations are performed by the statutory actuary on an annual basis. As at 31 March 2010, the CAR
         held by the long-term insurance companies amounted to R71 million (2009: R69 million). On a times cover to
         shareholders funds, the two long-term insurance subsidiaries are covered as follows: Guardrisk Life is covered
         4,9 times (2009: 3,5 times) by the shareholders’ funds and Alexander Forbes Life is covered 1,86 times (2009:
         2,1 times).
          Capital adequacy risk is the risk that there are insufficient reserves to provide for variations in actual future
          experience that is worse than assumed in the financial soundness valuation. The company must maintain
          shareholders’ funds that will be sufficient to meet obligations in the event of substantial deviations from the main
          assumptions affecting the company’s business.
          The short-term insurance subsidiary companies are required by statute to create a contingency reserve for adverse
          claims developments. This reserve is calculated at 10 percent of net written premiums as defined by the relevant
          legislation and no distribution can be made from this reserve without the prior approval of the Registrar of Short-
          Term Insurance. As at 31 March 2010, the contingency reserve held by the short-term insurance companies for
          all their lines of business written amounted to R299 million (2009: R250 million). In addition to the contingency
          reserve, the short-term insurance companies are required by statute to maintain a solvency margin of 1  5% of net
          written premiums.
          Two of the insurance subsidiaries, Guardrisk Insurance and Guardrisk Life, are rated by an international rating
          agency, Global Credit Rating, and have financial strength ratings of AA and AA- respectively.
          Concentration	risk
          The group is not exposed to any significant concentration risk as the insurance contracts issued by the group’s
          insurance subsidiaries are adequately spread across the major classes of insurance risks. In addition, each
          insurance subsidiary company is cognisant of concentration risk for their individual entity and each insurance
          product and takes steps to mitigate this risk, including purchasing reinsurance protection.
          Reinsurance
          Reinsurance is used to manage the level of underwriting risk accepted by the group. Reinsurance vetting procedures
          are in place and reinsurance programmes are assessed on a regular basis to ensure appropriateness of the cover
          obtained, including the individual cessions and accumulations per reinsurer. The financial condition of reinsurers
          (identified by their credit rating) is considered when placing reinsurance cover and evaluated on an ongoing basis.
          The individual insurance subsidiaries limit the level of reinsurance credit risk accepted by placing limits on their
          exposures to a single counterparty. The individual insurance subsidiaries hold catastrophe reinsurance to mitigate
          the risk of a single event causing multiple accumulation of claims. The group has a Market Security Committee
          which evaluates, approves and monitors both insurance and reinsurance markets that the group operates in and
          reports back to the relevant operational boards with recommendations.
          Enterprise-wide	risk	management
          The group has implemented an enterprise-wide risk management programme whereby the objective is to entrench
          risk management into the day-to-day business activities whereby the insurance subsidiary understands the risk
          events that may prevent it from achieving its objective; has identified the risk-mitigating controls in place and has
          assessed their efficiency; and has formulated a plan wherever additional action is required.
    43.4 cell captive arrangements – contractual terms of cell captive insurance policies
         A cell captive is a contractual arrangement entered into between the company and the cell shareholder whereby
         the risks and rewards associated with certain insurance activities accrue to the cell shareholder. Cell captives
         allow clients to purchase separate classes of shares (or a “cell”) in the registered insurance company which
         undertakes the professional insurance and financial management of the cell including underwriting, reinsurance,
         claims management, actuarial and statistical analyses and investment and accounting services.
          The terms and conditions of the cell are governed by shareholders’ agreements. There are currently two distinct
          types of cell captive arrangements being:
          “First	party”   where the risks that are being insured relate to the cell shareholder’s or its group’s own operations; and
          “Third	party” where the cell shareholder is provided with the opportunity to sell branded insurance products
                        into its own customer base. The insurance companies are the principals to the insurance contract,
                        although the business is underwritten on behalf of the cell shareholder.


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     notes to the group financial statements continued
 for the year ended 31 March 2010

      43. InsurancE rIsK (continued)
          43.5 contingency or rent-a-captive policies
               A policy contract structured to provide entry-level insurance cover for first party risks without capitalising a cell.
               The policy provides for payment of a performance bonus to the insured based on the underwriting results at the
               end of the policy period.
          43.6 cell captive arrangements – contractual terms of promoter policies
               A policy contract structured to provide insurance cover for first and third party risks, without capitalising a cell. The
               promoter policies consist of a mixture of third party assurance business, first party group life cover and first party
               annuity contracts which fund the contract holder’s obligation for post-retirement healthcare liabilities in terms of
               the accounting Standard, IAS 19.
          43.7 cell captive arrangements – classification for accounting purposes
               In terms of IFRS, cell captive arrangements are classified as special-purpose entities and the recognition of the
               cells in the financial statements of the company depends on the nature and contractual conditions of the cell
               captives’ facilities. First party cell owners are regarded as having the right to obtain the majority of the future
               economic benefits of the cell’s insurance activities and, for this reason, first party cells are not consolidated in
               the group accounts. In the case of third party cells, the insurance company is regarded as the principal to the
               insurance transaction. The company, however, in substance, reinsures this business to the cell shareholder as the
               cell shareholder remains responsible for the solvency of the cell. Such cells are included in the financial statements
               but are accounted for as reinsurance ceded to the cell shareholders. Contingency facilities and promoter policies
               are fully recognised in the financial statements.
          43.8 cell captive arrangements – risks that arise from insurance contracts
               Contracts underwritten in cell structures are considered to be the primary responsibility of the cell shareholder.
               The primary risk that the group is exposed to relating to its cell captive insurance business is the credit risk of the
               cell shareholder. This exposure is dealt with under the note on credit risk. In the case of third party cell captive
               arrangements, the group is also exposed to insurance risk on policies issued to the cell shareholders’ customer
               base (to the extent that there is reinsurance failure, if present, and failure to recapitalise by the cell shareholder).
                 In respect of the contingency policies, the risks underwritten are mainly in respect of primary layers of an insurance
                 programme. In these facilities, as opposed to traditional insurance models, the premium partially funds the risk
                 exposure.
                 Some of the companies participate with several of their cell shareholders in the underwriting risks of their
                 business. These cells typically have a risk profile of high volume, low severity. These companies evaluate all
                 retention of risks in terms of statistical and underwriting disciplines, as well as specific and limited board mandates
                 for each insurance programme. The total authorised committed capital at risk for Guardrisk is R30 million, most
                 of which has currently been utilised (all with reinsurance protection). Euroguard Insurance does not take any
                 underwriting risk.
          43.9 cell captive arrangements – mitigation of insurance risk
               Insurance	risk
               In respect of third party cell captive arrangements, the insurance risks are mitigated through the reinsurance of
               elements of the risk to reinsurance markets and/or the cell shareholders through the cell shareholder agreements.
               The risks are further reduced by the requirement for the first and third party cells to hold minimum levels of
               capital. In respect of contingency policies, policyholders share in the underwriting result if there is favourable
               claims experience. The companies limit their exposure to unfavourable claims experience by performing actuarial
               analyses to establish suitable policy and cover limits as well as attachment points for reinsurance where applicable.
                 Reinsurance	strategy
                 The companies manage the insurance risks through their underwriting strategies and reinsurance arrangements.
                 The underwriting strategy is intended to ensure that the risks underwritten are well diversified in terms of the
                 type of risk and the level of insured benefits. Facultative reinsurance is in place where considered necessary and
                 proportional reinsurance treaties are used when deemed appropriate. The companies reinsure the excess over
                 the retentions under a variety of quota share and surplus reinsurance arrangements. In certain contracts, stop loss
                 reinsurance arrangements protect the retained line against attritional losses. In respect of contingency policies, an
                 umbrella reinsurance facility is structured above the policies on a portfolio basis to protect the risk layers provided.
                 Certain of the reinsurance contracts in the cell captive arrangements, have “pay-as-paid” clauses which stipulate
                 that reinsurance claims will only be paid once the reinsurers have settled their liability. The risk retained in the
                 insurance subsidiaries under the current contracts is low.




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43. InsurancE rIsK (continued)
    43.10 cell captive arrangements – sensitivity analysis
          As a result of the nature of the business written, the level of exposure of the group to sensitivity in assumptions of
          insurance contract provisions is considered to be insignificant.
    43.11 personal lines short-term insurance
          Terms	and	conditions	of	insurance	contracts
          Personal lines insurance is provided to the general public in their individual capacities. The duration of this
          insurance is typically monthly but in some cases, annually. The classes of risk underwritten by the company include
          property, casualty, personal accident and motor.
          Risks	that	arise	from	insurance	contracts
          This business activity relates to the assumption of the risk of loss from events involving persons. As such, the
          company is exposed to uncertainty surrounding the timing, severity and frequency of claims under insurance
          contracts. As insurance events are random, actual experience may vary from what was estimated using established
          statistical techniques.
          The majority of the company’s insurance contracts are “short-tail”, meaning that any claim is settled within one year
          after the loss date. The company’s “long-tail” exposures are limited to personal accident, third party motor and
          public liability. Claims in respect of long-tail business comprise less than 0,1% of an average year’s claims cost and
          are not considered to be a major risk to the group.
          There is no significant concentration of risk as the company’s risks are adequately spread geographically, as well
          as across the major classes of insurance risk.
          The company calculates its exposure to catastrophe risk by studying the spread of risk nationwide in Rand terms
          and identifying the concentration per certain territories in the event of a natural catastrophe. The company’s
          concentration exposure for its personal lines book is considered to be in the Western Cape area and the event
          has been identified as a possible earthquake. This assessment is done annually at renewal of the catastrophe
          programme and reinsurance protection is purchased on a non-proportional basis accordingly thereby limiting the
          exposure to the company. The current exposure is R5 million (2009: R5 million).
          Mitigation	of	insurance	risks
          Insurance risk is managed by centralised control of pricing and acceptance criteria, underwriting limits, reinsurance
          and continual monitoring of emerging issues.
          There is proportional reinsurance in place for between 87,5% and 90% of the property and motor personal lines
          insurance book. Hence the net retention on personal lines products is no more than 1   2,5% of the risk on the book.
          There is also non-proportional reinsurance providing protection on a per risk catastrophe basis, capping the net
          exposure in the event of a single large loss or loss occurrence constituting a catastrophe.
          The personal accident insurance book is a high-volume, low-risk portfolio and is protected on a stop-loss basis
          whereby reinsurance protection is purchased to protect the company in the event of adverse claims experience.
          The business is written on a monthly basis.
          Exposures to individual policyholders and groups of policyholders are monitored as part of the credit control
          process. The company is also protected by guarantees provided by the Intermediary Guarantee Facility for the
          non-payment of premiums collected by intermediaries as provided for in the Short-Term Insurance Act in South
          Africa. In addition most intermediaries are fellow subsidiaries and are not considered to be a credit risk.
    43.12 Long-term insurance
          Terms	and	conditions	of	insurance	contracts
          The insurance contracts consist of annually renewable group life and individual life mortality and morbidity
          contracts. Group business consists of insurance for retirement funds and other group schemes and covers the
          contingencies of death and disability. Individual life business covers death, disability and impairment contingencies.
          There are no surrender values or investment components inherent in any of these policies.
          Risks	that	arise	from	insurance	contracts
          These contracts insure events associated with human life (for example death or survival) over a long duration.
          The group assurance business is subject to mortality and morbidity risk. The risk is that future claims will exceed
          expectations, which could result from epidemics such as Aids and Avian Flu, as well as unexpected changes in
          lifestyles and living patterns. Since the term of a group policy is typically one year and upfront costs are limited, the
          risk of non-recoupment of expenses due to withdrawals is limited.




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     notes to the group financial statements continued
 for the year ended 31 March 2010

      43. InsurancE rIsK (continued)
          43.12 Long-term insurance (continued)
                Risks	that	arise	from	insurance	contracts	(continued)
                An individual assurance product was launched during the 2006 financial year. As at 31 March 2010, it remains
                a relatively immaterial part of the overall life insurance exposure. The product is subject to mortality, morbidity,
                withdrawal and expense risk.
                 There is exposure to concentration risk on the group assurance business as there is not yet a wide spread of group
                 schemes and a single event could result in multiple claims. Catastrophe reinsurance is in place to mitigate this
                 risk. There is no significant concentration risk on the individual assurance business due to the current low level of
                 business transacted.
                 As of 31 March 2010, the group had exposure with the supporting actuarial reserves of approximately R17,1 million
                 (2009: R12,5 million) in group assurance business. The individual life business has no exposure and reflects a
                 negative actuarial reserves asset of R13,4 million (2009: R10,1 million).
                 Mitigation	of	insurance	risk
                 In respect of group assurance business, free cover limits are set on a per scheme basis and are formula driven,
                 taking into account the number of lives and average sums assured. Sums assured in excess of the free cover limit
                 are medically tested. Policy terms and conditions allow for an annual review of premium rates so allowing the
                 management of premiums in line with emerging claims experience. The annual premium reviews take all pertinent
                 information from one year to the next into account.
                 In respect of individual assurance business, the major risks are mortality, morbidity, withdrawal and expense.
                 Premiums on this business line are differentiated by age, gender and smoker status. Stringent socio-economic
                 qualification criteria apply. Future premium rates are also not guaranteed and may be adjusted if mortality and
                 morbidity experience worsens. Market pressures and delays in implementing changes could, however, counter
                 this mitigating effect. Withdrawal risk is mitigated to some extent by commission clawback clauses in contracts
                 with intermediaries. Expense risk is mitigated through detailed analysis of costs in determining the expense
                 assumptions in the valuation, as well as ongoing expense management.
                 The insurance risks are also managed through reinsurance arrangements. The appropriate reinsurance structures
                 are assessed by conducting scenario analyses which project outcomes under different reinsurance structures.
                 The retention limits are then set in accordance with risk appetite. The group assurance business has proportional
                 reinsurance for 85% of the book. There is also non-proportional reinsurance providing protection on a per risk
                 and catastrophe basis, capping the net exposure in the event of a single large loss or loss occurrence constituting
                 a catastrophe.
                 Sensitivity	analysis
                 The most critical assumption underlying the liabilities relating to group assurance is the rate of recovery from
                 illness or disability associated with claims in payment. The sensitivity to a recovery rate 20% lower than assumed
                 is less than R2 million (2009: R1 million). The sensitivity to assumptions on negative liabilities arising from the
                 individual assurance contracts is currently insignificant.




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44.   fInancIaL rIsK ManaGEMEnT
      Introduction
      The group’s activities expose it to various financial risks arising from its financial assets and liabilities. Financial risks
      comprise credit risk, liquidity risk and market risk. These risks are defined below:
      credit risk
      Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation thereby causing
      the company to incur a financial loss.
      Liquidity risk
      Liquidity risk is the risk that the company will not be able to raise funds to meet commitments associated with a
      financial instrument.
      Market risk
      Market risk is the risk than the fair value or future cash flows of a financial instrument will fluctuate, principally as a
      result of changes in market conditions. These market conditions include interest rates, foreign currency exchange
      rates and other market conditions.
      Interest	rate	risk
      Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to
      changes in market interest rates.
      Currency	risk
      Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate in Rand due
      to changes in foreign exchange rates.
      Other	price	risk
      Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
      changes in the market prices (other than those arising from interest rate risk and currency risk).
      The financial risks relating to the group’s activities can be split into various operations of the group that reflect the
      risk profiles of these operations. The operations are: multi-manager investment operations, conducted through
      the Investment Solutions subsidiary companies; cell captive insurance facilities, conducted through the subsidiary
      companies Guardrisk Insurance, Guardrisk Life and Euroguard Insurance; pension-backed lending operations;
      and general operations conducted including the insurance broking and consulting operations; employee benefit
      consulting, administration and management operations; and insurance operations conducted by the group’s short-
      term personal lines insurer, Alexander Forbes Insurance, and the group’s long-term group life insurer, Alexander
      Forbes Life. The nature of financial assets and liabilities of each operation is described below.
      Multi-manager	investment	operations
      The financial assets held under multi-manager investment operations are policyholders’ assets directly matched
      by linked obligations to policyholders. Both the assets and the liabilities are classified at fair value through profit
      or losses held for trading and are carried at fair value. No assets held under multi-manager investment operations
      have been pledged as collateral.
      Cell	captive	insurance	facilities
      The financial assets of cell captive insurance facilities are assets attributable to policyholders and cell owners in
      the group’s cell captive insurance companies and are directly matched by linked obligations to policyholders and
      cell owners. Both the assets and the liabilities are classified at fair value through profit or losses designated as
      such upon initial recognition and are carried at fair value. No assets of cell captive insurance facilities have been
      pledged as collateral.
      Pension-backed	lending	operations
      The financial assets arising from pension-backed lending operations comprise housing loans granted to members
      of retirement funds which are secured by their retirement fund assets. The housing loans are classified as loans and
      receivables. The funding of these housing loans is provided through securitised funding which directly matches the
      assets provided and is classified as financial liabilities held at amortised cost. The carrying amount of these assets
      and liabilities approximates their fair values at each balance sheet date. During the current year the assets and
      liabilities of this operation have been reclassified to assets held for sale.
      General	operations
      The financial assets and liabilities arising from general operations result from the insurance broking and consulting
      operations; employee benefit consulting, administration and management operations; and insurance operations
      conducted by the group’s short-term personal lines insurer, Alexander Forbes insurance, and the group’s long-
      term group life insurer, Alexander Forbes Life.




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     notes to the group financial statements continued
 for the year ended 31 March 2010

     The following table reflects the financial assets of the group including its respective IAS 39 classifications:

                                                                                                               2010          2009
                                                                                                                 rm            Rm

       44. fInancIaL rIsK ManaGEMEnT (continued)
             assets
             Financial assets held under multi-manager investment contracts
             – Fair value through profit and loss – held for trading                                       161 660         134 718
             Financial assets of cell captive insurance facilities
             – Fair value through profit and loss – designated upon initial recognition                       7 582          7 498
             Pension-backed lending operations
             – Loans and receivables                                                                                   –      750
             General operations
             Financial assets
             – Available for sale                                                                                      9        9
             – Fair value through profit and loss – designated upon initial recognition                           80           76
             – Held-to-maturity investments                                                                       75           75
             – Loans and receivables                                                                             106          205
             Insurance receivables
             – Loans and receivables                                                                            528           330
             Trade and other receivables
             – Loans and receivables                                                                          1 044           971
             Cash and cash equivalents                                                                        2 383          2 434

             Total financial assets                                                                         173 467        147 066
             Liabilities
             Financial liabilities held under multi-manager investment contracts
             – Fair value through profit and loss – held for trading                                        161 614        134 686
             Liabilities of cell captive insurance facilities
             – Fair value through profit and loss – designated upon initial recognition                       7 582          7 498
             Securitisation funding for housing loans
             – Loans and receivables                                                                                   –      750
             General operations
             Borrowings
             – Financial liabilities held at amortised cost                                                   2 034          2 243
             Insurance payables
             – Financial liabilities held at amortised cost                                                    1 610         1 379
             Trade and other payables
             – Financial liabilities held at amortised cost                                                     534           715

             Total financial liabilities*                                                                   173 374        147 271
               T
             *		 here	are	no	differences	between	the	carrying	amount	and	the	amount	contractually	
               required	at	maturity.


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44. fInancIaL rIsK ManaGEMEnT (continued)
    44.1 credit risk
             .1
         44.1 objectives, policies and process to manage credit risk
                (i) Multi-manager investment operations
                All asset managers are governed by strict investment mandates, specifically set out by the company to
                meet the investment objectives of the respective policyholder portfolios and where appropriate, specific
                minimum investment grading ratings. In addition, investment mandates are subject to restrictions imposed
                by regulation 28 to the Pension Funds Act, No. 24 of 1956.
                (ii) Cell captive insurance facilities
                The risk is managed by a detailed assessment of potential cell owners’ creditworthiness based on the ability
                to meet the responsibilities and obligations in terms of the shareholders agreement. Impairment is assessed
                at each reporting date. Credit risk is further managed by each cell being required to maintain a regulated
                level of capital adequacy. This is monitored by management on a monthly basis.
                The management of the cell captive insurance facilities assets is performed by multiple investment
                managers and placed with high-credit-rated financial institutions. The group has established an Investment
                Strategy Committee which reviews all investments on the basis of total asset security and minimised credit
                risk to the group. Industry specialists as well as the group’s panels of investment managers are invited to
                the quarterly meetings. Certain cells have reinsurance arrangements and the creditworthiness of these
                reinsurers is managed as part of the insurance risk programme.
                (iii) Pension-backed lending operations
                Credit risk on the housing loans is managed by ensuring that, on inception, all home loans granted are for
                amounts not exceeding 80% of the lowest benefits which the retirement fund member would receive from
                the retirement fund upon exit, net of income tax. The loans are secured by the member’s retirement fund
                asset.
                (iv) General operations
                Financial	assets
                The financial assets designated as fair value through profit or loss are actively managed by multiple
                investment managers and placed with high-credit-rated financial institutions. The group has established
                an Investment Strategy Committee which reviews all investments on the basis of total asset security and
                minimised credit risk to the group. Industry specialists as well as the group’s panel of investment managers
                are invited to the quarterly meetings.
                Premium finance receivables of R51 million (2009: R53 million) are monitored as part of the credit process.
                The group is substantially protected from credit risk on the receivables as there is recourse against the
                insurer on non-payment from the client. For certain receivables the group has legally enforceable rights to
                offset them with financial liabilities.
                Discounted debtors relate to injury-on-duty claims ceded from medical service providers. The group credit
                risk is with the Compensation Commissioner for Occupational Injuries on Duty. In addition amounts not paid
                by the Commissioner are reclaimed from the medical service provider.
                Credit risk on equity housing loans is managed through established lending criteria and credit underwriting
                or insurance designed to minimise losses from “negative equity”. Loans are extended nationally (categorised
                by the district municipality) and borrower age bands range from 65 and above. In order to minimise the
                “negative equity” risk, certain thresholds pertaining to district municipalities and age bands are followed.
                Insurance-related	receivables
                The group has specific reinsurer mandates established by the various risk and underwriting committees
                which stipulate the minimum security rating required of a reinsurer for business to be placed with them. The
                group monitors the financial condition of reinsurers and reviews its reinsurance arrangement periodically.
                Various market security and underwriting committees are in place to evaluate, approve and make
                recommendations. The committees’ decisions are supported by both local and international professional
                rating agencies. The group also has reinsurance vetting procedures in place. These procedures include
                limiting individual cessions and accumulations per reinsurer in accordance with their rating. The financial
                condition of the reinsurers and intermediaries in relation to their credit standing is evaluated each time they
                are rated by an external rating agency. The group limits the level of credit risk it accepts by placing limits
                on its exposures to a single counterparty. The exposure limits of each reinsurer vary depending on their
                credit rating.




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     notes to the group financial statements continued
 for the year ended 31 March 2010

      44. fInancIaL rIsK ManaGEMEnT (continued)
          44.1 credit risk (continued)
                 44.1.1 objectives, policies and process to manage credit risk (continued)
                         (iv) General operations	(continued)
                         Insurance-related	receivables	(continued)
                         Receivables from insurance contracts, whether from intermediaries or policyholders, are monitored as part
                         of the credit process. The group is protected by guarantees issued by the Intermediary Guarantee Facility
                         for the non-payment of premiums, collected by intermediaries as provided in the Short-Term Insurance Act.
                         Non-payment from policyholders over the specified time period results in the cancellation of the insurance
                         cover and is thus no material risk to the group.
                         Trade	and	other	receivables
                         Trade and other receivables are managed through ongoing review and impaired if objective evidence is
                         established that the group will not collect all amounts due according to the original terms of the receivable.
                         The group has policies in place to ensure that services are provided to customers with an appropriate
                         credit history.
                         Cash	and	cash	equivalents
                         The group has policies that limit the amount of credit exposure to any one financial institution including the
                         requirements by the Short-Term and Long-Term Insurance Act for minimum levels of asset spreading that
                         are applicable to the insurance subsidiary companies. The financial institutions used in the current and prior
                         financial year had ratings, as determined by external credit rating agencies Fitch and Standard & Poor’s, of
                         between AA and BBB.
                         Assets	of	disposal	group	held	for	sale
                         These assets consist of pension-backed lending loans, discounted debtors and trade and other receivables.
                         The credit risk is managed as noted above.
                         There have been no significant changes in the way in which credit risk is managed since the prior year.
                 44.1.2 Exposure to credit risk
                        Multi-manager	investment	operations
                        There is no direct significant credit risk to the group on these assets as they are directly matched to
                        policyholders’ liabilities, therefore any credit risk in respect of policyholder assets is carried by the
                        policyholder and not the company.
                         An analysis of financial assets held under multi-manager investment contracts indicates that R39 158 million
                         of the assets are with institutions rated between AAA and A- (24%) of the assets, R4 316 million of the
                         assets are with institutions rated between BBB and B- (3%), and the remainder which include listed equity
                         and preference share securities are unrated.
                         Cell	captive	insurance	facilities
                         There is no direct significant credit risk to the group on these assets as they are directly matched to
                         policyholders’ and cell owners’ liabilities. The group is, however, exposed to credit risk in relation to cell
                         owners’ obligation to restore solvency of cells when required by the group. The relationship between the
                         group and cell owners is governed by each cell owner participating in a shareholder’s agreement, which
                         specifies that the cell owner has the obligation to restore a deficit in a cell on receipt of such a demand
                         from the group.
                         An analysis of financial assets of cell captive insurance facilities indicates that R1 818 million of the assets
                         are with institutions rated between AAA and A- (24%) of the assets, R2 595 million of the assets are with
                         institutions rated between BBB and B- (34%), and the remainder which include listed equity securities and
                         technical insurance assets are unrated.
                         Pension-backed	lending	operations
                         There is no direct credit risk to the group on the housing loan assets as they are directly linked to the
                         securitised funding for the housing loans.
                         General operations
                         Financial	assets
                         The assets are carried at fair value with the carrying amount at each balance sheet date representing the
                         group’s maximum exposure to credit risk in relation to these assets. No financial assets designated as fair
                         value through profit or losses have been pledged as collateral.
                         Financial assets mainly comprise preference shares, premium finance receivables, discounted debtors,
                         loan notes and equity housing loans.




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                                                                                                   Maximum exposure
                                                                                                    2010                2009
                                                                                                      rm                  Rm

44. fInancIaL rIsK ManaGEMEnT (continued)
    44.1 credit risk (continued)
          44.1.2 Exposure to credit risk (continued)

                 Financial assets classified as available for sale
                 – Preference shares                                                                    9                   9
                 Financial assets designated at fair value through profit or loss
                 – Preference shares                                                                   44                  43
                 – Collective investment schemes                                                       27                  25
                 – Bonds                                                                                9                   8
                 Financial assets held to maturity
                 – Preference shares                                                                   75                  75
                 Financial assets classified as loans and receivables
                 – Premium finance receivables                                                         51                  53
                 – Discounted debtors                                                                   –                100
                 – Loan notes                                                                          14                  15
                 – Equity housing loans                                                                39                  34
                 – Other loans                                                                          2                   3
                                                                                                     270                 365


                The held-to-maturity financial assets, being preference shares, represent the group’s investment in the
                housing loan securitisation programme. Credit risk on these preference shares is assessed in conjunction
                with the risks of the pension-backed lending operations, as discussed above. The carrying amounts of
                the preference shares approximate the fair value at each balance sheet date and represent the group’s
                maximum exposure to credit risk in relation to these assets.
                There is no concentration of credit risk on premium finance receivables and discounted debtors as the
                receivables have been advanced to a large number of clients with no significant concentration to a single
                client. The carrying amounts of these receivables approximate the fair values at each balance sheet date
                and represent the group’s maximum exposure to credit risk in relation to these assets.
                Equity housing loans represent mortgage lending targeted at the senior market. These loans are typically
                not repaid until the death of the borrower or the borrower ceases to reside in the property. Interest is not
                required to be paid on a monthly basis, but accrues with the loan balance and is repayable on termination
                of the loan. As such, there are no incoming cash flows, except on termination of a loan, and therefore no
                payment default risk to manage. Credit risk is the risk that the value of the property on termination date is
                not sufficient to cover the outstanding balance on the loan (“negative equity”). This risk will manifest through
                an adverse combination of life expectancy of the borrower, interest rates applicable over the period and
                movement in property values. These loans are secured by a first mortgage registered over each borrower’s
                residential property and the carrying amounts of these assets approximate the fair value at each balance
                sheet date and represent the group’s maximum exposure to credit risk in relation to these assets.
                Other loans are amounts owing by staff and shareholders and the credit risk is assessed against the
                relationships with these parties.




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     notes to the group financial statements continued
 for the year ended 31 March 2010

      44. fInancIaL rIsK ManaGEMEnT (continued)
          44.1 credit risk (continued)
                 44.1.2 Exposure to credit risk (continued)
                        Insurance-related	receivables
                        Reinsurers are utilised in the group’s underwriting activities conducted in the insurance-licensed subsidiary
                        companies. Under the terms of the reinsurance agreements, reinsurers agree to reimburse the ceded
                        amount in the event that a claim is paid. However, the group remains liable to its policyholders regardless
                        of whether the reinsurer meets the obligations it has assumed. Consequently, the group is exposed to credit
                        risk. The carrying amounts of insurance-related receivables reflected on the balance sheet approximate the
                        fair values at balance sheet date and represent the group’s maximum exposure to credit risk in relation
                        to these assets. At balance sheet date, the group did not consider there to be a significant concentration
                        of credit risk to reinsurers or other receivables from insurance contracts which had not been adequately
                        provided for.
                         Trade	and	other	receivables
                         The carrying amounts of these receivables reflected on the balance sheet approximate the fair values at
                         balance sheet date and represent the group’s maximum exposure to credit risk in relation to these assets.
                         At balance sheet date, the group did not consider there to be a significant concentration of credit risk to
                         trade and other receivables which had not been adequately provided for. Trade and other receivables
                         comprise amounts due spread across a large number of clients. The group’s top 20 clients overall represent
                         only approximately 5% of income from operations and no single client contributes more than 0,4% of
                         the group’s income from operations (refer to the ageing of trade receivables at balance sheet date per
                         note 44.1.2).
                         Maximum exposure and age analysis of financial assets including those that are past due but not impaired

                                                                   Current       Past due       Past due       Past due
                                                                 0-30 days     30-60 days     60-90 days      90+ days          Total
                                                                       Rm             Rm             Rm             Rm           Rm

                           31 March 2010
                           Insurance receivables                       440              37             10             41        528
                           Trade receivable                            319              70             21             84        494
                           Work-in-progress and other
                           receivables                                 550               –              –              –        550
                                                                     1 309             107             31            125      1 572


                           31 March 2009
                           Insurance receivables                       299               4              3             25         331
                           Trade receivable                            534              79             38             55        706
                           Work-in-progress and other
                           receivables                                 265               –              –              –        265
                                                                     1 098              83             41             80      1 302


                         None of the trade receivables reflected above are impaired. The majority of the trade receivables fall within
                         90 days.
                         Cash	and	cash	equivalents
                         Cash and cash equivalents balances and transactions are limited to high-credit quality institutions. At
                         balance sheet date, the group did not consider there to be a significant concentration of credit risk to cash
                         and cash equivalents balances other than cash balances which are placed with one of the four large South
                         African banking institutions as approved by the operational board of directors.
                         The financial institutions used in the current and prior financial year had ratings, as determined by external
                         credit rating agencies Fitch and Standard & Poor’s, of between AA and BBB.
                         During the current year there have been no changes to fair value of the financial assets of general
                         operations presented above due to changes in the credit risk associated with these assets. There have
                         been no significant changes in credit risk exposures since the prior year.



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44. fInancIaL rIsK ManaGEMEnT (continued)
    44.2 Liquidity risk
          44.2.1 objectives, policies and process to manage liquidity risk
                 (i) Multi-manager investment operations
                 The multi-manager investment operations are conducted through long-term insurance subsidiary companies
                 who issue insurance contracts to policyholders. These long-term insurance companies are registered
                 financial institutions and are required to hold minimum solvency capital to, inter	alia, reduce policyholder
                 exposure to the group’s liquidity risk. The regulators of insurance companies, the Financial Services Board
                 in South Africa and the Financial Services Authority in the United Kingdom, are regulatory authorities that
                 regularly review compliance with these minimum capital requirements. Management continually manages
                 and monitors compliance with these minimum capital requirements.
                 In addition, liquidity risk arising from unexpected lapses and withdrawals is limited through policy terms and
                 conditions that restrict claims to the value and timing at which the assets are realised. The maturity analysis
                 of these policyholders’ liabilities is detailed in the note to these financial statements called “Financial
                 liabilities held under multi-manager investment contracts” and these liabilities are mostly open ended and
                 repayable on demand.
                 (ii) Cell captive insurance facilities
                 The cell captive insurance operations are conducted through long-term and short-term insurance
                 subsidiary companies. These insurance companies are registered financial institutions and are required to
                 hold minimum solvency capital to, inter	alia, reduce policyholders’ and cell owners’ exposure to the group’s
                 liquidity risk. The regulator of insurance companies, the Financial Services Board in South Africa and the
                 Financial Services Authority in Gibraltar, are regulatory authorities that regularly review compliance with
                 these minimum capital requirements. Management continually manages and monitors compliance with
                 these minimum capital requirements.
                 The rights and obligations of the cell owners are set out in the shareholders’ agreement which states that
                 such a cell owner cannot terminate the agreement within the first three years after inception. The group
                 has a practice to settle amounts due if there is a request to terminate prior to the three-year period. The
                 cell owner shares are issued for an indefinite period and have no fixed redemption date. However, the cell
                 owners have an option to cancel these shares and as such liabilities of cell captive insurance facilities are
                 considered to be repayable on demand.
                 Except in special circumstances approved by management, claims will not be paid when regulated capital
                 adequacy requirements are not met by a cell facility.
                 (iii) Pension-backed lending operations
                 The liquidity risk exposure of pension-backed lending operations is managed as part of the general liquidity
                 risk management process. Refer below for further details on general operations’ liquidity risk management
                 strategies.
                 (iv) General operations
                 Liquidity risk management implies maintaining sufficient cash and ensuring the availability of funding
                 through an adequate amount of cash resources and credit facilities. The group has a revolving credit
                 facility of R200 million, which can be used for general corporate working capital purposes. Monitoring of
                 budgeted and projected cash flows supports the fact that the group will generate sufficient cash flows from
                 operations to limit the impact of liquidity risk. The group has prescribed authority mandates and borrowing
                 limits. Compliance with debt covenants is monitored by the group and divisional boards.
                 The group sets limits on the minimum proportion of maturing funds available to meet claims arising from
                 short-term insurance contracts and unexpected levels of demands. Similarly the majority of the assets
                 held to match long-term insurance contracts are in money market instruments which are highly liquid.
                 Net cash flows are monitored closely to ensure claim payments under long-term insurance contracts can
                 be made when requested. Long-term insurance companies are registered financial institutions and are
                 required to hold minimum capital and reduce policyholder exposure to the company’s liquidity risk. The
                 regulatory authority in South Africa regularly reviews compliance with these minimum capital requirements.
                 Management continually manages and monitors compliance with these minimum capital requirements.
                 Assets linked to investments are realisable at short notice.
                 There have been no significant changes in the way in which liquidity risk is managed since the prior year.




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     notes to the group financial statements continued
 for the year ended 31 March 2010

      44. fInancIaL rIsK ManaGEMEnT (continued)
          44.2 Liquidity risk (continued)
                 44.2.2 Exposure to liquidity risk
                        (i) Multi-manager investment operations
                        Liquidity risk arises from unexpected lapses and withdrawals by policyholders. The group is able in such
                        cases to transfer ownership of the underlying assets within the policy to the policyholder in order to
                        extinguish its liability.
                         (ii) Cell captive insurance facilities
                         Liquidity risk arises from unexpected lapses and withdrawals by cell owners. The group is able in such
                         cases to transfer ownership of the underlying assets within the cell captive facility to the cell owner in order
                         to extinguish its liability.
                         (iii) Pension-backed lending operations
                         The securitisation programme has a long term, ending in 2045. The securitisation funding has been
                         provided as follows: R675 million note paper issued to corporate advisers and R75 million subordinated
                         loan. The notes have an amortisation date of 25 July 2010 and will need to be refinanced. Details of
                         repayment terms and interest payment dates are provided in the “Securitisation funding for housing loans”
                         note to these financial statements.
                         There have been no significant changes in liquidity risk exposure since the prior year.
                         Liquidity analysis for assets and liabilities at a group level
                         All liabilities are presented on contractual cash flow basis except for the insurance liabilities, which are
                         presented with their expected cash flows.


                                                                            Contractual cash flows (undiscounted)
                                                                0-1 year     1-3 years    3-5 years   >5 years      Undated       Total
                                                                     Rm            Rm           Rm         Rm           Rm         Rm

                           assets
                           Financial assets held under
                           multi-manager investment
                           contracts                               1 224             –           –            –     160 436 161 660
                           Financial assets of cell
                           captive insurance facilities              965             –           –            –       6 617     7 582
                           Financial assets                          231             –           –            –          39        270
                           Insurance receivables                     528             –           –            –           –       528
                           Trade and other receivables             1 044             –           –            –           –     1 044
                           Cash and cash equivalents               2 383             –           –            –           –     2 383
                           Total financial assets                  6 375             –           –            –     167 092 173 467


                           Financial liabilities held
                           under multi-manager
                           investment contract                     1 224             –           –            –     160 390 161 614
                           Liabilities of cell captive
                           insurance facilities                      214             –           –            –       7 368     7 582
                           Borrowings                                   –            –           –            –       2 034     2 034
                           Insurance payable                       1 610             –           –            –           –      1 610
                           Trade and other payables                  534             –           –            –           –       534
                           Total financial liabilities             3 582             –           –            –              73
                                                                                                                    169 792 1 374


                         The directors of the company are confident that the future liquidity requirements of the company will be met
                         through the future cash flows generated.




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44. fInancIaL rIsK ManaGEMEnT (continued)
    44.3 Market risk
         44.3.1 objectives, policies and process to manage market risk
                Multi-manager	investment	operations
                The group has established an Investment Committee which, in conjunction with the board of directors of
                the multi-manager investment subsidiary companies, is responsible for setting investment strategies for the
                various investment portfolios and monitoring compliance therewith.
                Investment Solutions employs a multi-manager investment approach, focusing on reducing risk through
                optimal and multiple-layer diversifications. The structure of investment portfolios is based on the contracts
                entered into and the risk profile selected by the client. Within these parameters, investments are managed
                with the aim of delivering superior returns, while limiting risk to acceptable levels, within the framework
                of statutory requirements. Although Investment Solutions does not make use of derivatives directly, the
                underlying managers may do so within strict mandate controls to achieve a particular portfolio’s investment
                objective in the most effective manner or to smooth or protect portfolio returns.
                Cell	captive	insurance	facilities
                The objective is to earn competitive relative returns by investing in a diverse portfolio of high-quality, liquid
                securities. Portfolio characteristics are analysed regularly and other price risk is managed by placing the
                equity portfolio under the management of specialised and reputable asset managers.
                Pension-backed	lending	operations
                The funding of these housing loans is provided through securitised funding which is directly matched to the
                assets provided and is classified as financial liabilities held at amortised cost.
                General operations
                Interest	rate	risk
                The group does not hedge against the interest rate exposure of fee income derived by the group and the
                board has accepted that changes in interest rates can result in volatility in the group’s earnings. An increase
                or decrease in interest rates impacts on the value of debt securities and cash balances included in assets
                from multi-manager investment contracts.
                Currency	risk
                The group does not hedge against this currency exposure to earnings and the board has accepted that
                changes in exchange rates can result in volatility in the group’s earnings when reported in Rand.
                The group does not hedge against the currency exposure to US Dollar policy-linked commission and fee
                income earned by insurance broking activities and the board has accepted that changes in exchange rates
                can result in volatility in the company’s earnings when reported in Rand. Changes in currency will impact
                profit before tax as a result of commission and fee earnings linked to US Dollar policies.
                Other	price	risk
                The group monitors the risk associated with the fee income attributable to the equity assets under
                management in the multi-manager investment operations. The exposure to equity markets is monitored
                and specific advice is taken on the economic outlook with regard to this fee income. The group does
                consider various derivative instruments to protect this income stream.
                There have been no significant changes in the way in which market risk is managed since the prior year.
         44.3.2 Exposure to market risk
                (i) Multi-manager investment operations
                Policyholders’ liabilities are linked to investments in equity securities, preference shares, debt securities,
                collective investment schemes, mutual funds, cash and other assets. These are valued at ruling market
                values and are therefore susceptible to daily market fluctuations.
                There is no direct significant market risk, either by interest rate, currency or other price risk, to the group on
                financial assets held in respect of multi-manager investment contracts as the effect of any changes in these
                market risks is directly attributable to policyholder assets and policyholder assets are directly matched by
                policyholder liabilities. There are assets held within the policyholder assets which are exposed to currency
                risk arising from various currency exposures primarily with respect to Sterling, Euro and the US Dollar, but
                these are within the policyholder assets and are matched by policyholder liabilities.
                Fee income earned by the group on assets from multi-manager investment operations is based on assets
                which are exposed to fluctuations in interest rates, foreign currencies and equity prices. The group does
                not hedge against the interest rate and currency exposures and the board has accepted that changes in
                interest and exchange rates can result in volatility in the group’s earnings.




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     notes to the group financial statements continued
 for the year ended 31 March 2010

      44. fInancIaL rIsK ManaGEMEnT (continued)
          44.3 Market risk (continued)
                 44.3.2 Exposure to market risk	(continued)
                        (ii) Cell captive insurance facilities
                        The structure of investment portfolios within the cell captive insurance facilities is based on a unitised
                        portfolio and consists primarily of cash and money market balances, preference shares and unlisted equity
                        securities.
                         There is no direct significant market risk, either by interest rate, currency or other price risk, to the group
                         on assets of cell captive insurance facilities as the effect of any changes in these market risks is directly
                         attributable to policyholders and cell owners and these assets are directly matched by policyholder and
                         cell owner liabilities.
                         The group earns fee income on assets of cell captive insurance facilities which are exposed to fluctuations
                         in interest rates but no fee income on assets that are exposed to currency or equity price movements. The
                         impact of changes in market risk is not significant to the group’s profit before tax.
                         (iii) Pension-backed lending operations
                         The housing loans bear interest at a floating rate linked to the South African prime rate. The funding,
                         provided via securitised notes, bears interest at a floating rate linked to JIBAR.
                         (iv) General operations
                         Interest	rate	risk
                         The group’s income and operating cash flows are substantially independent of changes in market interest
                         rates, except for interest costs on provisions for client settlements which are sensitive to short-term interest
                         rates. This impact is offset by the effect of short-term interest rate movements on interest earned on cash
                         balances. The interest rate on borrowings is substantially fixed and as such the group is not materially
                         exposed to cash flow interest rate risk on these funds.
                         As detailed above, fee income derived by the group on assets from multi-manager investment contracts will
                         be impacted by any changes in value of such assets arising from fluctuations in interest rates.
                         In addition, a portion of fee income earned in the retail business in the Financial Services operations in
                         South Africa is impacted by changes in interest rates as this income is linked to assets managed by this
                         business.
                         Currency	risk
                         The group operates internationally and is exposed to foreign exchange risk arising from various currency
                         exposures. As reflected in segmental profit analysis contained in these financial statements, the group derives
                         a portion of its operating profit before non-trading and capital items in foreign currencies. Approximately
                         13% (2009: 1   1%) of the group’s trading results from operations is derived from its international operations,
                         primarily in the United Kingdom, and 7% (2009: 7%) from operations in Africa outside of South Africa.
                         Fee income derived by the group on assets from multi-manager investment operations will also be impacted
                         by any changes in value of such assets arising from fluctuations in foreign currency exchange rates.
                         In addition, a portion of fee income earned in the retail business in the Financial Services operations in
                         South Africa is impacted by changes in foreign currencies as this income is linked to assets managed by
                         this business.
                         Approximately 8% (2009: 8%) of commission and fee income earned by the insurance broking activities
                         is linked to US Dollar policies.
                         Other	price	risk
                         As detailed above, fee income derived by the group on assets from multi-manager investment operations
                         will be impacted by any changes in the value of such assets, arising from fluctuations in equity markets. The
                         group has entered into a hedge contract to protect this fee income earned in South African equity markets.
                         The hedge contract is disclosed in more detail in note 24.4.
                         In addition, a portion of fee income earned in the retail business in the Financial Services operations in
                         South Africa is impacted by changes in equity markets as this income is linked to assets managed by this
                         business.
                         There have been no significant changes in market risk exposures since the prior year.




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44. fInancIaL rIsK ManaGEMEnT (continued)
         44.4   fair value hierarchy
                A number of the group’s accounting policies and disclosures for financial assets and liabilities require
                the determination of fair value. Fair value measurement is influenced by current market conditions and is
                subject to the financial risks noted above.
                A summary of the financial assets and liabilities measured at fair value for the group, split per financial
                instrument, is presented in the introduction to this note and shown in summary below:

                                                                                                  2010              2009
                                                                 Fair value   Book value            rm                Rm

                  assets
                  Financial assets held under multi-
                  manager investment contracts                    161 660               –      161 660           134 718
                  Financial assets of cell captive
                  insurance facilities                               7 582              –        7 582             7 498
                  Pension-backed lending operations                      –              –              –              750
                  General operations
                  Financial assets                                      89           181            270               365
                  Insurance receivables                                  –           528            528               330
                  Trade and other receivables                            –         1 044         1 044                971
                  Cash and cash equivalents                              –         2 383         2 383             2 434
                  Total financial assets                          169 331           4136        73
                                                                                               1 467             147 066


                  Liabilities
                  Financial liabilities held under multi-
                  manager investment contracts                    161 614               –        61 4
                                                                                                1 61             134 686
                  Liabilities of cell captive insurance
                  facilities                                         7 582              –        7 582             7 498
                  Securitisation funding for housing loans               –              –              –              750
                  General operations
                  Borrowings                                             –         2 034         2 034             2 243
                  Insurance payables                                     –         1 610          1 610             1 379
                  Trade and other payables                               –           534            534               715
                  Total financial liabilities*                    169 196           4178       173 374           147 271


         44.4.1 valuation methods and assumptions for valuation techniques
                At 31 March 2010, financial assets classified as level 1 comprise approximately 60% of financial assets
                measured at fair value on a recurring basis. Fair value measurements classified as level 1 include exchange-
                traded prices of fixed maturities, equity securities and derivative contracts.
                At 31 March 2010, financial assets classified as level 2 comprise approximately 39% of financial assets
                measured at fair value on a recurring basis. They primarily include government and agency securities
                and certain corporate debt securities, such as private fixed maturities. As market quotes generally are
                not readily available or accessible for these securities, their fair value measures are determined utilising
                relevant information generated by market transactions involving comparable securities. They are often
                based on model pricing techniques that effectively discount prospective cash flows to present value using
                appropriate sector-adjusted credit spreads commensurate with the security’s duration, also taking into
                consideration issuer-specific credit quality and liquidity. These valuation methodologies have been studied
                and evaluated by the company and the resulting prices determined to be representative of exit values.




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      notes to the group financial statements continued
  for the year ended 31 March 2010

       44. fInancIaL rIsK ManaGEMEnT (continued)
           44.4 fair value hierarchy (continued)
                  44.4.1 valuation methods and assumptions for valuation techniques	(continued)
                         Observable inputs generally used to measure the fair value of securities classified as level 2 include
                         benchmark yields, reported secondary trades, broker-dealer quotes, issuer spreads, benchmark securities,
                         bids, offers and reference data. Additional observable inputs are used when available, and as may be
                         appropriate.
                          As disclosed in note 10, the net fair value of derivative positions is approximately R625 million at 31 March
                          2010. All of these derivative contracts are traded in the over-the-counter (“OTC”) derivative market and are
                          classified in levels 1 and 2. The fair values of derivative assets and liabilities traded in the OTC market are
                          determined using quantitative models that require use of the contractual terms of the derivative instruments
                          and multiple market inputs, including interest rates, prices and indices to generate continuous yield or
                          pricing curves and volatility factors, which are then applied to value the positions. The predominance of
                          market inputs is actively quoted and can be validated through external sources or reliably interpolated if
                          less observable.
                          The credit risk of the counterparty and of Alexander Forbes is considered in determining the fair values of
                          all OTC derivative asset and liability positions, respectively, after taking into account the effects of master
                          netting agreements and collateral arrangements. Each reporting period, Alexander Forbes values its
                          derivative positions using the standard swap curve and evaluates whether to adjust the embedded credit
                          spread to reflect change in counterparty or its own credit standing.
                          At 31 March 2010, investments classified as level 3 comprise approximately 1% of financial assets
                          measured at fair value on a recurring basis. They primarily include listed and unlisted equity securities and
                          collective investment schemes whose traded prices are not considered liquid enough to justify level 2
                          observation. Determinations to classify fair value measures within level 3 of the valuation hierarchy are
                          generally based on the significance of the unobservable factors to the overall fair value measurement.
                          Alexander Forbes applies various due-diligence procedures, as considered appropriate, to validate these
                          non-binding broker quotes for reasonableness, based on its understanding of the markets, including use of
                          internally developed assumptions about inputs a market participant would use to price the security.
                          The group issues a significant number of investment contracts that are designated at fair value through
                          income. These investment contracts are not quoted in active markets, and their fair values are determined by
                          using valuation techniques. Such techniques (for example, valuation models) are validated and periodically
                          reviewed by qualified personnel independent of the area that created them. All models are validated before
                          they are used and calibrated to ensure that outputs reflect actual experience and comparable market
                          prices. A variety of factors is considered in the group’s valuation techniques, including time value, credit
                          risk (both own and counterparty), embedded derivatives (such as unit-linking features), volatility factors
                          (including contract holder behaviour), servicing costs and activity in similar instruments. Since significant
                          inputs are based on unobservable inputs, these investment contract liabilities are classified as level 3
                          instruments in the fair value hierarchy.
                          At March 2010, investments classified at level 3 primarily included suspended listed equities, community
                          property company assets and infrastructure and development assets, which comprise approximately 94%
                          of level 3 assets.
                          The following table presents significant inputs to show the sensitivity of level 3 measurements and
                          assumptions used to determine the fair value of the financial assets.
                          Instrument                           valuation technique                  significant inputs
                          Suspended listed equities            Exchange trade price                 Last exchange traded price
                          Community property company           Discounted cash flow model           Capitalisation rates and discount
                          assets                                                                    rates
                          Infrastructure and development       Equity                               Equity
                          assets                               Distribution discount model, cost,   Interest rates and exchange traded
                                                               mark to market, price, earnings,     prices
                                                               multiple and liquidation value       Debt
                                                               Debt                                 Interest rates; fixed and floating
                                                               Discounted cash flow
                          The group’s overall profit or loss is not sensitive to the inputs of the models applied to derive fair value.




100
                                                                            Alexander Forbes LI M ITE D 2010




44. fInancIaL rIsK ManaGEMEnT (continued)
    44.4 fair value hierarchy (continued)
          44.4.2 financial assets and liabilities at fair value

                                                                                           Fair value
                                                                        Total
                                                                  fair value     Level 1      Level 2   Level 3
                                                                         Rm         Rm           Rm        Rm

                   financial assets held under multi-
                   manager investment contracts
                   Equity securities – listed                      67 709        66 975          649        85
                   Equity securities – unlisted                         377           –             –      377
                   Preference shares – listed                           673         673             –        –
                   Collective investment schemes                   34 890        22 573       11 738       579
                   Debt securities – listed                        12 266        12 266             –        –
                   Debt securities – government stock                7 890        7 888             2        –
                   Debentures – listed                               1 979        1 882            97        –
                   Derivative financial instruments                    626           72          554         –
                   Unit-linked investment contracts                  2 750            –        2 750
                   Loans and receivables                                   6          6             –
                   Cash and cash equivalents                       17 458         7 232      10 226          –
                   Money market instruments – listed               15 036         1 228       13 808         –
                                                                  161 660       120 795      39 824      1 041
                   financial assets of cell captive
                   insurance facilities
                   Equity securities – unlisted                        638            –          638         –
                   Receivables                                       1 246            –        1 246         –
                   Preference shares – unlisted                        365            –          365         –
                   Collective investment schemes                         70          70             –        –
                   Debt securities – listed                             740         740             –        –
                   Cash and cash equivalents                         4 458            1        4 457         –
                   Money market instruments – listed                     65          65             –        –
                                                                     7 582          876        6 706         –
                   General operations
                   Equity securities – unlisted                            9          –             –        9
                   Preference shares – listed                            44          44             –        –
                   Collective investment schemes                         27          27             –        –
                   Debt securities – listed                                9          9             –        –
                                                                         89          80             –        9
                   Total financial assets measured at fair
                   value                                          169 331       121 751      46 530      1 050




                                                                                                                  101
   Al e x a n d e r Fo r b e s L I M I T E D 2 01 0




      notes to the group financial statements continued
  for the year ended 31 March 2010

       44. fInancIaL rIsK ManaGEMEnT (continued)
           44.4 fair value hierarchy (continued)
                  44.4.2 financial assets and liabilities at fair value	(continued)
                          Financial assets and liabilities measured at fair value at 31 March 2010
                                                                                                                  Fair value
                                                                                     Total
                                                                               fair value             Level 1         Level 2         Level 3
                                                                                      Rm                 Rm              Rm              Rm

                            financial liabilities measured at fair
                            value
                            Financial liabilities held under multi-
                            manager investment contracts                       161 614                       –       160 573           1 041
                            Liabilities of cell captive insurance facilities      7 582                      –                 –       7 582
                            Total financial liabilities measured at
                            fair value                                         169 196                       –       160 573           8 623

                          There are no significant transfers between level 1 and level 2 that have an impact on the group’s profit
                          or loss.
                          changes in level 3 instruments for the year ended 31 March 2010
                          financial assets
                                                                                                   Financial   Financial
                                                                                              assets under assets of cell
                                                                                             multi-manager    insurance              General
                                                                                  Total               assets    facilities         operations
                                                                                   Rm                    Rm           Rm                  Rm
                            opening balance                                       589                     581                  –           8
                            Total gains and losses recognised in
                            profit or loss
                            – Fair value gains and losses                          211                    210                  –           1
                            – Profit on sale of business                           (25)                      –                 –         (25)
                            Transfer from loans and receivables                     25                       –                 –          25
                            Purchases                                             286                    286                   –           –
                            Sales                                                  (45)                   (45)                 –           –
                            closing balance                                     1 041                  1 032                   –           9

                          changes in Level 3 instruments for the year ended 31 March 2010
                          financial liabilities
                                                                                                                     Financial
                                                                                                      Financial   liabilities of
                                                                                             liabilities under              cell
                                                                                              multi-manager         insurance        General
                                                                                  Total                  assets       facilities   operations
                                                                                   Rm                       Rm              Rm            Rm
                            opening balance                                     8 087                    589            7 498              –
                            Total gains and losses recognised in
                            profit or loss
                            Fair value gains and losses                            327                    211             116              –
                            Movement in insurance liabilities                       17                       –              17             –
                            Other movement in policyholder liabilities             (56)                      –             (56)            –
                            Investments                                           293                    286                   7           –
                            Disposals                                              (45)                   (45)                 –           –
                            closing balance                                     8 623                  1 041            7 582              –


102
                                                                                   Alexander Forbes LI M ITE D 2010




44. fInancIaL rIsK ManaGEMEnT (continued)
      44.4 fair value hierarchy (continued)
            44.4.2 financial assets and liabilities at fair value	(continued)
                   The group’s profit or loss will not significantly be affected by favourable or unfavourable changes in the
                   level 3 assets shown above. The financial assets and liabilities of multi-manager investment contracts are
                   linked and all movements in these assets will be met with a converse movement in the liabilities associated.
                   Similarly the cell owner insurance assets and liabilities are also linked.

45.   opEraTIonaL, LEGaL anD capITaL rIsK ManaGEMEnT
      45.1 operational risk
           Operational risk is the risk of loss due to factors such as inadequate systems, management failure, inadequate
           internal controls, fraud or human error. The group mitigates these risks through a risk management framework,
           systems of internal controls, internal audit and compliance functions and other measures such as backup
           procedures, contingency planning and insurance.
      45.2 Legal and regulatory risk
           The group is exposed to various actual and potential claims, lawsuits and other proceedings relating to alleged
           errors and omissions, or non-compliance with laws and regulations, in the conduct of its ordinary course of business.
           The directors are satisfied, based on present information and the assessed probability of claims eventually, that
           the group has adequate insurance programmes and provisions in place to meet such claims. However, like all
           businesses of our type, the risk exists that significant adverse developments in past claims, or a significant increase
           in the frequency of severity of future claims for errors and omissions, could have a material effect on the group’s
           reported results. Details of the structure of the group’s errors and omissions insurance programme are provided
           in the relevant note to these financial statements.
      45.3 capital
           Regulated	insurance	and	investment	subsidiary	companies
           The capital adequacy requirement (“CAR”) is calculated to determine whether the excess of assets over liabilities
           is sufficient to provide for the possibility of severely adverse future experience. The calculation is as required by
           the Long-Term Insurance Act, 1998, in South Africa and calculated in terms of the guidance notes issued by the
           Actuarial Society of South Africa (“ASSA”). The CAR is determined with reference to the guidance issued by ASSA
           but is subject to a minimum of R10 million or 13 weeks, operating expenses in terms of directive 1    40.A.i(LT) of the
           Financial Services Board. The subsidiary companies are required to hold sufficient equity and reserves to meet its
           CAR and can only distribute accumulated profits in excess of CAR.
            For Investment Solutions, all liabilities are directly related to asset values and no mortality or similar risks are
            assumed, the only risk to be considered is the expense risk. The CAR held at balance sheet date was R41 million
            (2008: R42 million), representing an excess of assets over liabilities of 7,6 times (2009: 13,3 times).
            The CAR held by Alexander Forbes Life at balance sheet date was R40 million (2009: R32 million), representing
            an excess of assets over liabilities of 1,9 times (2009: 2.1 times).
            For statutory purposes, the share capital of cell captive insurance subsidiary companies consists of ordinary shares
            and “A” and “L” shares. The company’s objectives when managing capital are:
            • 	 o	comply	with	capital	requirements	required	for	insurers	as	determined	by	legislation;	and
              T
            • To	safeguard	the	group’s	ability	to	continue	as	a	going-concern	so	that	it	can	provide	returns	for	its	shareholders	
              and	benefits	for	other	stakeholders.
            The cell captive insurance subsidiary companies submit quarterly and annual returns to the South African Services
            Board in terms of the Short-Term Insurance Act, 53 of 198 of South Africa (“the ACT”). The companies are required
            at all times to maintain a statutory surplus asset ratio as defined in the Act. The returns submitted to the regulator
            showed that the companies have met the minimum capital requirements throughout the year.
            All short-term insurance companies in South Africa are required in terms of the provisions of the Act to maintain
            a contingency reserve for adverse claims developments. This reserve is calculated at a minimum of 10% of net
            written premium as defined in the legislation. This reserve is maintained by the applicable subsidiary companies in
            the group and no distribution can be made from these reserves without the prior approval of the Registrar of Short-
            Term Insurance. Details on the value of this reserve held within the group at year end are shown in the applicable
            note to these financial statements.
            General	operations
            When maintaining capital, the group’s objectives are to maintain a minimum level of capital without compromising
            the ability to operate effectively. This is achieved by using available cash balances to fund working capital
            requirements and returning capital to shareholders and lenders as and when excess cash is generated. When
            required, the group makes use of intergroup loans from its direct or indirect holding company as a source of funds.



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