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					Alexander Forbes Equity Holdings
(Proprietary) Limited
Financial Statements
for the period ended 31 March 2008
Annual financial statements
for the period ended 31 March 2008



      Contents                                                                                                       Page
      Group financial statements
      Directors’ responsibility for financial reporting                                                                 1
      Certificate by the company secretary                                                                              1
      Independent auditors’ report                                                                                     2
      Directors’ report                                                                                                3
      Accounting policies                                                                                              6
      Critical accounting assumptions and judgements                                                                  20
      Income statement                                                                                                22
      Balance sheet                                                                                                   23
      Cash flow statement                                                                                              24
      Statement of changes in equity                                                                                  25
      Notes to the group financial statements                                                                          26


      Company financial statements
      Income statement                                                                                                72
      Balance sheet                                                                                                   72
      Cash flow statement                                                                                              73
      Statement of changes in equity                                                                                  73
      Notes to the company financial statements                                                                        74


      Annexures
                                                                  2
      Annexure A – Segmental report of Alexander Forbes Limited (1 months to 31 March 2008)                           75
      Annexure B – Segmental report of Alexander Forbes Equity Holdings (Proprietary) Limited (period ended to        76
                   31 March 2008)
      Annexure C – Material subsidiaries, joint ventures and associates in which the group has a financial interest    78
      Annexure D – Shareholding information                                                                           80
                                                                                                                             Alexander Forbes Equity
                                                                                                                             Holdings (Proprietary) Limited
                                                                                                          1                  Financial Statements
                                                                                                                             for the period ended 31 March 2008

Directors’ responsibility for financial reporting
for the period ended 31 March 2008


   The South African Companies Act requires directors to ensure that the           Based on the information and explanations given by management
   company maintains adequate accounting records and to be responsible             and the internal and external auditors, the directors are of the opinion
   for the content and integrity of the group and company annual financial          that the system of internal controls provides reasonable assurance
   statements of Alexander Forbes Equity Holdings (Proprietary) Limited            that the financial records may be relied on for the preparation of the
   and related financial information included in this report. It is their           group and company annual financial statements in accordance with
   responsibility to ensure that the financial statements, for each financial        IFRS. Nothing has come to the attention of the directors to indicate that
   year, fairly present the state of affairs of the group and company at the end   any breakdown in the functioning of the internal controls, resulting in a
   of the financial period and the results of their operations and cash flows        material loss to the group, has occurred during the period and up to the
   in conformity with International Financial Reporting Standards (“IFRS”).        date of this report.


   The accounting policies, supported by judgments, estimates and                  The directors have a reasonable expectation that the group and company
   assumptions which comply with IFRS, have been applied on a consistent           have adequate resources to continue in operational existence for the
   and going concern basis.                                                        foreseeable future. For this reason, the directors continue to adopt
                                                                                   the going concern basis in preparing the group and company annual
   It is the responsibility of the independent auditors to report on the fair      financial statements.
   presentation of the financial statements. Their unqualified audit report
   appears on page 2.                                                              Directors’ approval of annual financial statements
                                                                                   The group and company financial statements were approved by the
   The directors are ultimately responsible for the internal controls of           board of directors on 24 June 2008 and are signed on their behalf by:
   the group. To enable the directors to meet these responsibilities,
   management design and implement 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               Moloko
                                                                                   MS M l k                                   B Campbell
   for group assets. Systems and controls include the proper delegation of         Chairman                                   Group chief executive
   responsibilities within a clearly defined framework, effective accounting
   procedures and adequate segregation of duties.                                  7 July 2008




Certificate by the company secretary
for the period ended 31 March 2008


   In terms of section 268G (d) of the South African Companies Act of 1973, as amended, I certify that, in respect of the period ended 31 March 2008,
   Alexander Forbes Equity Holdings (Proprietary) Limited has lodged all returns that are required of a public company, in terms of the Act, with the
   Registrar of Companies and that all such returns are true, correct and up to date.




   JE Salvado
   Company secretary


   7 July 2008
    2
Independent auditors’ report to the members of Alexander Forbes Equity
Holdings (Proprietary) Limited for the period ended 31 March 2008

    We have audited the annual financial statements and group annual             auditor considers internal controls relevant to the entity’s preparation
    financial statements of Alexander Forbes Equity Holdings (Proprietary)       and fair presentation of the financial statements in order to design audit
    Limited, which comprise the directors’ report, the balance sheet and the    procedures that are appropriate in the circumstances, but not for the
    consolidated balance sheet as at 31 March 2008, the income statement        purpose of expressing an opinion on the effectiveness of the entity’s
    and the consolidated income statement, the statement of changes in          internal control. An audit also includes evaluating the appropriateness of
    equity and the consolidated statement of changes in equity, the cash        accounting policies used and the reasonableness of accounting estimates
    flow statement and the consolidated cash flow statement for the period        made by the directors, as well as evaluating the overall presentation of
    then ended, and a summary of significant accounting policies and other       the financial statements.
    explanatory notes, as set out on pages 3 to 79.
                                                                                We believe that the audit evidence we have obtained is sufficient and
    Directors’ responsibility for the financial statements                       appropriate to provide a basis for our audit opinion.
    The company’s directors are responsible for the preparation and
    fair presentation of these financial statements in accordance with           Opinion
    International Financial Reporting Standards and in the manner required      In our opinion, the financial statements present fairly, in all material
    by the Companies Act of South Africa. This responsibility includes:         respects, the financial position of the company and of the group as of
    designing, implementing and maintaining internal controls relevant to       31 March 2008, and their financial performance and their cash flows
    the preparation and fair presentation of financial statements that are       for the period then ended in accordance with International Financial
    free from material misstatement, whether due to fraud or error; selecting   Reporting Standards and in the manner required by the Companies Act
    and applying appropriate accounting policies; and making accounting         of South Africa.
    estimates that are reasonable in the circumstances.


    Auditors’ responsibility
    Our responsibility is to express an opinion on these financial statements
    based on our audit. We conducted our audit in accordance with
    International Standards on Auditing. Those standards require that we
    comply with ethical requirements and plan and perform the audit to
    obtain reasonable assurance that the financial statements are free from
    material misstatement.                                                      PricewaterhouseCoopers Inc.
                                                                                Director: J Bennett
    An audit involves performing procedures to obtain audit evidence about      Registered Auditor
    the amounts and disclosures in the financial statements. The procedures      2 Eglin Road, Sunninghill
    selected depend on the auditor’s judgement, including the assessment        South Africa
    of the risks of material misstatement of the financial statements,
    whether due to fraud or error. In making those risk assessments, the        7 July 2008
                                                                                                                           Alexander Forbes Equity
                                                                                                                           Holdings (Proprietary) Limited
                                                                                                      3                    Financial Statements
                                                                                                                           for the period ended 31 March 2008

Directors’ report
for the period ended 31 March 2008


   The directors present their first report which forms part of the group       The asset and liability balances of the Alexander Forbes Limited group
   and company financial statements of Alexander Forbes Equity Holdings         have been included in the group’s balance sheet at 31 March 2008.
   (Proprietary) Limited for the period ended 31 March 2008.                   These balances include the take-on values for assets and liabilities of the
                                                                               Alexander Forbes Limited group at the effective date.
   Nature of business
   The company is the ultimate holding company of the Alexander Forbes         Accounting effect of the purchase of Alexander Forbes
   group of companies (“the group”). The company acquired the entire           Limited
   issued share capital of Alexander Forbes Limited effective 26 July          In accordance with IFRS 3 Business Combinations, the excess of the
   2007 (“the effective date”) following the implementation of a scheme of     purchase consideration over the tangible net asset value of the acquired
                                     1
   arrangement in terms of section 31 of the Companies Act No 61 of 1973,      Alexander Forbes Limited group is allocated between goodwill, computer
   as amended (“the scheme of arrangement”). Prior to the implementation       software and other intangible assets. A comprehensive purchase price
   of the scheme of arrangement, Alexander Forbes Limited was listed on        allocation exercise is in the process of being completed and will be
   the JSE Limited.                                                            completed within twelve months of the acquisition date as permitted by
                                                                               IFRS 3. The initial accounting for the transaction has been provisionally
   Details of the scheme of arrangement were provided in the circular to       determined, the results of which are detailed in the relevant note to
   shareholders issued by Alexander Forbes Limited on 30 May 2007 and          these financial statements.
   in the pre-listing statement issued by Alexander Forbes Preference Share
   Investments Limited on 10 July 2007.                                        Review of activities
                                                                               The equity and debt structure of the group has been successfully
   Company name                                                                implemented. The equity provided by the consortium members,
   The company changed its name during the financial period. The                reinvestment shareholders, the BEE partners and management and
                                         31
   company’s previous name was Richtrau 1 (Proprietary) Limited.               staff through the issue of ordinary shares and preference shares in the
                                                                               company totalled R3,3 billion.
   Year end date
   The company has changed its financial year end to 31 March in order          Debt funding was provided through three different sources. Senior debt
   to be aligned to the reporting dates of Alexander Forbes Limited and its    preference shares to the value of R2,6 billion were issued. These preference
   subsidiaries. Previously, the company’s year end was 28 February. Due       shares have a variable dividend rate linked to the South African prime
   to the change in year end, the current reporting period of the company is   interest rate and have a term period of seven years. The preference shares
        3
   for 1 months to 31 March 2008. However the results include only eight       were subscribed for by three South African banks. A high yield bridge loan
   months of trading from the effective date of the acquisition of Alexander   was provided by two foreign banks for the Euro equivalent of R1,5 billion.
   Forbes Limited on 26 July 2007 up to the year end.                          The high yield bridge loan is an intermediate debt with a one year term
                                                                               period, by which time it is expected to be replaced with permanent
   The full segmental trading results of the acquired Alexander Forbes group   financing and, failing which, will convert into a term loan for a period of
   for the year ended 31 March 2008, as well as commentary thereon,            seven years. This loan bears interest at a pre-determined rate payable in
   is provided in Annexure A to these results in order to provide more         Euro. Lastly, the group has issued Pay-in-Kind (“PIK”) debentures to the
   comprehensive information concerning the recent trading performance         reinvestment shareholders through a special purpose vehicle, Alexander
   of the acquired group.                                                      Forbes Preference Share Investments Limited. The PIK debentures are the
                                                                               most junior debt in the structure with a fixed coupon rate and have a term
                                                                               of 10 years from the date of issue.
     4
Directors’ report (continued)
for the period ended 31 March 2008


      The most significant financial risks resulting from the implementation of       Borrowing powers
      this financing structure, being the exposure to variable interest rates as     In terms of the articles of association, the borrowing powers of the
      well as exposure to foreign currency risk, have been substantially hedged     company are unrestricted and the directors may exercise all the
      for the medium term. Details of these hedges have been provided in the        powers of the company to borrow money. However, most entities in the
      relevant notes to these financial statements.                                  underlying group have limited borrowing powers by virtue of an inter-
                                                                                    creditor agreement with existing financing providers. In terms of the
      As mentioned above, the activities of the group include eight months          South African Long-Term Insurance Act, 1998 and the South African
      of trading of the Alexander Forbes Limited group from the effective           Short-Term Insurance Act, 1998, the insurance subsidiaries of the group
      date of the acquisition. In order to provide comprehensive information        do not encumber their assets or directly or indirectly borrow funds.
      concerning the recent trading performance of the acquired Alexander
      Forbes Limited group, a full segmental revenue and trading results            Subsidiaries, joint ventures and associates
      analysis of the acquired group for the year ended 31 March 2008 is            Details of subsidiaries, joint ventures and associates, which are
      provided in Annexure A to these financial statements. This includes            considered material to the group, and in respect of which the group
      commentary on the trading performance for the year.                           has a continuing interest, are provided in Annexure C to these financial
                                                                                    statements.
      Distribution to shareholders
      The company has not declared a distribution to shareholders in the            Significant resolutions
      current period nor is the company likely to declare any dividends in the      Details of special resolutions and other resolutions of a significant nature
      foreseeable future.                                                           passed by the company and its subsidiaries during the period under
                                                                                    review, requiring disclosure in terms of the Listings Requirements of the
      Share capital                                                                 JSE Limited, are as follows:
      Authorised
      The authorised share capital of the company comprises 700 million              Alexander Forbes Equity Holdings (Proprietary) Limited
      ordinary shares, 600 million A preference shares and 45 million
                                                                                     1 February 2007       Changing the Memorandum of Association in
      B preference shares. This changed from the previous reporting period.                                respect of the main business; the authorised
                                                                                                           share capital of the company; and replacing
      Issued                                                                                               and substituting the articles of association in
      The company issued 377 358 491 additional ordinary shares during the                                 their entirety
      period. The company also issued 319 461 529 A preference shares and            24 July 2007          Increasing the authorised share capital of the
              13
      21 161 1 B preference shares during the period.                                                      company
                                                                                     5 October 2007        Change of name from
      Shareholders                                                                                                      31
                                                                                                           Richtrau No.1 (Proprietary) Limited
      The shareholders of the company comprise a private equity consortium                                 to Alexander Forbes Equity Holdings
      of investors, reinvestment shareholders through a publicly listed special                            (Proprietary) Limited
      purpose entity, BEE shareholders, including a staff share trust, and a         Alexander Forbes Limited
      management trust. Full details are provided in Annexure D to these             29 August 2007        General authority granted to acquire the
      financial statements.                                                                                 company’s own shares


      Acquisitions and disposals
      Other than the acquisition of the Alexander Forbes group on the
      effective date, there were no material acquisitions or disposals within the
      underlying group from the effective date to period end.
                                                                                                                     Alexander Forbes Equity
                                                                                                                     Holdings (Proprietary) Limited
                                                                                                  5                  Financial Statements
                                                                                                                     for the period ended 31 March 2008




Directors                                                                  Directors’ interests in shares
The directors at the date of approval of this report are:                  No shares in the company are held by directors other than those held by
                                                                           three directors, through a management incentive trust, details of which
Non-executive directors                        Position                    are provided in the related party note to these financial statements.
MS Moloko                                      Chairman
AJ Claerhout*                                                              Directors’ emoluments
LA Hall* (alternate to AJ Claerhout)                                       Directors’ emoluments are disclosed in the related party note to these
T Espiard*                                                                 financial statements.
L Konar
PG Nkadimeng
                                                                           Company secretary
KA Mills** (alternate to PG Nkadimeng)
                                                                           The company secretary at the date of publication of this report is
MC Ramaphosa
                                                                           Mrs JE Salvado.
A Roux
A de Beer (alternate to A Roux)
P Schmid                                                                   Registered office
JA van Wyk                                                                 Details of the registered office of the company are as follows:
NC Kolbe (alternate to JA van Wyk)                                         Physical address
                                                                           Alexander Forbes Place
Executive directors                            Position
                                                                           61 Katherine Street
B Campbell                                     Group chief executive
                                                                           Sandown, Sandton
DM Viljoen                                     Group finance director
                                                                           2196
* Canadian
                                                                           South Africa
** American

                                                                           Postal address
Mr MS Moloko was appointed to the board on 1 December 2007 in
                                                                           PO Box 787240
the position as chairman. Dr L Konar was appointed as an independent
                                                                           Sandton
director to the board on 1 February 2008.
                                                                           2146
                                                                           South Africa
Mr MP Moyo, who was appointed to the board on 3 September 2007,
resigned on 9 November 2007 and Mr R Pender who was appointed as
                                                                           The company’s registration number is 2006/025226/07.
an alternate director to Mr A Roux on 3 September 2007, resigned on
29 February 2008 and was replaced by Mr A de Beer on that date.
                                                                           Events subsequent to balance sheet date
                                                                           There have been no material events subsequent to the balance
Mr GA Jarvis was appointed to the board on 6 December 2006,
                                                                           sheet date.
resigned on 3 September 2007. Ms NC Kolbe was appointed to the
board on 15 December 2006. All other directors are appointed on
                                                                           Auditors
3 September 2007.
                                                                           PricewaterhouseCoopers Inc will continue in office in accordance with
                                                                           section 270(2) of the Companies Act of 1973, as amended.
Directors’ interests in contracts
During the financial period, no material contracts were entered into in
which directors of the company had an interest and which significantly
affected the business of the group. The directors had no interest in any
third party or company responsible for managing any of the business
activities of the group.
     6
Accounting policies
for the period ended 31 March 2008


      The principal accounting policies applied in the preparation of the           component of the income statement. The cash flow effects of the
      group and company financial statements are set out below. These                business units disposed of have been separately reported in the cash
      policies are consistent with those applied by the Alexander Forbes            flow statement.
      Limited group and are in compliance with International Financial
      Reporting Standards (“IFRS”) and the South African Companies Act,             Amendments to standards effective in 2008
      No 61 of 1973, as amended.                                                    The following amendments to IFRS Standards and Interpretations have
                                                                                    been issued with an effective date applicable to the current financial
      Basis of preparation                                                          period of the group.
      The group and company financial statements have been prepared in
      accordance with, and comply with, IFRS. They have been prepared               IFRS 7 – Financial instruments: Disclosures (new) and IAS 1:
      in accordance with the going concern principle under the historical           Presentation of financial statements: Capital disclosures (amended)
      cost basis, as modified by the revaluation of certain categories of            and IFRS 4 – Insurance contracts (amended)
      financial instruments.
                                                                                    The adoption of IFRS 7 and the amendments to IAS 1 and IFRS 4 impacts
                                                                                    the disclosures made in these financial statements, but has no impact on
      The preparation of financial statements in conformity with IFRS requires the
                                                                                    the reported profits or financial position of the group.
      use of certain critical accounting estimates. This also requires management
      to exercise its judgement in the process of applying the accounting
                                                                                    Standards and interpretation not yet effective
      policies. The areas involving a higher degree of judgement or complexity,
                                                                                    IFRS 2 – Share-based payments – Vesting conditions and cancellations
      or areas where assumptions and estimates are significant to the financial
                                                                                    An amendment to IFRS 2 – Share-based payments, was published
      statements, are disclosed in the notes to these financial statements.
                                                                                    in 2008 and becomes effective for financial periods beginning on or
                                                                                    after 1 January 2009. The standard restricts the definition of a vesting
      Nature of operations and comparative information
                                                                                    condition and specifies when an award is accounted for as a cancellation
      Alexander Forbes Equity Holdings (Proprietary) Limited ("the company")
      was incorporated on 1 August 2006 for the purpose of effecting the
                           5                                                        due to failure to meet a non-vesting condition.

      acquisition of the Alexander Forbes Limited group and commenced
      trading operations effective 26 July 2007. The company was dormant            The group has concluded that the amendment will not materially impact
      and did not trade prior to this date.                                         the group.


      The company changed its financial year ended 31 March in order to              IFRS 3 – Business combinations and IAS 27 – Consolidated and separate
      be aligned to the reporting dates of Alexander Forbes Limited and its         financial statements
      subsidiaries. Previously, the company's year end was 28 February. Due to      These standards were revised and reissued in January 2008 and become
      the change in year end, the current reporting of the company is for the       effective for financial periods beginning on or after 1 July 2009 with
       3
      1 months to 31 March 2008. However, the results only include the results      prospective application. IFRS 3 applies to all transactions and events
      of the Alexander Forbes group for the period subsequent to the acquisition.   that meet the definition of a business combination. IAS 27 was revised to
                                                                                    require that a change in ownership interest of a subsidiary is accounted
      Acquisition of Alexander Forbes Limited                                       for as an equity transaction and the accounting for losses incurred by a
      On 26 July 2007, the company acquired, through its subsidiary Alexander       subsidiary as well as the loss of control of a subsidiary was changed.
      Forbes Acquisition (Proprietary) Limited, the entire share capital of the
      Alexander Forbes Limited group. The acquisition was funded through            The group has evaluated the effect of adopting these standards and
      a combination of a shareholder loan and the issuance of senior ranking        has resolved that the standards will have a material effect on all future
      preference shares, a senior bridge and a high yield bridge facility which     business combinations in future reporting periods on adoption of
      are reflected as borrowings in the group’s balance sheet.
                                                                                    the standards.

      The acquisition has been accounted for the terms of IFRS 3, Business
                                                                                    IFRS 8 – Operating Segments
      Combinations. The excess of the purchase consideration over the tangible
                                                                                    IFRS 8 requires the segmental disclosures to be reported based on the
      net asset value of Alexander Forbes Limited group has been allocated on a
                                                                                    “management approach”. The reporting is to be based on the information
      provisional basis to goodwill and other intangible assets. A comprehensive
                                                                                    that management uses internally for evaluating segment performance
      purchase price allocation exercise is in the process of being completed.
                                                                                    and when deciding on the allocation of resources to operating segments.
      Refer to the relevant note in these financial statements.
                                                                                    IFRS 8 will supersede the current standard dealing with segmental
                                                                                                    4.
                                                                                    reporting, IAS 1 This standard is expected to increase the level of
      Discontinued operations
                                                                                    disclosure in the group’s reported results, but these principles are
      It should be noted that certain business units in the International
      operations have been discontinued during the period and accounted             already materially applied.

      for as discontinued operations in accordance with IFRS 5, Non-current
      Assets Held for Sale and Discontinued Operations. As such, the reported       IFRS 8 is effective for annual periods beginning on or after
      loss up to the effective date of disposal has been reported in a separate     1 January 2009.
                                                                                                                           Alexander Forbes Equity
                                                                                                                           Holdings (Proprietary) Limited
                                                                                                     7                     Financial Statements
                                                                                                                           for the period ended 31 March 2008




       2
IFRIC 1 – Service Concession Arrangements                                     immediately expense borrowing costs or capitalise these to the asset
       2
IFRIC 1 addresses the accounting for private sector operations involved       cost. The impact of this interpretation is not considered relevant to the
in the provision of public sector infrastructure and services, such as        operations of the group.
schools and roads. The impact of this interpretation is not considered
relevant to the operations of the group.                                      IAS 23 is effective for annual periods beginning on or after
                                                                              1 January 2009.
       2
IFRIC 1 is effective for annual periods beginning on or after
1 January 2008.                                                               Amendment to IAS 32 and IAS 1, Puttable Instruments
                                                                              This amendment was issued in February 2008 and becomes effective
       3
IFRIC 1 – Customer loyalty programmes                                         for financial periods beginning on or after 1 January 2009. IAS 32 now
       3
IFRIC 1 is applicable to entities that grant loyalty award credits, such      requires certain puttable financial instruments and obligations arising
as points or travel miles, to customers who buy goods or services. The        on liquidation to be classified as equity if certain criteria are met. The
interpretation provides guidance on how an entity’s obligation to provide     amendment to IAS 1 requires certain disclosures relating to puttable
free or discounted goods or services to customers who redeem these            instruments classified as equity.
awards. The impact of this interpretation on the group is not expected
to be significant.                                                             Annual Improvements Project
                                                                              The IASB decided to initiate an annual improvements project in 2007 as
       3
IFRIC 1 is effective for annual periods beginning on or after 1 July          a method of making necessary, but non-urgent, amendments to IFRSs
2008.                                                                         that will not be included as part of another major project. The IASB’s
                                                                              objective was to ease the burden for all concerned.
       4
IFRIC 1 – The limit on a defined benefit plan asset and minimum
funding requirements                                                          Unless otherwise specified the amendments are effective for annual
       4
IFRIC 1 addresses the interaction between minimum funding                     periods beginning on or after 1 January 2009, although entities are
requirements and the limits on the measurement of a defined benefit             permitted to adopt them earlier.
                                                       4
asset or liability. When determining the limit, IFRIC 1 requires the
group to measure any economic benefits available to them through               The following standards have been effected by the project:
either refunds or reductions in future contributions. The impact of this      IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
interpretation on the group is not expected to be significant.                 IAS 1 Presentation of Financial Statements
                                                                                   6
                                                                              IAS 1 Property, Plant and Equipment
       4
IFRIC 1 is effective for annual periods beginning on or after                      9
                                                                              IAS 1 Employee Benefits
1 January 2008.                                                               IAS 20 Accounting for Government Grants
                                                                              IAS 23 Borrowing Costs
IAS 1 (Revised) – Presentation of Financial Statements                        IAS 27 Consolidated and Separate Financial Statements
The main objective of IAS 1 was to aggregate information in the financial      IAS 28 Investments in Associates
statements on the basis of shared characteristics. With this in mind, the     IAS 31 Interests in Joint Ventures
International Accounting Standards Board (“IASB”) considered it useful        IAS 29 Financial Reporting in Hyperinflationary Economies
to separate changes in equity (net assets) of an entity during a period       IAS 36 Impairment of Assets
arising from transactions with owners in their capacity as owners from        IAS 38 Intangible Assets
other changes in equity. Consequently, the IASB decided that all owner        IAS 39 Financial Instruments: Recognition and Measurement
changes in equity should be presented in the statement of changes in          IAS 40 Investment Property
equity, separately from non-owner changes in equity.                          IAS 41 Agriculture


In addition, the IASB’s intention in revising IAS 1 was to improve and        Management are currently considering the effect of the changes.
reorder sections of IAS 1 to make it easier to read. The IASB’s objective
was not to reconsider all the requirements of IAS 1.                          Consolidation
                                                                              (a) Subsidiaries
The changes relate to disclosure in the financial statements and are           Subsidiaries are all entities, including special purpose entities, over
unlikely to have a significant impact on the group’s financial statements.      which the group has the power to govern the financial and operating
These changes are effective for the annual periods beginning or or after      policies, generally accompanying a shareholding of more than one half
1 July 2009.                                                                  of the voting rights. The existence and effect of potential voting rights
                                                                              that are currently exercisable or convertible are considered when
IAS 23 – Borrowing costs (amended)                                            assessing whether the group controls another entity. Subsidiaries are fully
The amendment to IAS 23 requires the capitalisation of borrowing costs        consolidated from the date on which control is transferred to the group
as part of the cost of an asset. Previously, the option was given to either   and are no longer consolidated from the date on which control ceases.
     8
Accounting policies (continued)
for the period ended 31 March 2008



      Consolidation (continued)                                                       When the group’s share of losses in an associate equals or exceeds
      (a) Subsidiaries (continued)                                                    its interest in that associate, including any other unsecured receivables,
      The group uses the purchase method of accounting to account for the             the group does not recognise any further losses, unless the group has
      acquisition of subsidiaries. The cost of an acquisition is measured at the      incurred obligations or made payments on behalf of the associate.
      fair value of the assets given, equity instruments issued and liabilities
      incurred or assumed at the date of exchange, plus costs directly                Unrealised gains on transactions between the group and its associates
      attributable to the acquisition. Identifiable assets acquired and liabilities    are eliminated to the extent of the group’s interest in the associates.
      and contingent liabilities assumed in a business combination are                Unrealised losses are also eliminated, unless the transaction provides
      measured initially at their fair values at the acquisition date, irrespective   evidence of an impairment of the asset transferred. Associates’
      of the extent of any minority interest. The excess of the cost of acquisition   accounting policies have been changed where material and necessary
      over the fair value of the group’s share of the identifiable net assets          to ensure consistency with the policies adopted by the group.
      acquired is recorded as goodwill. If the cost of acquisition is less than the
      fair value of the net assets of the subsidiary acquired, the difference is      The company financial statements account for associates at cost less any
      recognised immediately in the income statement.                                 accumulated impairment losses.

      All intra-group transactions, balances and unrealised gains on intra-           (d) Unit trusts
      group transactions are eliminated. Unrealised losses are also eliminated        Unit trusts (or collective investment schemes) managed by the group,
      unless the transaction provides evidence of an impairment of the asset
                                                                                      and for which the group is considered to have control through its relative
      transferred.
                                                                                      size of investment in the scheme, mandates and voting rights, are
                                                                                      consolidated applying the same principles used for the consolidation of
      Subsidiaries’ accounting policies have been changed where necessary
                                                                                      subsidiary companies. The financial assets of the unit trusts attributable to
      to ensure consistency with the policies adopted by the group.
                                                                                      unitholders are shown within “Financial assets held under multi-manager
                                                                                      investment contracts” in the group balance sheet with a matching linked
      The company financial statements account for investments in subsidiaries
                                                                                      liability to the external unitholders shown within “Financial liabilities held
      at cost less any accumulated impairment losses.
                                                                                      under multi-manager investment contracts”.

      (b) Joint ventures
                                                                                      Fair value adjustments to the financial assets and liabilities of unit trusts
      Joint ventures are all entities in which the group holds a long-term interest
                                                                                      are recognised in the income statement.
      and which are jointly controlled by the group, and one or more other
      venturer, under a contractual arrangement. Joint ventures are accounted
                                                                                      (e) Cell captive facilities provided to third parties
      for using the proportionate consolidation method from the acquisition
                                                                                      The group provides cell captive insurance facilities (“cells”) for clients
      date until the disposal date. Under this method, the group combines its
                                                                                      through three licensed insurance companies.
      share of the joint ventures’ individual income and expenses, assets and
      liabilities and cash flows on a line-by-line basis with similar items in the
                                                                                      The consolidation of the assets, liabilities and income statement items of
      group financial statements.
                                                                                      the insurance companies depends on their nature and the contractual

      Unrealised gains and losses arising from transactions with joint                relationship with the cell shareholder as follows:

      ventures are eliminated to the extent of the group’s interest in
      those entities.                                                                 • First party cells
                                                                                      These cells are classified as special purpose entities controlled by the

      (c) Associates                                                                  cell owner and income statement items are not included in the group
      Associates are entities over which the group has significant influence,           financial statements. Assets and linked liabilities are consolidated to
      but not control or joint control, generally accompanying a shareholding         the extent that investment mandates provide control to the group’s
      of between 20% and 50% of the voting rights. Investments in associates          insurance companies.
      are accounted for using the equity method of accounting and are
      initially recognised at cost. The group’s investment in associates              • Third party cells
      includes goodwill identified on acquisition, net of any accumulated              The assets, liabilities and income statement items of these cells are
      impairment loss.                                                                included in the group financial statements. However, the cell owners’
                                                                                      responsibility for the solvency of their cell is recognised and accounted
      The group’s share of its associates’ post-acquisition profits or losses is       for as a reinsurance transaction.
      recognised in the income statement and its share of post-acquisition
      movements in reserves is recognised in reserves. The cumulative post-           • Other policyholder interests
      acquisition movements are adjusted against the carrying amount of               The assets, liabilities and income statement items attributable to other
      the investment.                                                                 policyholder interests are included in the group financial statements.
                                                                                                                            Alexander Forbes Equity
                                                                                                                            Holdings (Proprietary) Limited
                                                                                                        9                   Financial Statements
                                                                                                                            for the period ended 31 March 2008




• Promoter’s (shareholder’s) interests                                         Goodwill and fair value adjustments arising on the acquisition of a foreign
Assets and liabilities attributable to the promoter’s interests are            entity are treated as the foreign entity’s assets and liabilities and are
included in the same line items as other similar assets and liabilities        translated at the closing rate.
of the group, whereas all other insurance-related assets of the group’s
insurance companies are shown separately in the group balance                  Property and equipment
sheet with a corresponding separate linked liability to the cell shareholder   Freehold land and buildings are stated at historic cost and are depreciated
and policyholders.                                                             on the straight-line method to residual value over the estimated useful
                                                                               lives of the assets.
Foreign currency translation
(a) Functional and presentation currency                                       Leasehold property and improvements, computer and office equipment,
Items included in the financial statements of each of the group’s entities      furniture and other assets are stated at historical cost less accumulated
are measured using the currency of the primary economic environment            depreciation and impairment. Historical cost includes expenditure that is
in which the entity operates (the “functional currency”). The group and        directly attributable to the acquisition of the items. Cost may also include
company financial statements are presented in South African Rand,               transfers from equity of any gains or losses on qualifying cash flow
which is the company’s and the group’s presentation currency.                  hedges of foreign currency purchases of property, plant and equipment.

(b) Foreign exchange gains and losses arising in entity accounts               Subsequent costs are included in the asset’s carrying amount only when
Foreign currency transactions are translated into the functional currency      it is probable that future economic benefits associated with the items
using the exchange rates prevailing at the date of the transactions.           will flow to the group and the cost of the item can be measured reliably.
Foreign exchange gains and losses resulting from the settlement of such        All other repairs and maintenance costs are charged to the income
transactions are recognised in the income statement.                           statement when incurred.

Foreign exchange gains and losses resulting from the translation               Depreciation on leasehold property and improvements, computer and
of monetary assets and liabilities denominated in foreign currencies at        office equipment, furniture and other assets is calculated using the straight-
year end exchange rates are recognised in the income statement, except
                                                                               line method to reduce the costs to residual values over the estimated
when recognised in equity in respect of qualifying cash flow hedges.
                                                                               useful lives of the assets. The expected useful lives applied are:

Translation differences on non-monetary items, such as financial assets
                                                                                Leasehold property and                     Shorter of useful life or period
held at fair value through profit or loss, are reported as part of the fair
                                                                                improvements                                                        of lease
value gain or loss on such instruments. Translation differences on non-
                                                                                Computer and network equipment                                3 to 5 years
monetary items, such as equities classified as available-for-sale financial
                                                                                Motor vehicles                                               4 to 10 years
assets, are included in the fair value reserve in equity.
                                                                                Furniture and fittings                                        4 to 10 years
                                                                                Office equipment                                               4 to 7 years
(c) Foreign exchange gains and losses arising on consolidation
                                                                               Land is not depreciated.
The results and financial position of all the group entities that have a
functional currency different from the presentation currency of the group
                                                                               The residual values and useful lives of assets are reviewed at each
are translated into South African Rand as follows:
                                                                               balance sheet date and adjusted, if appropriate. If the carrying amount of
•   all assets and liabilities for each balance sheet item are translated at
                                                                               the asset is greater than its estimated recoverable amount, the carrying
    the closing rate at the relevant balance sheet date;
                                                                               amount is written down immediately to its recoverable amount.
•   all income and expenses for each income statement item are
    translated at the average exchange rates for the relevant financial
                                                                               Gains and losses on disposals of property and equipment are determined
    period (unless this average is not a reasonable approximation of
    the cumulative effect of the rates prevailing on the transaction           by comparing proceeds from the disposal with the carrying amount of

    dates, in which case income and expenses are translated using the          the relevant asset. These are included in the income statement. When

    applicable exchange rates at the dates of the transactions); and           revalued assets are sold, the amounts included in the revaluation surplus

•   all resulting exchange differences on consolidation are recognised         are transferred to retained earnings.

    in the foreign currency translation reserve in equity.
                                                                               Goodwill
Foreign exchange gains and losses on borrowings and other currency             Goodwill represents the excess of the cost of an acquisition over the fair

instruments designated as hedges of such investments are similarly             value of the group’s share of the net identifiable assets of the acquired
transferred to, and recognised in, the foreign currency translation reserve    subsidiary, joint venture or associate at the acquisition date. Goodwill on
in equity. On disposal of a foreign entity, the cumulative exchange            acquisition of subsidiaries and joint ventures is separately disclosed as
differences relating to the entity disposed of are released to the group       a line item on the face of the balance sheet. Goodwill on acquisition of
income statement as part of the gain or loss on sale.                          associates is included in investments in associates.
     10
Accounting policies (continued)
for the period ended 31 March 2008



      Goodwill (continued)                                                          An incremental cost is one that would not have been incurred if the
      Goodwill is tested annually for impairment and is carried at cost less        group had not secured the investment contract.
      accumulated impairment losses. Gains and losses on the disposal of an
      entity are stated after deducting the carrying amount of goodwill relating    The DAC represents the group’s contractual right to benefit from
      to the entity sold.                                                           providing multi-manager investment services and is amortised on
                                                                                    a straight-line basis over the period in which the group expects to
      Other intangible assets                                                       recognise the related revenue, not exceeding five years. The costs of
      Other intangible assets are carried at cost less accumulated amortisation     securing the right to provide these services do not include transaction
      and impairment.                                                               costs relating to the origination of the investment contract.


      (a) Purchased and developed computer software                                 The accounting policy in respect of DAC relating to insurance contracts
      Purchased computer software and the direct costs associated with the          is described in the relevant accounting policy on insurance contracts.
      customisation and installation thereof, are capitalised and amortised
      over of the useful life of the asset.                                         (d) Trademarks and licences
                                                                                    No value is attributed to internally developed trademarks, patents and
      Purchased computer software licences are capitalised on the basis of the      similar rights except when assessing the value of intangible assets
      costs incurred to acquire and bring into use the specific software. These      arising on a business combination. In this case a purchase price
      costs are amortised over the useful life of the asset.                        allocation exercise is performed. In all other cases, costs incurred on
                                                                                    these items are recognised as an operating expense when incurred.
      Costs that are directly associated with the production of identifiable         Expenditure on the development and marketing of the group’s brands
      and unique software products, which will be controlled by the group           is similarly expensed when incurred.
      and generate economic benefits exceeding costs beyond one year, are
      recognised as intangible assets.                                              Financial assets
                                                                                    The group classifies its financial assets into the following categories:
      Directly associated costs include employee costs and an appropriate           financial assets at fair value through profit or loss; loans and receivables;
      portion of relevant overheads of the system development team. All             held-to-maturity financial assets; and available-for-sale financial assets. The
      other costs associated with developing or maintaining computer                classification depends on the purpose for which the financial assets were
      software programmes are recognised as an expense when incurred.               acquired.


      Expenditure, which enhances and extends the benefits of computer               All financial assets are initially recognised at fair value, plus in the case of
      software programmes beyond their original specifications and lives, is         financial assets not at fair value through profit or loss, transaction costs
      recognised as a capital improvement and added to the original cost of the     that are directly attributable to their acquisition. The best evidence of
      software. Previously expensed costs are not subsequently capitalised.         fair value on initial recognition is the transaction price, unless the fair
                                                                                    value is evidenced by comparison with other observable current market
      Computer software development costs recognised as assets are                  transactions in the same instrument or based on discounted cash flow
      amortised on a straight-line basis over their estimated useful lives of       models and option pricing valuation techniques of which variables
      between three and five years.                                                  include only data from observable markets.


      (b) Contractual customer relationships acquired as part of a                  The purchases and sales of financial assets that require delivery are
      business combination                                                          recognised on trade date, being the date on which the group commits
      Contractual customer relationships acquired as part of a business             to purchase or sell the asset. Financial assets are derecognised when
      combination are recognised as intangible assets. The initial recognition      the rights to receive cash flows from the investments have expired or
      of the customer relationship is determined by estimating the net              where they have been transferred and the group has also transferred
      present value of future after tax cash flows from the contracts in force       substantially all risks and rewards of ownership.
      at the date of acquisition. These customer relationships are amortised
      on a straight-line basis over the estimated life of the acquired contracts.   Subsequent to initial recognition, the fair values of financial assets are based
      Useful lives of the contractual customer relationships range from to          on quoted bid prices, excluding transaction costs. If the market for a financial
      six to 50 years                                                               asset is not active or an instrument is an unlisted instrument, the fair value is
                                                                                    estimated using valuation techniques. These include the use of recent arm’s
      (c) Deferred acquisition costs (“DAC”)                                        length transactions, reference to other instruments that are substantially the
      Incremental costs directly attributable to securing rights to receive fees    same, discounted cash flow analyses and option pricing models.
      for multi-manager investment services sold with investment contracts
      are capitalised as intangible assets if they can be separately identified,     When a discounted cash flow analysis is used to determine the value of
      measured reliably and it is probable that their value will be recovered.      financial assets, estimated future cash flows are based on management’s
                                                                                                                            Alexander Forbes Equity
                                                                                                                            Holdings (Proprietary) Limited
                                                                                                    11                      Financial Statements
                                                                                                                            for the period ended 31 March 2008




best estimates and the discount rate is a market-related rate, at the           Short-term trade receivables are carried at original invoice amount less
balance sheet date, for a financial asset with similar terms and conditions.     an estimate made for impairment based on a review of all outstanding
Where option pricing models are used, inputs based on observable                amounts at the end of the reporting period.
market indicators at the balance sheet date, and profits or losses, are
only recognised to the extent that they relate to changes in factors that       Long-term trade receivables are initially recognised at fair value and
market participants will consider in setting a price.                           subsequently measured at amortised cost using the effective interest
                                                                                rate method, less any provision for impairment.
(a) Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading          A provision for impairment is established when there is objective
and those designated at fair value through profit or loss at inception.          evidence that the group will not be able to collect all amounts due
                                                                                according to the original terms of the receivables. Objective evidence
A financial asset is classified as held for trading if acquired principally       that receivables are impaired includes observable data that comes to the
for the purpose of selling in the short term or if it forms part of a           attention of the company about the following events:

portfolio of financial assets in which there is evidence of short-term           •   significant financial difficulty of the debtor

profit-taking. Derivatives are also classified as held for trading, unless        •   a breach of contract, such as default or delinquency in payments

they are designated as hedges at inception. All classes of financial             •   it becoming probable that the debtor will enter bankruptcy or other

assets classified on the balance sheet as “Financial assets held                     financial reorganisation

under multi-manager investment contracts” are classified as held
                                                                                The amount of a provision is the difference between the carrying amount
for trading.
                                                                                and the recoverable amount of the assets being the present value of
                                                                                expected cash flows discounted at the market rate of interest for similar
A financial asset is designated as fair value through profit or loss because
                                                                                borrowers. The amount of the provision is recognised as a charge in the
either it eliminates or significantly reduces a measurement or recognition
                                                                                income statement.
inconsistency that would otherwise arise from measuring the asset or
recognising the gains or losses on it on different bases; or a group of
                                                                                Other receivables include work-in-progress in respect of unbilled fee-
financial assets is managed and its performance is evaluated on a fair value
                                                                                based services, which is stated at net realisable value. Net realisable
basis, in accordance with a documented risk management or investment
                                                                                value is generally based on the unbilled time incurred to date at the
strategy and information about the group is provided internally on that basis
                                                                                expected charge rates and is the undiscounted value of the receivable.
to key management personnel. Under these criterion, the main classes of
financial assets designated by the group are preference shares, unit trust
                                                                                (c) Held-to-maturity financial assets
and debt securities. All classes of financial assets classified on the balance
                                                                                Held-to-maturity financial assets are non-derivative financial assets with
15as fair value through profit or loss.
                                                                                fixed or determinable payments and fixed maturities that management
                                                                                has the positive intention and ability to hold to maturity, other than
Subsequent to initial recognition, these assets are measured at fair
                                                                                those that meet the definition of loans and receivables. Were the group
value. All related realised and unrealised gains and losses arising from
                                                                                to sell more than an insignificant amount of held-to-maturity financial
changes in fair value are recognised as investment income in the
                                                                                assets in a period, the entire category would be tainted and reclassified
income statement.
                                                                                as available-for-sale and the difference between amortised cost and
                                                                                fair value would be accounted for in equity.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
                                                                                The only class of financial asset classified as held-to-maturity is
determinable payments that are not quoted in an active market and
                                                                                preference shares held for securitisation operations.
include purchased loans. This category does not include those loans
and receivables that the group intends to sell in the short term or that it     Subsequent to initial recognition, held-to-maturity financial assets are
has designated as at fair value through profit or loss or available-for-sale.    carried at amortised cost using the effective interest rate method, less
Origination transaction costs and origination fees are capitalised to the       any provision for impairment.
value of the loan and amortised through interest income.

                                                                                (d) Available-for-sale financial assets
Subsequent to initial recognition, loans and receivables are carried            Available-for-sale financial assets are those intended to be held for an
at amortised cost using the effective interest rate method, less any            indefinite period of time and may be sold in response to liquidity needs
provision for impairment.                                                       or changes in interest rates, exchange rates or equity prices. Financial
                                                                                assets that are either designated in this category or not classified in any
Receivables arising from insurance contracts are also classified into this       of the other categories are classified as available-for-sale financial assets.
category and are reviewed for impairment as part of the impairment              The main classes of financial assets classified as available-for-sale are
review of loans and receivables.                                                unlisted equity securities and property.
     12
Accounting policies (continued)
for the period ended 31 March 2008



      Financial assets (continued)                                                    recognised in profit or loss, the impairment loss is reversed through the
      (d) Available-for-sale financial assets (continued)                              income statement.
      Subsequent to initial recognition, available-for-sale financial assets are
      carried at fair value. Unrealised gains and losses arising from the change      (c) Goodwill
      in fair value are recognised directly in equity until the financial asset is     Goodwill is assessed annually for impairment. For purposes of impairment
      derecognised or impaired, at which time the cumulative gain or loss             testing, goodwill is allocated to cash-generating units, being the lowest
      previously recognised in equity is recognised in the income statement.          component of the business measured in the management accounts
      Interest and dividend income received on available-for-sale financial            which is expected to generate cash flows that are largely independent
      assets is recognised in the income statement.                                   of any other business component. Each of those cash-generating units
                                                                                      represents a grouping of assets no higher than a primary business or
      Impairment of assets                                                            reporting segment as used for segmental reporting purposes in the
      An asset is impaired if its carrying amount is greater than its estimated       group financial statements. Impairment losses relating to goodwill are
      recoverable amount.                                                             not reversed.


      (a) Financial assets carried at amortised cost                                  (d) Impairment of other non-financial assets
      The group assesses whether there is objective evidence that a financial          Assets that have an indefinite useful life are not subject to amortisation
      asset is impaired at each balance sheet date. A financial asset is impaired      and are tested annually for impairment at each balance sheet date.
      and impairment losses are incurred only if there is objective evidence of       Assets that are subject to amortisation are reviewed for impairment
      impairment as a result of one or more events that have occurred after           whenever events or changes in circumstances indicate that the carrying
      the initial recognition of the asset (a “loss event”) and that loss event has   amount may not be recoverable.
      an impact on the estimated future cash flows of the financial asset that
      can be reliably estimated.                                                      An impairment loss is recognised for the amount by which the carrying
                                                                                      amount of an asset exceeds its recoverable amount. The recoverable
      If there is objective evidence that an impairment loss has been incurred        amount is the higher of the fair value of the asset less costs to sell and
      on loans and receivables or held-to-maturity investments carried at             value-in-use. Value-in-use is the present value of projected cash flows
      amortised cost, the amount of the loss is measured as the difference            covering the remaining useful life of the asset. For the purposes of
      between the asset’s carrying amount and the present value of estimated          assessing impairment, assets are grouped at the lowest levels for which
      future cash flows discounted at the original effective interest rate of the      there are separately identifiable cash flows.
      financial asset. The carrying amount of the asset is reduced and the
      amount of the loss is recognised in the income statement. If a held-to-         Derivative financial instruments and hedging
      maturity investment or a loan has a variable interest rate, the discount        Derivatives are initially recognised at fair value at the date on which a
      rate for measuring any impairment loss is the current effective interest        derivative contract is entered into and are subsequently remeasured to
      rate determined under contract. As a practical expedient, the group may         fair value at the end of each financial year. The fair value of publicly traded
      measure impairment on the basis of an instrument’s fair value using an          derivatives are based on quoted bid prices for assets held or liabilities to be
      observable market price.                                                        issued and the current offer prices for assets to be acquired and liabilities
                                                                                      held. The fair value of non-traded derivatives is based on discounted cash
      If, in a subsequent period, the amount of the impairment loss decreases         flow analyses and option pricing models as appropriate.
      and the decrease can be related objectively to an event occurring after
      the impairment was recognised, such as improved credit rating, the              All derivative instruments of the group are carried as assets when the fair
      previously recognised impairment loss is reversed and is recognised in          value is positive and as liabilities when the fair value is negative, subject
      the income statement.                                                           to offsetting principles.


      (b) Financial assets carried at fair value                                      The method of recognising the resulting fair value gain or loss depends
      The group assesses whether there is objective evidence that a financial          on whether the derivative is designated as a hedging instrument and,
      asset carried at fair value is impaired at each balance sheet date. If any      if so, the nature of the item being hedged. The group designates
      objective evidence of impairment exists for available-for-sale financial         derivatives as hedges of the fair value of recognised assets or liabilities
      assets, the cumulative loss, measured as the difference between the             or of a firm commitment (fair value hedge) and hedges of highly probable
      acquisition cost and current fair value, less any impairment loss on the        forecast transactions (cash flow hedges), and hedges of net investments
      financial asset previously recognised in profit or loss, is removed from          in foreign entities.
      equity and recognised in the income statement.
                                                                                      At the inception of the transaction, the group documents the relationship
      If, in a subsequent period, the fair value of a debt instrument                 between hedging instruments and hedged items, as well as its risk
      classified as available-for-sale increases and the increase can be               management objectives and strategy for undertaking various hedge
      objectively related to an event occurring after the impairment loss was         transactions. The group also documents its assessment, both at hedge
                                                                                                                               Alexander Forbes Equity
                                                                                                                               Holdings (Proprietary) Limited
                                                                                                       13                      Financial Statements
                                                                                                                               for the period ended 31 March 2008




inception and on an ongoing basis, of whether the derivatives that are            Equity
used in hedging transactions are expected to be and have been highly              (a) Share capital
effective in offsetting changes in fair values or cash flows of hedged items.      Incremental costs directly attributable to the issue of equity instruments
The fair values of derivative instruments used for hedging purposes are           are shown in equity as a deduction from the issue proceeds, net of tax.
disclosed in the notes to the financial statements.                                Incremental costs directly attributable to the issue of equity instruments as
                                                                                  consideration for the acquisition of a business are included in the cost of
(a) Fair value hedge                                                              acquisition. Share capital comprises ordinary shares which are fully paid up.
Changes in the fair value of derivatives that are designated and qualify
as fair value hedges are recorded in the income statement, together               (b) Dividend distributions
with any changes in the fair value of the hedged asset or liability that are      Dividend distributions on ordinary shares are recognised against equity
attributable to the hedged risk.                                                  in the period in which they are approved by the company’s shareholders.
                                                                                  Distributions declared after the balance sheet date are not recognised
(b) Cash flow hedge                                                                but are disclosed in the financial statements.
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges is recognised in the cash flow           (c) Minority shareholders
hedge reserve in equity. The gain or loss relating to any ineffective portion     The group applies a policy of treating transactions with minority
is recognised immediately in the income statement. Amounts accumulated            shareholders as transactions with parties external to the group. Disposals
in equity are recycled to the income statement in the periods in which the        to minority shareholders may result in gains or losses for the group that
hedged item affects profit or loss, for instance, when the hedged forecast         are recorded in the income statement. Acquisition of interests from
transaction takes place. However, when the hedged forecast transaction            minority shareholders result in goodwill, being the difference between
results in the recognition of a non-financial asset or a liability, the gains      any considerations paid and the relevant share of the carrying value of
and losses previously deferred in equity are transferred from equity and          net assets of the subsidiary acquired.
included in the initial measurement of the cost of the asset or liability.
                                                                                  Classification of insurance and investment contracts
When a hedging instrument expires or is sold, or when a hedge no                  The group issues contracts that transfer insurance risk or financial risk
longer meets the criteria for hedge accounting, any cumulative gain or            or both. Insurance contracts are those contracts that transfer significant
loss existing in equity at that time remains in equity and is recognised          insurance risk. Such contracts may also transfer financial risk. As a
when the forecast transaction is ultimately recognised in the income              general guideline, the group defines a significant insurance risk as the
statement. However, when a forecast transaction is no longer expected             possibility of having to pay benefits, on the occurrence of an insured
to occur, the cumulative gain or loss that was previously reported in             event, that are at least 10% more than the benefits payable if the insured
equity is immediately transferred to the income statement.                        event did not occur.


(c) Net investment hedge                                                          Investment contracts are those contracts that transfer financial risk with
Hedges of net investments in foreign entities are accounted for in a similar      no significant insurance risk. Financial risk is the risk of a possible future
way to cash flow hedges. Any gain or loss on the hedging instrument relating       change in one or more of a specified interest rate, financial instrument
to the effective portion of the hedge is recognised in equity. The gain or loss   price, commodity price, foreign exchange rate, index of prices or rates,
relating to the ineffective portion of the hedge is recognised immediately in     credit rating or credit index or other variable. Amounts received under
the income statement. Gains and losses accumulated in equity are included         investment contracts are recorded as deposits under investment contract
in the income statement on disposal of the foreign entity.                        liabilities. Amounts paid under investment contracts are recorded as
                                                                                  deductions from investment contract liabilities.
(d) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting.               Insurance contracts
Changes in the fair value of all such derivative instruments are recognised       (a) Classification
immediately in the income statement.                                              Insurance contracts are classified into two main categories, depending on
                                                                                  the duration of risk and whether or not the terms and conditions are fixed.
Cash and cash equivalents
Cash and cash equivalents include: cash on hand; deposits held on call with       Short-term insurance contracts
banks; other short-term highly liquid investments with original maturities        These contracts are casualty, property and short duration life insurance
of three months or less; demand deposits; and bank overdrafts offset              contracts. For all these contracts, premiums are recognised as revenue
against cash balances in terms of cash management arrangements. Cash              (earned premiums) proportionally over the period of coverage. Premiums are
and cash equivalents backing financial liabilities held under multi-manager        shown gross of commission and reinsurance and exclude any taxes or duties
investment contracts and liabilities of cell captive insurance facilities are     levied on premiums. Claims and loss adjustment expenses are charged to
not included in the definition of cash and cash equivalents. Cash and cash         income as incurred based on the estimated liability for compensation owed
equivalents are carried at cost which approximates fair value.                    to contract holders or third parties damaged by the contract holders.
     14
Accounting policies (continued)
for the period ended 31 March 2008



      Insurance contracts (continued)                                                prematurely and that profits are recognised in line with the risk profile
      Long-term insurance contracts                                                  inherent in the contracts and services provided.
      These contracts insure events associated with human life over a long
      duration. Premiums are recognised as revenue when they become                  Discretionary margins unwind as these risks are met over the term of
      payable by the contract holder. Premiums are shown gross of commission         each policy. Where insurance contracts have a single premium or a
      and exclude any taxes or duties levied on premiums. Benefits are                limited number of premium payments due over a significantly shorter
      recorded as an expense when they are incurred.                                 period than the period during which benefits are provided, the excess
                                                                                     of the premiums payable over the valuation premiums is deferred and
      (b) Short-term insurance liabilities                                           recognised as income in line with the decrease of unexpired insurance
      The following are classified as short-term insurance liabilities:               risk of the contracts in-force or, for annuities in-force, in line with the
      Unearned premiums                                                              decrease of the amount of future benefits expected to be paid.
      Short-term insurance premiums are recognised proportionately over the
      period of cover. The portion of premium received on in-force contracts         The long-term insurance liabilities are recalculated at each balance
      that relates to unexpired risks at the balance sheet date is reported as       sheet date by independent actuaries.
      an unearned premium liability, which is included in insurance-related
      payables from underwriting activities.                                         (d) Contingency reserve
                                                                                     A contingency reserve is provided in accordance with the Short-Term
      Outstanding claims                                                             Insurance Act of 1998 in South Africa and is determined at a minimum
      Liabilities for unpaid claims are estimated using the input of                 of 10% of net written premium from short-term insurance contracts.
      assessments for individual cases reported to the group and statistical
      analyses of the claims incurred but not reported. Outstanding                  (e) Embedded derivatives
      claims liabilities are included in insurance related payables from             The group does not separately measure embedded derivatives in
      underwriting activities. The group does not discount its liabilities for       an insurance contract if the embedded derivative itself qualifies for
      unpaid claims.                                                                 recognition as an insurance contract. Such an embedded derivative is
                                                                                     measured as an insurance contract. All other embedded derivatives are
      (c) Long-term insurance liabilities                                            separated and carried at fair value if they are not closely related to the
      In terms of IFRS 4, Insurance Contracts, insurance liabilities are permitted   host insurance contract and meet the definition of a derivative.
      to be measured under existing local practice. The Long-Term Insurance
      Act of 1998 as amended in South Africa, requires long-term insurance           (f) Deferred policy acquisition costs (“DPAC”)
      liabilities to be valued in terms of the Financial Soundness Valuation         Commissions and other acquisition costs arising from property and
      (FSV) basis as described in Professional Guidance Note 104 (PGN 104)           casualty short-term insurance contracts that vary with, and are related to,
      issued by the Actuarial Society of South Africa. The result of the valuation   securing new contracts and renewing existing contracts are capitalised.
      methodology and assumptions is that profits are released appropriately          All other costs are recognised as expenses when incurred. The DPAC
      over the term of the policy to avoid the premature recognition of profits       is subsequently expensed over the life of the policies as premiums are
      that may give rise to losses in future years.                                  earned. Commissions and other acquisition costs arising from short-
                                                                                     duration life insurance contracts are expensed when incurred.
      The liability is valued using a discounted cash flow approach. This
      approach takes the sum of future expected benefit payments and                  For long-term insurance contracts, commissions and other acquisition
      administration expenses that are directly related to the contract, deducts     costs are expensed when incurred. The portion of the premium which
      the expected premiums that would be required to meet the benefits               recoups these costs is included in the valuation of long-term insurance
      and administration expenses based on the valuation assumptions used            contract liabilities. The commission and other acquisition costs are
      and then discounts these resultant cash flows at market-related rates           therefore implicitly deferred over the period of the contract in the
      of interest. The liability is based on assumptions of the best estimates       calculation of the liabilities under long-term insurance contracts.
      of future experience as to mortality, persistency, maintenance expenses
      and investment income.                                                         (g) Value of business acquired
                                                                                     On acquisition of a portfolio of contracts, either directly from another insurer
      Compulsory margins for adverse deviations (first tier margins) increase         or through the acquisition of a subsidiary company, the group recognises
      the liability as required in terms of PGN 104. Such margins are intended       an intangible asset representing the value of business acquired (VOBA).
      to provide a minimum level of prudence in the liabilities and to ensure
      that profits are not recognised prematurely. In addition, discretionary         The VOBA represents the present value of future profits embedded in
      margins (second tier margins) may be added to the liability to ensure          acquired insurance contracts. The group amortises the VOBA over the
      that profit and risk margins in the premiums are not capitalised                effective life of the acquired contracts on the same basis as DPAC.
                                                                                                                               Alexander Forbes Equity
                                                                                                                               Holdings (Proprietary) Limited
                                                                                                      15                       Financial Statements
                                                                                                                               for the period ended 31 March 2008




(h) Liability adequacy test                                                     (k) Salvage and subrogation reimbursements
At each balance sheet date, the group performs liability adequacy               Some insurance contracts permit the group to sell property acquired
tests on its long-term insurance liabilities to ensure the adequacy of its      in settling a claim (i.e. salvage). The group may also have the right to
liabilities, net of related deferred acquisition costs and intangible assets,   pursue third parties for payment of some or all costs (i.e. subrogation).
in relation to estimated future cash flows.                                      Estimates of salvage recoveries are included as an allowance in the
                                                                                measurement of the insurance liability for claims and salvage property
When performing the liability adequacy test, current best estimates of          is recognised in other assets when the liability is settled. The allowance
future contractual cash flows and claims handling and administration             is the amount that can reasonably be recovered from the disposal of
expenses, as well as investment income from the assets backing such
                                                                                the property.
liabilities, are used. Any deficiency is immediately charged to profit or
loss initially by writing off the DPAC or the VOBA and by subsequently
                                                                                Subrogation reimbursements are also considered as an allowance in the
establishing a provision for losses arising from liability adequacy tests
                                                                                measurement of the insurance liability for claims and are recognised in
(the unexpired risk provision). Any DPAC or VOBA written off as a result
                                                                                other assets when the liability is settled. The allowance is based on an
of this test cannot subsequently be reinstated.
                                                                                assessment of the amount that can be recovered from the action against
                                                                                the liable third party.
(i) Reinsurance contracts held
Contracts entered into by the group with reinsurers, under which the
                                                                                Investment contracts
group is compensated for losses on one or more contracts issued by
                                                                                The group issues investment contracts without fixed terms (unit linked)
the group and that meet the classification requirements for insurance
contracts, are classified as reinsurance contracts held. Contracts that          and investment contracts with fixed and guaranteed terms (capital

do not meet these classification requirements are classified as financial          guarantees). Investment contracts without fixed terms and investment

assets. The benefits to which the group is entitled under its reinsurance        contracts with fixed and guaranteed terms are financial liabilities whose

contracts are recognised as reinsurance assets and are included in              fair value is dependent on the fair value of underlying financial assets,
insurance related receivables from underwriting activities. These assets        derivatives or investment property (unit linked) and are designated at
consist of short-term balances due from reinsurers, as well as longer           inception as financial assets at fair value through profit or loss.
term receivables that are dependent on the expected claims and benefits
arising under the related reinsured insurance contracts. Amounts                Valuation techniques are used to establish the fair value at inception
recoverable from, or due to, reinsurers are measured consistently with          and at each reporting date. The group’s main valuation techniques
the amounts associated with the reinsured insurance contracts and in            incorporate all factors that market participants would consider and
accordance with the terms of each reinsurance contract.                         are based on observable market data. The fair value of a unit linked
                                                                                financial liability is determined using the current unit values that reflect
Reinsurance liabilities are primarily premiums payable for reinsurance          the fair values of the financial assets contained within the group’s
contracts and are recognised as an expense when due. The group                  unitised investments funds linked to the financial liability, multiplied
assesses its reinsurance assets for impairment at each reporting date.          by the number of units attributed to the contract holder at the balance
If there is objective evidence that the reinsurance asset is impaired,
                                                                                sheet date. If the investment contract is subject to a put or surrender
the group reduces the carrying amount of the reinsurance asset to its
                                                                                option, the fair value of the financial liability is never less than the
recoverable amount and recognises the impairment loss in the income
                                                                                amount payable on surrender, discounted for the required notice
statement. The group gathers evidence that a reinsurance asset is
                                                                                period, where applicable.
impaired using the same process adopted for financial assets held at
amortised cost. The impairment loss is also calculated following the
                                                                                Financial liabilities
same method used for these financial assets.
                                                                                The group classifies its financial liabilities into the following categories:
                                                                                financial liabilities at fair value through profit or loss; and financial
(j) Receivables and payables related to insurance contracts
                                                                                liabilities at amortised cost. The classification depends on the purpose
Receivables and payables are recognised when due. These include
                                                                                for which the financial liabilities were acquired. Management determines
amounts due to and from agents, brokers and insurance contract
holders. If there is objective evidence that the insurance receivable           the classification of financial liabilities at initial recognition.

is impaired, the group reduces the carrying amount of the insurance
receivable accordingly and recognises the impairment loss in the income         Financial liabilities are recognised when the group becomes a party

statement. The group gathers evidence that an insurance receivable is           to the contractual provisions of the instrument. Financial liabilities are
impaired using the same process adopted for loans and receivables.              initially recognised at fair value, generally being their issue proceeds, net
The impairment loss is also calculated under the same method used for           of transaction costs incurred in the case of financial liabilities not at fair
these financial assets.                                                          value through profit or loss.
     16
Accounting policies (continued)
for the period ended 31 March 2008



      Financial liabilities (continued)                                                 that at the time of the transaction affects neither accounting nor taxable
      The best evidence of fair value on initial recognition is the transaction         profit or loss, it is not accounted for. Deferred tax is determined using tax
      price, unless the fair value is evidenced by comparison with other                rates (and laws) that have been enacted or substantially enacted by the
      observable current market transactions in the same instrument or based            balance sheet date and are expected to apply when the related deferred
      on discounted cash flow models and option pricing valuation techniques             tax asset is realised or the deferred tax liability is settled.
      whose variables include only data from observable markets.
                                                                                        Deferred tax assets are recognised to the extent that it is probable
      (a) Financial liabilities at fair value through profit or loss                     that future taxable profit will be available against which the temporary
      This category has two sub-categories: financial liabilities held for trading       differences can be utilised. Deferred tax assets relating to the carry
      and those designated at fair value through profit or loss at inception.            forward of unused tax losses are recognised to the extent that it is
                                                                                        probable that future taxable profit will be available against which the
      A financial liability is classified as held for trading if the linked financial      temporary differences can be utilised.
      asset associated with this liability is acquired principally for the purpose
      of selling in the short term or if it forms part of a portfolio of financial       Deferred tax relating to fair value remeasurements of available-for-sale
      assets in which there is evidence of short-term profit-taking. Derivative          assets and cash flow hedges which are taken directly to equity, is also
      liabilities are also classified as held for trading, unless they are designated    taken directly to equity and is subsequently recognised in the income
      as hedges at inception.                                                           statement together with the related gain or loss.


      All classes of financial liabilities classified on the balance sheet as             Deferred tax is not provided on temporary differences relating to goodwill,
      “Financial liabilities held under multi-manager investment contracts” are         the initial recognition of assets and liabilities, other than in a business
      classified as held for trading.                                                    combination, which affect neither accounting nor taxable profits or losses,
                                                                                        and investments in subsidiaries and associates where the group controls the
      A financial liability is designated as fair value through profit or loss            timing of the reversal of the temporary difference and it is probable that the
      because either it eliminates or significantly reduces a measurement or             temporary differences will not reverse in the foreseeable future.
      recognition inconsistency that would otherwise arise from measuring the
      liability or recognising the gains or losses on it on different bases, or a       Employee benefits
      group of financial liabilities is linked to a group of financial assets which       (a) Pension obligations
      is managed and its performance is evaluated on a fair value basis, in             Group companies operate various pension schemes. The schemes are
      accordance with a documented risk management or investment strategy               generally funded through trustee administered funds, determined by
      and information about the group is provided internally on that basis to           periodic actuarial calculations. The group has both defined benefit and
      key management personnel. All classes of financial liabilities classified           defined contribution plans.
      on the balance sheet as “Liabilities of cell captive insurance facilities” are
      designated as fair value through profit or loss.                                   The pension plans are funded by payment from the relevant group
                                                                                        companies or by employees. A defined benefit plan is a pension plan
      Subsequent to initial recognition, financial liabilities at fair value through     that defines an amount of pension benefit that an employee will receive
      profit or loss are measured at fair value, with changes in fair value              on retirement, usually dependent on one or more factors such as age,
      recognised in the income statement.                                               years of service and compensation.


      (b) Financial liabilities at amortised cost                                       A defined contribution plan is a retirement plan under which the group
      Financial liabilities at amortised cost are non-derivative financial liabilities   or employees pay fixed contributions into a separate entity. The group
      with fixed or determinable payments and fixed maturities.                           has no legal or constructive obligations to pay further contributions if the
                                                                                        fund does not hold sufficient assets to pay all employees the benefits
      Financial liabilities classified as financial liabilities at amortised cost         relating to current or prior employee service. The liability recognised
      comprise securitisation funding for housing loans, borrowings, deferred           in the balance sheet in respect of defined benefit pension plans is the
      consideration for acquisitions and trade and other payables.                      present value of the defined benefit obligation at the end of the financial
                                                                                        year less the fair value of plan assets, together with any adjustments for
      Subsequent to initial recognition, these financial liabilities are measured at     unrecognised actuarial gains or losses and unrecognised past service
      amortised cost and any difference between the proceeds, net of transaction        costs. The defined benefit obligation is calculated annually by actuaries
      costs, and the redemption value is recognised in the income statement over        using the projected unit credit method.
      the period of the borrowings, using the effective interest rate method.
                                                                                        The present value of the defined benefit obligation is determined by
      Deferred tax                                                                      discounting the estimated future cash outflows using interest rates of
      Deferred tax is provided in full, using the liability method, on temporary        high-quality corporate bonds that are denominated in the currency
      differences arising between the tax bases and carrying amounts of assets          in which the benefits will be paid and that have terms to maturity that
      and liabilities. However, if the deferred tax arises from initial recognition     approximate the terms of the related pension liability. The group’s current
      of an asset or liability, in a transaction other than a business combination,     service costs of the defined benefit plans are recognised as expenses
                                                                                                                             Alexander Forbes Equity
                                                                                                                             Holdings (Proprietary) Limited
                                                                                                       17                    Financial Statements
                                                                                                                             for the period ended 31 March 2008




in the current period. Past service costs and actuarial gains and losses          (d) Termination benefits
arising from experience adjustments are recognised as expenses or                 Termination benefits are payable when employment is terminated before
income in the current period to the extent that they relate to retired            the normal retirement date or whenever an employee accepts voluntary
employees or past service. For active employees, actuarial gains and              redundancy in exchange for these benefits.
losses, arising from experience adjustments and changes in actuarial
assumptions, which exceed the greater of 10% of the fair value of plan            The group recognises termination benefits when it is demonstrably
assets or 10% of the defined benefit obligation (the corridor limit), both          committed to either terminating the employment of current employees
measured at the beginning of the financial period, are recognised on               according to a detailed formal plan without possibility of withdrawal
a straight-line basis over the remaining working lives of participating           or when it provides termination benefits as a result of an offer made
employees. Actuarial gains and losses below the corridor limit are not            to encourage voluntary redundancy. Benefits falling due more
recognised in the current period and are deferred to future periods.              than 12 months after the balance sheet date are discounted to
                                                                                  present value.
When plan assets exceed the defined benefit obligation, the surplus
recognised is limited to the total of unrecognised net actuarial losses,          Provisions
unrecognised past service costs and the present value of available refunds        Provisions are recognised when the group has a present legal or
and reductions in future contributions to the plan. To the extent that there is   constructive obligation, as a result of past events, for which it is more
uncertainty as to the entitlement to the surplus, no asset is recognised.         likely than not that an outflow of resources will be required to settle the
                                                                                  obligation and the amount can be estimated reliably. When the effect
For the group’s defined contribution plans, the group pays contributions           of discounting is material, provisions are discounted using a pre-tax
to the plan on a mandatory, contractual or voluntary basis. The group has         discount rate that reflects the current market assessment of the time
no further payment obligation once the contributions have been paid.              value of money and, where appropriate, the risks specific to the liability.
The contributions are recognised as an employee benefit expense when
they are due. Prepaid contributions are recognised as an asset to the             Provision is made for onerous contracts when the expected benefits
extent that a cash refund or a reduction in future payments is available.         to be derived from a contract are less than the unavoidable costs of
                                                                                  meeting the obligations under the contract.
(b) Post-retirement medical obligations
In terms of certain employment contracts, the group provides post-                Restructuring provisions comprise lease termination penalties and
retirement medical benefits to qualifying employees and retired                    employee termination payments. Provisions are not recognised for future
personnel by subsidising a portion of their medical aid contributions.            operating losses. Where there are a number of similar obligations, the
                                                                                  likelihood that an outflow will be required in settlement is determined by
The entitlement to these benefits is based upon employment prior to                considering the class of obligations as a whole. A provision is recognised
a certain date and is conditional on employees remaining in service               even if the likelihood of an outflow, with respect to any one item included
up to retirement age. New employees are not entitled to this benefit.              in the same class of obligations, may be small.
The expected costs of these benefits are accrued over the period of
employment, using an accounting methodology similar to that for                   Where the group expects a provision to be reimbursed, for example
defined benefit pension plans. Past service costs and actuarial gains and           under an insurance contract, the reimbursement is recognised as a
losses arising from experience adjustments and changes in actuarial               separate asset, but only when the reimbursement is virtually certain.
assumptions are recognised as expenses or income in the current period
to the extent that they relate to retired employees or past service.              Provisions are reviewed at the end of each financial year and are adjusted
                                                                                  to reflect current best estimates.
For active employees, actuarial gains and losses, arising from experience
adjustments and changes in actuarial assumptions, which exceed the                Leases
greater of 10% of the fair value of plan assets or 10% of the defined              (a) Finance leases
benefit obligations (the corridor limit), both measured at the beginning           Assets acquired under lease agreements that transfer substantially all
of the financial year, are recognised on a straight-line basis over the            the risks and rewards of ownership to the group are accounted for as
remaining working lives of participating employees. Actuarial gains and           finance leases at the inception of the lease. The asset is capitalised
losses below the corridor limit are not recognised in the current period          at the lower of the fair value of the asset or the present value of the
and are deferred to future periods.                                               minimum lease payments at inception of the lease, with an equivalent
                                                                                  amount being stated as a finance lease liability. Finance lease liabilities
The post-retirement medical obligation has been partly funded through             are classified as non-current or current liabilities, as appropriate. The
an insurance arrangement with a subsidiary company of the group.                  capitalised asset is depreciated over the shorter of the useful life of
                                                                                  the asset or the lease term. Lease payments are apportioned between
(c) Leave pay provision                                                           finance costs and capital repayments using the effective interest rate
Employee benefits, in the form of annual leave entitlements, are provided          method. Finance costs are charged to the income statement over the
for when they accrue to employees with reference to service rendered              lease period.
up to the balance sheet date.
     18
Accounting policies (continued)
for the period ended 31 March 2008



      Leases (continued)                                                               •   Underwriting agency income – comprises commissions, fee income
      b) Operating leases                                                                  and profit shares earned from insurance binders and underwriting
      Leases in which a significant portion of the risks and rewards of ownership           agency agreements. Commission and fee income is brought to
      are retained by the lessor are classified as operating leases. Payments made          account on the effective commencement or renewal dates of the
      under operating leases, net of any incentives received from the lessor, are          related insurance policy. When further servicing is required to be
      charged to the income statement on a straight-line basis over the period of          rendered, a portion of the income is deferred. The amount deferred
      the lease. Lease incentives received are recognised as an integral part of the       is that which will cover the expected future servicing costs, together
      total lease expense over the term of the lease. When an operating lease is           with a reasonable profit thereon. The deferred income is brought to
      terminated before the lease period has expired, any payment required to be           account over the servicing period on a consistent basis reflecting
      made to the lessor by way of a penalty is recognised as an expense in the            the pattern of servicing activities. Income which is dependent on
      period in which termination takes place.                                             underwriting performance is brought to account when it can be
                                                                                           measured reliably.
      Contingencies and commitments                                                    •   Operational interest income – comprises interest income earned
      Transactions are classified as contingencies when the group’s obligations             from insurance broking operations and is recognised on a time
      depend on uncertain future events not within the group’s control. Items              proportionate basis using the effective interest rate method.
      are classified as commitments when the group commits itself to future
      transactions with external parties.                                              (b) Financial Services
                                                                                       •   Consulting fees – comprise fees earned in respect of actuarial and
      Offsetting                                                                           other advisory services. Income is recognised based on the stage
      Financial assets and liabilities are offset and the net amount reported on           of completion as the related services are rendered. The stage of
      the balance sheet only when there is a legally enforceable right to offset           completion is determined with reference to the services performed
      the recognised amount and there is an intention to settle on a net basis             to date as a percentage of total services to be performed.
      or to realise the asset and settle the liability simultaneously.                 •   Administration fees – comprise fees earned for the administration
                                                                                           of retirement funds. Income is recognised as services are provided.
      Income from operations                                                           •   Commission income – comprises commissions earned in respect
      Income from operations, which excludes value added tax, comprises:                   of insurance and investment products. Commission income is
      commission and fees in respect of brokerage, administration,                         recognised on the effective commencement or renewal date of the
      management and consultancy services; net underwriting profit from the                 insurance or investment policy. A portion of the income is deferred
      risk-taking activities of insurance operations; and net interest income              when further servicing is required to be rendered. The amount
      from financing operations.                                                            deferred is that which will cover the expected future servicing
                                                                                           costs, together with a reasonable profit thereon. Deferred income
      Income recognition – general operations                                              is spread evenly over the period of the policy. Where commission
      (a) Risk Services                                                                    income is earned on an indemnity basis, provision is made for the
      •   Insurance broking commission and fee income – comprises                          potential repayment of commissions.
          commission income and negotiated fees earned in respect of the               •   Healthcare commission income – comprises commissions
          placement of insurance and servicing of clients under insurance                  earned in respect of healthcare products. Commission income is
          programmes. Income is brought to account on the effective                        recognised on the effective commencement or renewal date of the
          commencement or renewal dates of the related insurance                           healthcare product.
          programme. When further servicing is required to be rendered to              •   Fund annuity purchase fees – comprise fees earned on fund
          the client, a portion of the income is deferred. The amount deferred             annuity purchases. Income is recognised based on the stage of
          is that which will cover the expected future servicing costs, together           completion determined by reference to the value of the assets
          with a reasonable profit thereon. The deferred income is brought to               transferred.
          account over the servicing period on a consistent basis reflecting
          the pattern of servicing activities.                                         (c) Multi-manager investment (Investment Solutions)
      •   Consulting fees – comprise negotiated fees for advisory services.            •   Multi-manager investment fees – comprise fees earned for multi-
          Income is recognised based on the stage of completion as the related             manager investment and administration. Initial administration fees are
          services are rendered. The stage of completion is determined with                brought to account upon inception of the investment contract and
          reference to the services performed to date as a percentage of total             are recognised on a straight-line basis over the expected period of
          services to be performed.                                                        the contract. Ongoing multi-manager investment and administration
      •   Claims facilitation fees – comprise fees earned in respect of the                fees are calculated on a daily basis as a percentage of assets under
          preparation, submission and collection of insurance claims. Income               management. These fees are recognised as services are provided.
          is recognised based on the stage of completion determined with               •   Structured product fees – comprise fees earned on the structuring
          reference to the proportion that costs incurred to date bear to the              and administration of portfolios of financial instruments designed to
          estimated total costs. Only costs that reflect services performed or              hedge specific financial risks. These fees are spread evenly over the
          to be performed are included in the estimated costs.                             expected period of the contract.
                                                                                                                              Alexander Forbes Equity
                                                                                                                              Holdings (Proprietary) Limited
                                                                                                     19                       Financial Statements
                                                                                                                              for the period ended 31 March 2008




•   Transition management fees – comprise fees earned for services               other dividend income is recognised when the right to receive payment
    provided in relation to the transfer of investment assets. Income            is established which is the ex-dividend date for equity securities.
    is recognised based on the stage of completion determined with
    reference to the value of the assets transferred.                            Finance costs
                                                                                 Finance costs are recognised on a time proportionate basis using the
(d) Direct Marketing                                                             effective interest rate method.
•   Commission income – comprises commissions earned on the
    direct marketing of insurance products. Income is recognised on              Taxation
    the effective commencement or renewal date of the insurance                  The tax charge in the income statement takes into account current and
    policy. Where commission income is earned on an indemnity basis,             deferred corporate income taxes, capital gains tax, as well as secondary
    provision is made for the potential repayment of commissions.                tax on companies applicable in South Africa. Due to the nature of indirect
•   Underwriting agency income – comprises commission and fee                    taxes, including non-recoverable value added tax, stamp duty and skills
    income earned from the direct marketing and administration of                development levies, these are included in operating expenses in the
    insurance products under insurance binder agreements. Income                 income statement.
    is brought to account on the effective commencement or renewal
    dates of the related insurance policy. Upfront direct marketing costs        (a) Current tax
    are expensed immediately.                                                    The current income tax and capital gains tax charges are the expected tax
                                                                                 payable on the taxable income for the year using applicable tax rates.
Income recognition – financing operations
Interest and other finance income received in the form of an interest margin      (b) Deferred tax
are recognised on a time proportionate basis using the effective interest rate   Deferred tax is provided for on all temporary differences as detailed in
method. Any directly related interest expense is recognised on the same          the relevant accounting policy note.
basis. This arises from the premium financing operations in Risk Services and
the pension-backed lending operations in Financial Services.                     (c) Secondary tax on companies (STC)
                                                                                 South African resident companies are subject to a dual corporate tax
Income recognition – insurance operations                                        system, one part of the tax being levied on taxable income and the other,
•   Income from insurance activities – refer to the accounting policies          a secondary tax (called STC), on distributed income. A company incurs
    on insurance contracts.                                                      STC charges on the declaration or deemed declaration of dividends (as
•   Commission income – comprises commissions earned in respect                  defined under tax law) to its shareholders. STC is not a withholding tax
    of insurance referred to reinsurers. Income is recognised on the             on shareholders, but a tax on companies.
    effective commencement or renewal date of the insurance policy.
    A portion of the income is deferred when further servicing is required       The STC tax consequence of dividends is recognised as a taxation
    to be rendered. The amount deferred is that which will cover the             charge in the income statement in the same period that the related
    expected future servicing costs, together with a reasonable profit            dividend is accrued as a liability. The STC liability is reduced by dividends
    thereon. Deferred income is spread evenly over the period of                 received during the dividend cycle. Where dividends declared exceed
    the policy.                                                                  the dividends received during a cycle, STC is payable at the current STC
•   Profit commission – comprises negotiated profit shares with                    rate on the net amount. Where dividends received exceed dividends
    reinsurers. Income is recognised on declaration by reinsurers.               declared within a cycle, there is no liability to pay STC. The potential tax
•   Investment management fees on cell captive insurance facilities –            benefit related to excess dividends received is carried forward to the
    income is generally calculated as a percentage of investment income.         next dividend cycle as an STC credit. Deferred tax assets are recognised
    These fees are recognised as services are provided.                          on unutilised STC credits to the extent that it is probable that the group
•   Management fees on cell captive insurance facilities – income                will declare future dividends to utilise such STC credits.
    is generally calculated as a percentage of premiums received.
    Income is brought to account on the effective commencement                   Segmental information
    or renewal dates of the related insurance programme. A portion               The group’s primary segments are geographic segments and the
    of the management fees is deferred to cover the expected future              secondary segments are business units.
    servicing costs, together with a reasonable profit thereon. The
    deferred income is brought to account over the servicing period on           A geographic segment is a distinguishable component of a group
    a consistent basis reflecting the pattern of servicing activities.            that is engaged in providing products or services within a particular
                                                                                 economic environment and that is subject to risks and opportunities
Income recognition – investment income                                           that are different from those components operating in other economic
Interest income is recognised on a time proportionate basis using the            environments. A business unit segment is a distinguishable component
effective interest rate method. Dividend income earned on preference             of assets and operations engaged in providing products or services that
share investments held as money market investments is also recognised            are subject to risks and returns which are different from those of other
on a time proportionate basis using the effective interest rate method. All      business segments.
     20
Critical accounting assumptions and judgements
for the period ended 31 March 2008


      The following critical accounting assumptions and judgements have                  provisions payable in more than one year are discounted using pre-
      been applied when preparing these financial statements.                             tax discount rates that reflect the current market assessment of the
                                                                                         time value of money and, where appropriate, the risks specific to
      1.   Impairment of goodwill                                                        the liability. Impairments of trade receivables are established when
           The recoverable amount of goodwill is tested annually for                     there is objective evidence that the group will not be able to collect
           impairment in accordance with the group’s stated accounting                   all amounts due according to the original terms of the receivable.
           policy. The recoverable amounts of the cash-generating units
           (“CGU”) have been determined based on value-in-use calculations,              Claims provisions of insurance licensed entities, are based on
           being the net present value of the discounted cash flows of the                the probability weighted expected amount of future cash flows
           CGU less the tangible net asset value of that CGU. Details of the             irrespective of the degree of probability. Provisions in respect of all
           main assumptions applied in determining the net present value                 other liabilities that are contingent on future events are raised only if
           of the CGU are provided in the relevant note on goodwill in these             the probability of loss is more likely than not.
           financial statements.
                                                                                      4. Deferred consideration for acquisitions
      2. Retirement benefit obligations                                                   Deferred consideration for acquisitions includes deferred and
           The cost of the benefits and the present value of the defined benefit            contingent consideration. Deferred payments for historical business
           pension funds and post-retirement medical obligations depend on               acquisitions are generally contingent on the future revenue and/
           a number of factors that are determined on an actuarial basis using           or profits achieved by the acquired business. On acquisition date,
           a number of assumptions. The assumptions used in determining                  estimates are made of the expected future revenue and profit based
           the charge to the income statement arising from these obligations             on forecasts made by management. These estimates are reassessed
           include the expected long-term rate of return on the relevant plan            at each reporting date and adjustments are made to the deferred
           assets, the discount rate and the expected salary and pension                 consideration and related goodwill balances, where necessary.
           increase rates. Any changes in these assumptions will impact the              Amounts of deferred consideration payable after one year are
           charge to the income statement and may affect planned funding of              discounted using discount rates that reflect the current market
           the pension plans.                                                            assessment of the time value of money and, where appropriate, the
                                                                                         risks specific to the acquired business.
           The assumptions relating to the expected return on plan assets
           are determined on a uniform basis, considering long-term                   5. Deferred income
           historical returns, asset allocation and future estimates of long-            Fee and commission income is earned by the group for placing
           term investment returns. The group determines the appropriate                 insurance cover and providing an ongoing service to clients under
           discount rate at the end of each year, which represents the                   insurance programmes and insurance and investment contracts.
           interest rate that should be used to determine the present value              This income is brought to account on the effective inception or
           of the estimated future cash outflows expected to be required                  renewal dates of the related insurance programmes and insurance
           to settle the pension and post-retirement medical obligations. In             and investment contracts. The group defers a portion of this income
           determining the appropriate discount rate, the group considers                to cover the cost of post-placement servicing activities together
           the interest rate on high-quality corporate bonds and government              with a reasonable profit margin thereon. The portion of income
           bonds that are denominated in the currency in which the benefits               deferred varies depending on the nature of the service provided.
           will be paid and that have terms to maturity approximating the                Management makes assumptions in determining the amount of
           terms of the related pension liability. The expected salary and               post-placement servicing required and these assumptions may
           pension increase rates are based on inflation rates, adjusted for              vary between different products. The assumptions are re-assessed
           salary scales and country-specific conditions. The inflation rate               at each reporting date based on actual post-placement experience
           used is a rate within the government’s monetary policy target for             and business conditions, and adjustments are made to the
           inflation and is calculated as the difference between the yields on            deferred income calculation, where necessary. Where the effect of
           portfolios of fixed interest government bonds and a portfolio of               discounting is material, deferred income to be earned in more than
           index linked bonds of a similar term.                                         one year is discounted using pre-tax discount rates that reflect the
                                                                                         current market assessment of the time value of money and, where
           Additional information is provided in the relevant note on retirement         appropriate, the risks specific to the liability.
           benefit obligations in these financial statements.
                                                                                      6. Taxation
      3. Provisions                                                                      The group is subject to income tax in numerous jurisdictions and
           Provisions are, by definition, liabilities of uncertain timing or amount.      has many transactions and calculations for which the ultimate
           In order to establish a provision, management makes assessments               tax determination may be uncertain during the ordinary course
           of the expected amount of any future cash outflows and the                     of business. The group recognises liabilities for anticipated tax
           estimated timing thereof. Where the effect of discounting is material,        charges. Where the final outcome of a transaction is different
                                                                                                                             Alexander Forbes Equity
                                                                                                                             Holdings (Proprietary) Limited
                                                                                                    21                       Financial Statements
                                                                                                                             for the period ended 31 March 2008




     from the amounts that were initially recorded, such differences will            •   Investment income
     impact the tax provisions in the period in which such determination                 Estimates are made as to future investment income and are
     is made.                                                                            tested against market conditions as at the valuation date taking
                                                                                         into account the terms of the liabilities. Inflation assumptions
7.   Investment in associate                                                             are tested against market conditions and, with regard to
     The valuation of the associate is based on the directors’ assessment                consistency, are tested against interest rate assumption.
     of the expected amount of any future earnings and cash flows from                •   Tax
     the underlying investment in the Alexander Forbes group. The                        Allowance is made for future taxation and taxation relief.
     valuation is reassessed at each reporting date.
                                                                                   0.
                                                                                  1 Cash flow hedge
8. Valuation of financial assets and liabilities under multi-                         The cash flow hedge arrangement entered into by the South African
   manager investment and unit trust contracts                                       multi-manager investment subsidiary of the group, Investment Solutions,
     The valuation of these financial liabilities is linked to the fair value of      hedges the amount of future fee income earned on local equities
     the supporting assets. Therefore, deviations from investment return             included in assets under management and administration. Management
     assumptions have no impact on the group’s reported results.                     makes assumptions when assessing the hedge’s effectiveness in off-
                                                                                     setting the exposure to changes in local equities markets.
9. Valuation of policyholder assets and liabilities in respect
   of long-term insurance contracts                                                1
                                                                                  1 . Ultimate liability arising from claims under short-term
     The actuarial value of policyholder assets and liabilities arising from          insurance contracts
     long-term insurance contracts is determined using the Financial                 The estimation of the ultimate liability arising from claims under
     Soundness Valuation method as described in the actuarial guidance               short-term insurance contracts has several sources of uncertainty.
     note PGN 104 of the Actuarial Society of South Africa. The method               The risk environment can change suddenly and unexpectedly owing
     requires a number of assumptions as inputs to the valuation model.              to a wide range of events or influences. There is no certainty in
     The following process is followed to determine the valuation                    respect of identifying risks at an early stage, measuring them
     assumptions:                                                                    sufficiently or correctly estimating their real hazard potential.
     •   The best estimate for a particular assumption is determined.
     •   Prescribed margins are then applied, as required by the Long-             2.
                                                                                  1 Errors and omissions in the ordinary course of business
         Term Insurance Act in South Africa and Board Notice 72 issued               The group is exposed to various actual and potential claims, lawsuits

         in terms of the Act.                                                        and other proceedings relating to alleged errors and omissions
                                                                                     or non-compliance with laws and regulations in the conduct of
     •   Discretionary margins may be applied, as required by the
                                                                                     its ordinary course of business. As with any business with similar
         valuation methodology or if the statutory actuary considers such
                                                                                     operations to the group, the risk exists that new claims relating to
         margins necessary to cover the risks inherent in the contracts.
                                                                                     past events and significant adverse developments in known claims
                                                                                     could result in material changes to provisions made in respect of
     Best estimate assumptions as to mortality and morbidity, expenses,
                                                                                     prior years.
     investment income and tax are used. These may vary at each
     balance sheet date. A margin for adverse deviations is included in
                                                                                   3.
                                                                                  1 Business combinations
     the assumptions. Improvements in estimates have a positive impact
                                                                                     The purchase consideration of business is allocated, first to the
     on the value of the liabilities and related assets, while deteriorations
                                                                                     acquiree's tangible net assets, and then to goodwill and other
     in estimates have a negative impact.
                                                                                     intangible assets. The allocation of the purchase consideration to
                                                                                     intangible assets and goodwill is based on various assumptions
     The process for determining the assumptions used are as follows:
                                                                                     regarding future revenue growth, customer attrition and discount
     •   Mortality and morbidity
                                                                                     rates. The values attributed to the intangible assets and goodwill
         For group life insurance contracts, the rate of recovery from
                                                                                     recognised on acquisition have been provisionally determined. A
         disability is derived from industry experience studies adjusted,
                                                                                     comprehensive purchase price allocation exercise is in the process
         where appropriate, for the group’s own experience. For individual
                                                                                     of being completed.
         life insurance contracts, demographic assumptions are set with
         reference to reinsurer rates and industry experience.
     •   Expenses
         Expense assumptions are based on an expense analysis, using
         a functional cost approach. This analysis allocates expenses
         between policy and overhead expenses and within policy
         expenses, between new business, maintenance and claims.
     22
Group income statement
for the period ended 31 March 2008


                                                                                                 31 March
                                                                                                    2008
                                                                                         Notes        Rm

      Income from continuing operations                                                            3 465
        Fee and commission income                                                           3       3131
        Operational interest income from insurance broking operations                       4         29
        Interest and other finance income from financing operations                           5         120
        Less: Directly related interest cost                                                5         (55)
        Net premium and investment income from insurance operations                         6        644
        Less: Net claims and transfers to policyholders’ funds                              6        (404)
      Operating expenses                                                                    7      (2 959)

      Operating profit from continuing operations                                                     506

      Analysed as follows:
      Trading results of continuing operations                                              8         719
      Consolidation of the group's own errors and omissions insurance cell                  9         (41)

      Operational profits available to service net finance costs                                       678
      Non-cash amortisation of intangible assets arising from business combination                   (124)
      Exceptional losses                                                                   10         (87)
      Capital gains net of impairment charges                                               11        39

      Operating profit from continuing operations                                                     506
      Net interest costs                                                                             (515)
        Interest and other investment income                                               12         52
        Finance costs                                                                      13        (567)
      Share of net profit of associates                                                     26           3

      Loss before taxation from continuing operations                                                  (6)
      Taxation expense                                                                     14        (109)

      Loss for the period from continuing operations                                                 (115)
      Loss for the period from discontinued operations                                     15         (16)
      Total loss for the period from continuing and discontinued operations                          (131)

      Attributable to:
      Ordinary shareholders                                                                          (165)

      Minority shareholders’ interests in continuing operations                            16         34

                                                                                                     (131)

      Earnings per share from continuing operations
      Basic loss per share (cents)                                                          17        (40)
      Headline loss per share (cents)                                                       17        (46)

      Earnings per share from discontinued operations
      Basic loss per share (cents)                                                                     (4)
      Headline loss per share (cents)                                                                  (4)

      Earnings per share from continuing and discontinued operations
      Basic loss per share (cents)                                                                    (44)
      Headline loss per share (cents)                                                                 (50)

      For comparative information, see basis of preparation under accounting policies.
                                                                                           Alexander Forbes Equity
                                                                                           Holdings (Proprietary) Limited
                                                                                      23   Financial Statements
                                                                                           for the period ended 31 March 2008

Group balance sheet
at 31 March 2008


                                                                                                            31 March
                                                                                                               2008
                                                                                           Notes                 Rm

   Assets
   Financial assets held under multi-manager investment contracts                            18               43
                                                                                                             1 501
   Financial assets of cell captive insurance facilities                                     19                6 795
   Housing loans secured by retirement fund assets                                           20                  750
   Property and equipment                                                                     21                 215
   Purchased and developed computer software                                                 22                  259
   Goodwill                                                                                  23                5 420
   Other intangible assets                                                                   24                2 645
   Investment in associates                                                                  26                    13
   Deferred tax assets                                                                       38                  124
   Financial assets                                                                           27                 356
   Insurance related receivables                                                             28                  324
   Trade and other receivables                                                               29                1 964
   Cash and cash equivalents                                                                 30                3 322
   Total assets                                                                                               65
                                                                                                             1 688

   Equity and liabilities
   Share capital and premium                                                                                   3 261
   Accumulated loss                                                                                              (165)
   Other reserves                                                                                                691
   Shareholders’ funds                                                                        31               3 787
   Minority shareholders’ interests                                                                              252
   Total equity                                                                                                4 039
   Financial liabilities held under multi-manager investment contracts                       32               43
                                                                                                             1 473
   Liabilities of cell captive insurance facilities                                          33                6 795
     Insurance liabilities of cell captive insurance facilities                                                4 398
     Other liabilities of cell captive insurance facilities                                                    2 397
   Securitisation funding for housing loans                                                  34                  750
   Borrowings                                                                                35                5142
   Deferred consideration for acquisitions                                                   36                     6
   Retirement benefit obligations                                                              37                  85
   Deferred tax liabilities                                                                  38                  930
   Provisions                                                                                39                  789
   Deferred income                                                                           40                  267
   Insurance related payables                                                                 41               2 043
   Trade and other payables                                                                  42                1 369
   Total liabilities                                                                                          61
                                                                                                             1 649
   Total equity and liabilities                                                                               65
                                                                                                             1 688

   For comparative information, see basis of preparation under accounting policies.
     24
Group cash flow statement
for the period ended 31 March 2008


                                                                                                      31 March
                                                                                                         2008
                                                                                         Notes             Rm

      Cash flows from operating activities of continuing operations
      Cash generated from trading operations                                               45             727
      Net interest costs                                                                                 (425)
      Movement in working capital                                                          46             300
      Movement in insurance balances                                                       46             564
      Cash settlement of provision for client settlements                                                  (87)
      Cash settlement of retirement benefit obligations                                                      (4)
      Taxation paid                                                                        47            (238)
      Net cash inflow from operating activities                                                            837

      Cash flows from investing activities of continuing operations
      Acquisition of subsidiaries, businesses and associates                               48           (8 322)
      Disposal of subsidiaries and businesses                                                              20
      Investment in financial assets                                                                         (3)
      Capital expenditure incurred on property, equipment and computer software                            (60)
      Proceeds on disposal of property and equipment                                                         1
      Net cash outflow from investing activities                                                         (8 364)

      Cash flows from financing activities of continuing operations
      Net proceeds of share issues                                                                      3 261
      Repayment of borrowings                                                                              (11)
      Borrowings raised                                                                                 5 063
      Other movements in minority shareholders                                                              (8)
      Net cash inflow from financing activities                                                           8 305

      Cash flows of discontinued operations up to effective date of disposal
      Cash generated from trading operations                                                               (21)
      Movement in working capital and insurance balances                                                   (55)
      Taxation credit received                                                                               9
      Net cash outflow from operating activities                                                            (67)
      Net cash outflow from investing activities                                                             —
      Net cash outflow from financing activities                                                              —
      Net cash outflow up to effective date of disposal                                                     (67)
      Net movement in cash and cash equivalents                                                            711
      Cash and cash equivalents at beginning of period                                                      —
      Cash balances of subsidiaries and businesses acquired                                      48     2 562
      Foreign subsidiaries exchange differences                                                            49
      Cash and cash equivalents at end of period                                                        3 322

      For comparative information, see basis of preparation under accounting policies.
                                                                                                                     Alexander Forbes Equity
                                                                                                                     Holdings (Proprietary) Limited
                                                                                              25                     Financial Statements
                                                                                                                     for the period ended 31 March 2008

Group statement of changes in equity
for the period ended 31 March 2008


                                                                                                                          Minority
                                                                       Share          Non-                 Share-           share-
                                                                  capital and distributable Accumulated   holders’        holders’        Total
                                                                    premium       reserves         loss     funds        interests       equity
                                                                          Rm            Rm          Rm        Rm               Rm          Rm

   At 28 February 2007                                                     —           —             —          —               —             —
   Shares issued                                                       3 323           —             —     3 323                —        3 323
   Equity raising fees deducted from share premium                        (62)         —             —        (62)              —           (62)
   Minority shareholders’ interests in Alexander Forbes group
   acquired on effective date                                              —           —             —          —             210           210
   Cash flow hedge raised during period                                     —          648            —       648                —          648
   Foreign currency translation and other movements                        —           43            —         43              16            59
   Loss for the period                                                     —           —          (165)      (165)             34          (131)
   Other movements in minority shareholders’ interests                     —           —            —           —               (8)          (8)
   At 31 March 2008                                                    3 261          691         (165)    3 787             252         4 039

   For comparative information, see basis of preparation under accounting policies.
     26
Notes to the group financial statements
for the period ended 31 March 2008


                                                                                                                                         31 March
                                                                                                                                            2008

      1.   Foreign currency exchange rates
           The income statements and balance sheets of material foreign subsidiaries have been
           translated using the following exchange rates:
           Rand : Sterling                                                                                                                   R:£
           Weighted average rate                                                                                                             15,1
           Closing rate                                                                                                                      16,0
           Swiss franc : Sterling                                                                                                         CHF : £
           Weighted average rate                                                                                                              2,3
           Closing rate                                                                                                                       2,0
           Foreign subsidiaries have been translated to Rand in line with the relevant accounting standard, using the weighted average
           rates for income statement items and 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:€
           Weighted average rate                                                                                                             10,2
           Closing rate                                                                                                                      12,6

      2.   Segmental reporting
           A segmental analysis of revenue and trading profit for the Alexander Forbes Limited group are provided in Annexure A to
           these financial statements. A segmental analysis of revenue for Alexander Forbes Equity Holdings (Proprietary) Limited is
           provided in Annexure B to these financial statements.

                                                                                                                                         31 March
                                                                                                                                            2008
                                                                                                                                              Rm

      3.   Fees and commission income
           Brokerage fees and commission income                                                                                              480
           Fee income from consulting and administration services                                                                          1 964
           Revenue from multi-manager investment activities                                                                                  687
                                                                                                                                            3131

      4.   Operational interest income from insurance broking operations
           Operational interest income comprises interest earnings of insurance broking businesses, primarily interest income earned
           on premiums collected from clients on behalf of insurers.

      5.   Interest and other income from financing operations
           Interest income                                                                                                                    89
           Other finance-related income                                                                                                        31
           Interest and other finance income                                                                                                  120
           Less: Directly related interest cost                                                                                               (55)
                                                                                                                                              65
                                                                                                                         Alexander Forbes Equity
                                                                                                                         Holdings (Proprietary) Limited
                                                                                                 27                      Financial Statements
                                                                                                                         for the period ended 31 March 2008




                                                                                                                                          31 March
                                                                                                                                             2008
                                                                                                                                               Rm

6.   Net income from insurance operations
     Gross earned premiums                                                                                                                   1 734
      Gross written premiums                                                                                                                 1 879
      Less: Movement in unearned premium provision                                                                                             (145)
     Reinsurers’ share thereof                                                                                                               (1 102)
     Net earned premiums                                                                                                                       632
     Management fees from insurance operations                                                                                                  67
     Net investment income from insurance operations                                                                                            96
     Net expenses of insurance contracts                                                                                                       (151)
     Net premium and investment income (per income statement)                                                                                  644
     Gross claims and transfers to policyholders’ funds                                                                                      (1 162)
     Reinsurers’ share thereof                                                                                                                 758
     Net claims and transfers to policyholders’ funds (per income statement)                                                                  (404)
     Net income from insurance operations                                                                                                      240

7.   Operating expenses
     Operating expenses classified by nature are as follows:
     Staff expenses                                                                                                                          (1 707)
     Premises and rental costs                                                                                                                 (172)
     Computer and IT costs                                                                                                                     (145)
     Insurance expense                                                                                                                          (80)
     Professional fees                                                                                                                           1
                                                                                                                                               (1 4)
     Sub-agent broking expense and management fees                                                                                            (342)
     Non-cash amortisation of intangible assets arising from business combination                                                              (124)
     Other operating expenses                                                                                                                 (227)
     Exceptional losses (refer note 10)                                                                                                         (87)
     Capital gains net of impairment charges (refer note 11)                                                                                    39
     Total operating expenses                                                                                                               (2 959)
     Expenditure items requiring specific disclosure are as follows:
     External auditors’ remuneration                                                                                                            (22)
     Depreciation and amortisation                                                                                                              (62)
      Depreciation of property and equipment                                                                                                    (49)
      Leasehold property and improvements                                                                                                        (5)
      Computer equipment                                                                                                                        (33)
      Furniture, office equipment and other assets                                                                                               (11)
      Amortisation of purchased and developed computer software                                                                                 (13)
     Non-cash amortisation of computer software arising from business combination                                                               (20)
     Non-cash amortisation of other intangible assets arising from business combination                                                        (104)
     Operating lease charges                                                                                                                   (133)
      Premises                                                                                                                                 (132)
      Other                                                                                                                                      (1)
     Staff costs (including executive directors)                                                                                             (1 707)
      Salaries, wages and other benefits                                                                                                      (1 672)
      Termination benefits                                                                                                                        (7)
      Retirement benefit contributions                                                                                                           (28)

     Details of directors’ remuneration is set out in the note on related party disclosure in these financial statements. .
     28
Notes to the group financial statements (continued)
for the period ended 31 March 2008



      8.    Trading results of continuing operations
            A segmental analysis of trading results of continuing operations for Alexander Forbes Equity Holdings (Proprietary) Limited is provided in
            Annexure B to these financial statements.

      9.    Consolidation of the group’s own errors and omissions insurance cell
            The group’s errors and omissions (professional indemnity) risk is insured in the international market with a limit of £100 million for each claim
            and in the annual aggregate in excess of £7 million. The first £7 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 million is utilised in any one year, a deductible of £250,000 per claim will be applied by the international market. Claims
            notified up to 31 March 2006 resulting from the activities of the group’s previously owned International Risk Services business, are subject to
            a separate annual aggregate of £5 million per claim and in the annual aggregate. In terms of the sale agreement, the group has no errors and
            omissions risk in relation to International Risk Services in respect of any claims incurred before 31 March 2006, but notified after this date.
            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 come into the group’s international market policy up to an additional limit of £8,75 million, giving them a total of
            £10 million. Lane Clark & Peacock effect their own cover with a limit of £50 million.
            The group has an equity investment in a cell in Mannequin Insurance PCC Limited, which entitles the group to the underwriting profits earned
            by this insurance cell. The group is required to maintain the insurance cell adequately capitalised. Additional capital is required to be paid in the
            event that underwriting losses are incurred by the insurance cell.
            The assets, liabilities, income statement and cash flow effects attributable to the group’s investment in the Mannequin insurance cell are
            included in the consolidated financial statements of the group. The effect is to eliminate the premium payments to the cell captive insurer
            on consolidation and to recognise the assets, liabilities, cash flows and net operating 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 March
                                                                                                                                                       2008
                                                                                                                                                         Rm

      10.   Exceptional losses
            Corporate advisory and legal fees incurred in respect of the private equity transaction                                                        (48)
            One-off costs incurred on conclusion of the private equity transaction                                                                         (36)
            One-off cost arising from change to surplus legislation                                                                                         (3)
                                                                                                                                                           (87)

       1
      1.    Capital gains net of impairment charges
            Deferred profit on sale of subsidiaries and associates                                                                                           20
            Reversal of previous impairment of loan note                                                                                                    15
            Other                                                                                                                                            4
                                                                                                                                                            39

      12.   Interest and other investment income
            Interest income                                                                                                                                 39
            Dividend income from preference share investments                                                                                               13
                                                                                                                                                            52

      13.   Finance costs
            Interest on term debt issued                                                                                                                  (528)
            Amortisation of debt raising fees capitalised to borrowings                                                                                     (6)
            Bank borrowings                                                                                                                                 (2)
            Other finance costs                                                                                                                             (31)
                                                                                                                                                         (567)
                                                                                                                          Alexander Forbes Equity
                                                                                                                          Holdings (Proprietary) Limited
                                                                                                 29                       Financial Statements
                                                                                                                          for the period ended 31 March 2008




                                                                                                                                           31 March
                                                                                                                                              2008
                                                                                                                                                Rm

14.   Taxation expense
      South African income tax
      Current tax                                                                                                                                (95)
       Current period                                                                                                                            (96)
       Prior years                                                                                                                                 1
      Deferred tax                                                                                                                               27

       Current period                                                                                                                            25
       Prior years                                                                                                                                 2
      Foreign income tax
      Current tax                                                                                                                                (22)
       Current period                                                                                                                            (53)
       Prior years                                                                                                                               31
      Deferred tax                                                                                                                                 2
       Current period                                                                                                                              2
       Prior years                                                                                                                                 —
      Foreign withholding tax                                                                                                                      1
      Tax attributable to policyholders                                                                                                           11
      South African secondary tax on companies                                                                                                   (33)
                                                                                                                                                (109)
      No material capital gains tax was incurred by the group in the current or previous year.
      The tax rate of the group is impacted by non deductible preference share dividends payable on the senior preference
      share debt issued by the group. The adjusted effective tax rate after adjusting for this material item is as follows:
      Loss before taxation from continuing operations per income statement                                                                        (6)
      Adjusted for material items with no or uncertain tax effects:
      Non deductible finance costs                                                                                                               330
      Adjusted profit before taxation (a)                                                                                                        324
      Taxation expense per income statement (b)                                                                                                 (109)
      Adjusted effective tax rate (b)/(a)                                                                                                    33,6%
      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                                                                                            29,0%
      Adjusted for the effects of:
      South African secondary tax on companies                                                                                                 0,1
                                                                                                                                              1 %
      Other exempt income and disallowed expenses                                                                                             (0,7%)
      Tax attributable to policyholders                                                                                                       (4,7%)
      Adjusted effective tax rate (as shown above)                                                                                           33,6%
      Adjustment for non-deductible interest                                                                                             (1 850,3%)
      Effective tax rate                                                                                                                  (1 816,7%)
     30
Notes to the group financial statements (continued)
for the period ended 31 March 2008


                                                                                                                                                             31 March
                                                                                                                                                                2008
                                                                                                                                                                  Rm

      15.    Loss for the period from discontinued operations
             During 2008, the Alexander Forbes group disposed of two of its business units within the International Financial Services
             operations, namely DC Link and Tax and Trusts. These business units have been classified and accounted for in accordance
             with IFRS 5. As such, the reported loss up to the effective date of disposal has been reported in a separate component of
             the income statement.
      15.1   Net loss of business units discounted up to effective date of disposal
             Income from operations                                                                                                                                3
             Operating expenses                                                                                                                                   (18)
             Trading loss from operations                                                                                                                         (15)
             Net interest income                                                                                                                                   1
             Impairment charges and other capital gains and losses                                                                                                 (7)
             Loss before taxation                                                                                                                                 (21)
             Taxation credit                                                                                                                                       5
             Loss before minority interests                                                                                                                       (16)
             Minority interests                                                                                                                                    —
                                                                                                                                                                  (16)

      16.    Minority shareholders’ interests
             Profits attributable to other minority shareholders*
             Continuing operations                                                                                                                                34
             Discontinued operations                                                                                                                               —
                                                                                                                                                                  34
             * The other minorities’ share of profits results mainly from minority shareholders’ interests in Lane Clark & Peacock (in the United Kingdom,
               Belgium and Switzerland) and Media Insurance Services (the UK direct marketing entity in run-off). Details of non-wholly owned subsidiaries
               are provided in Annexure C to these financial statements.


      17.    Earnings per share
      17.1   Basic loss per ordinary share
             Basic loss per share is calculated by dividing the loss for the period attributable to shareholders by the weighted average
             number of ordinary shares in issue during the period.

      17.2   Headline loss per ordinary share
             Headline loss per share is calculated by excluding all impairment charges, capital gains and losses, and losses from
             discontinued operations from the loss attributable to shareholders and dividing the resultant headline earnings by the
             weighted average number of ordinary shares in issue during the period. Headline earnings are defined in Circular 7/2002
             issued by the South African Institute of Chartered Accountants.

      17.3   Earnings per share from continuing operations
             Loss attributable to ordinary shareholders (a)                                                                                                      (149)
             Adjusted for:
             Impairment charges and other capital gains and losses                                                                                                (39)
             Re-measurement of discontinued operation on disposal (IFRS 5)                                                                                        21
             Tax effect thereon                                                                                                                                    (5)
             Closing balance (b)                                                                                                                                 (172)
             Weighted average number of ordinary shares in issue (calculated from effective date) (millions) (c)                                                 377
             Basic loss per share (cents) (a)/(c)                                                                                                                 (40)
             Headline loss per share (cents) (b)/(c)                                                                                                              (46)
                                                                                                                                                Alexander Forbes Equity
                                                                                                                                                Holdings (Proprietary) Limited
                                                                                                                   31                           Financial Statements
                                                                                                                                                for the period ended 31 March 2008




                                                                                                                                                                 31 March
                                                                                                                                                                    2008
                                                                                                                                                                      Rm

18.    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 unit trusts managed by the group’s multi-manager investment subsidiaries in South Africa and the
       United Kingdom are also included in the consolidated balance sheet of the group. These financial assets are directly matched
       to linked obligations to unitholders.

18.1   Movement in multi-manager and unit trust investment contracts assets
       A reconciliation of the movement in the financial assets held under multi-manager and unit trust
       investment contracts is provided below:
       Opening balance                                                                                                                                                  —
       Movement during period:
       Take-on balance at effective date                                                                                                                           48
                                                                                                                                                                  1 225
       Premium inflow                                                                                                                                                9
                                                                                                                                                                   1 546
       Withdrawals                                                                                                                                                   9 68)
                                                                                                                                                                   (1 1
       Investment returns after tax                                                                                                                                 1 293
       Fees and other payments                                                                                                                                        (129)
       Assets reduced through disposals                                                                                                                            (1 522)
       Deconsolidation of mutual funds*                                                                                                                            (7 658)
       Other                                                                                                                                                          218
.      Foreign subsidiaries exchange differences**                                                                                                                  2 696
       Closing balance                                                                                                                                             43
                                                                                                                                                                  1 501
        * In the current period, the group reduced its investment in a particular mutual fund portfolio to less than a majority share. Under IFRS, the assets
         of the mutual funds are not consolidated when the group does not own the majority of an interest in the mutual fund investment portfolio.

       ** The foreign subsidiary exchange difference is taken to the foreign currency translation reserve. This amount is off-set by a corresponding
          movement in multi-manager and unit trust investment contract liabilities (refer note 32).


18.2   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” held for trading
         Equity securities – listed                                                                                                                               50 698
         Equity securities – unlisted                                                                                                                                 109
         Preference shares – listed                                                                                                                                   635
         Unit trusts                                                                                                                                              36 293
         Debt securities – listed                                                                                                                                   4 718
         Debt securities – government stock                                                                                                                         7 460
         Mutual funds with significant influence holding                                                                                                                380
         Policy of insurance                                                                                                                                       15 410
         Derivative financial instruments                                                                                                                            1 556
         Receivables                                                                                                                                                  918
       Cash and cash equivalents
         Cash                                                                                                                                                     25 324
       Total financial assets held under multi-manager investment contracts (per balance sheet)                                                                     43
                                                                                                                                                                  1 501
     32
Notes to the group financial statements (continued)
for the period ended 31 March 2008


                                                                                                                                                       31 March
                                                                                                                                                          2008
                                                                                                                                                            Rm

      18.    Financial assets held under multi-manager investment contracts (continued)
      18.2   Analysis of multi-manager and unit trust investment contract assets (continued)
             A reconciliation of the assets held under multi-manager investment contracts with the linked liability under such contracts
             is as follows:
             Total financial assets held under multi-manager investment contracts (per balance sheet)                                                    43
                                                                                                                                                       1 501
             Adjusted for:
             Tax on policyholder assets included in deferred tax liability of the group                                                                     (28)
             Adjusted total financial assets held for policyholders under multi-manager investment contracts matched with the linked
             liability under such contracts*                                                                                                             43
                                                                                                                                                        1 473
                                                                               59
             * The assets managed by the group at 31 March 2008 totalled R1 billion, which include assets of the group’s joint venture with Stanlib.
               Included in this amount is £1,26 billion assets managed by International Investment Solutions.

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

      19.    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 balance sheet 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 balance sheet.
             Financial assets designated as “fair value through profit or loss”
               Equity securities – unlisted                                                                                                                584
               Preference shares – unlisted                                                                                                                546
               Unit trusts                                                                                                                                  54
               Debt securities – listed                                                                                                                    967
               Policy of insurance                                                                                                                         125
               Receivables                                                                                                                                 564
             Cash and cash equivalents
               Money market                                                                                                                              2 942
               Cash                                                                                                                                        467
             Reinsurance assets
               Reinsurers’ share of unearned premium provision                                                                                             282
               Reinsurers’ share of outstanding claims provision                                                                                           240
               Reinsurers’ share of IBNR provision                                                                                                          24
             Total financial assets attributable to policyholders and cell shareholders’ interests in cell captive insurance companies                    6 795
             Financial asset disclosure on maturity and currency is not provided as these cell captive insurance facility assets are directly
             matched to linked obligations.
                                                                                                                         Alexander Forbes Equity
                                                                                                                         Holdings (Proprietary) Limited
                                                                                                33                       Financial Statements
                                                                                                                         for the period ended 31 March 2008




                                                                                                                                          31 March
                                                                                                                                             2008
                                                                                                                                               Rm

20.   Housing loans secured by retirement fund 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
      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.

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

21.   Property and equipment
      2008
      Net carrying value
      Cost                                                                              104                226                194              524
      Accumulated depreciation and impairment                                            (46)              (137)              (126)           (309)
      Net carrying value at 31 March 2008                                                58                 89                  68             215

      Cost
      Opening balance                                                                      —                 —                   —               —
      Movement during period:

      Addition as a result of business combination                                       86                219                169              474
      Additions to enhance existing operations                                             8                23                  19              50
      Disposals                                                                            —               (29)                  (3)           (32)
      Foreign subsidiaries exchange differences                                          10                 13                   9              32
      Cost at 31 March 2008                                                             104               226                  194            524

      Accumulated depreciation
      Opening balance                                                                      —                 —                   —               —
      Movement during period:

      Addition as a result of business combination                                       (39)             (127)              (106)            (272)
      Depreciation charge for the period                                                  (5)              (33)                 (11)           (49)
      Disposals                                                                            —                27                   —              27
      Foreign subsidiaries exchange differences                                           (2)                (4)                 (9)            (15)
      Accumulated depreciation at 31 March 2008                                          (46)             (137)               (126)           (309)
      Furniture, office equipment and other assets include freehold land and buildings owned by the group, which have a carrying value of R5 million.
      A register of freehold land and buildings is available for inspection at the registered office of the company.
     34
Notes to the group financial statements (continued)
for the period ended 31 March 2008


                                                                              31 March
                                                                                 2008
                                                                                   Rm

      22.    Purchased and developed computer software
             Net carrying value
             Cost                                                                 395
             Accumulated amortisation and impairment                              (136)
             Net carrying value at 31 March 2008                                  259
             Cost
             Opening balance                                                        —
             Movement during period:
             Take-on balance at effective date                                    139
             Additional asset recognised in terms of IFRS 3                       249
             Additions to enhance existing operations                               10
             Disposals                                                             (11)
             Foreign subsidiaries exchange differences                              8
             Closing balance at 31 March 2008                                     395

             Accumulated amortisation and impairment
             Opening balance
             Movement during period:
             Take-on balance at effective date                                      1
                                                                                  (1 1)
             Amortisation charge for the period                                    (13)
             Non-cash amortisation charge arising from business combination        (20)
             Disposals                                                              9
             Foreign subsidiaries exchange differences                              (1)
             Closing balance at 31 March 2008                                     (136)

      23.    Goodwill
      23.1   Net carrying value
             Cost                                                               5 420
             Accumulated impairment                                                 —
             Net carrying value at 31 March 2008                                5 420

      23.2   Reconciliation of movement in carrying value
             Opening balance                                                        —
             Movement during period:
             Goodwill recognised in terms of IFRS 3                             5 420
             Impairment charge through income statement                             —
             Closing carrying value at 31 March 2008                            5 420
                                                                                                                        Alexander Forbes Equity
                                                                                                                        Holdings (Proprietary) Limited
                                                                                                35                      Financial Statements
                                                                                                                        for the period ended 31 March 2008




                                                                                                                                           31 March
                                                                                                                                              2008
                                                                                                                                                Rm

23.    Goodwill (continued)
23.3   Analysis of goodwill balances by principal business segment
       SA Risk & Insurance Services                                                                                                           1 382
        Risk Services                                                                                                                           407
        Personal Services                                                                                                                       446
        Cre8                                                                                                                                     133
        Compensation Technologies                                                                                                                 95
        Guardrisk                                                                                                                               301
       SA Financial Services                                                                                                                  1 590
        SA Financial Services                                                                                                                 1 272
        Alexander Forbes Life                                                                                                                    318
       Investment Solutions                                                                                                                   1 382
       Afrinet                                                                                                                                  223
       International Financial Services                                                                                                         843
        Lane, Clark and Peacock                                                                                                                 402
        Alexander Forbes Financial Services                                                                                                     349
        CTC                                                                                                                                       61
        Direct Marketing                                                                                                                          31

                                                                                                                                              5 420

23.4   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% have been applied to the International businesses and rates of
       between 3% and 5% 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 11% have been applied for the International businesses and rates
       of between 16,5% and 19,8% have been applied to the Afrinet and South African businesses.
       All goodwill balances are non-current in nature.

23.5   Allocation of goodwill balances to cash-generating units
       Factors which are not considered separable from the business of Alexander Forbes, and which contributed to the cost of the acquisition of
       Alexander Forbes Limited by the company and resulted in the recognition of goodwill, include the following:
       – Assembled workforce, including specific technical expertise and training expertise
       – Distribution channels
       – Training and recruitment programmes
       – Customer service capability and service support
       – Effective marketing programmes and product cross-selling opportunities
       – Leading market position
       – Finance-raising capabilities
     36
Notes to the group financial statements (continued)
for the period ended 31 March 2008


                                                                                                                                            31 March
                                                                                                                                               2008
                                                                                                                                                 Rm

      24.    Other intangible assets
             Other intangible assets comprise intangible asset values attributed to contractual customer relationships and market-related
             intangible assets. All other intangible assets are non-current in nature.
      24.1   Net carrying value
             Cost                                                                                                                              2 759
             Accumulated amortisation                                                                                                              1
                                                                                                                                                 (1 4)
             Net carrying value at 31 March 2008                                                                                              2 645

      24.2   Reconciliation of movement in carrying value

             Opening balance                                                                                                                       —
             Movement during period:
             Take-on balance at effective date                                                                                                    37
             Additional asset recognised in terms of IFRS 3                                                                                    2 709
             Non-cash amortisation charge for the period arising from business combination                                                      (104)
             Foreign subsidiaries exchange differences                                                                                             3
             Closing carrying value at 31 March 2008                                                                                          2 645

      24.3   Analysis of intangible assets
             Customer lists                                                                                                                   2 242
             Trade names                                                                                                                        403
                                                                                                                                              2 645

      25.    Joint ventures
      25.1   Proportionate consolidation
             The group’s proportionate share of the income statement, balance sheet and cash flow effects of joint ventures are
             included under the appropriate captions in the financial statements using the proportionate consolidation method of
             accounting.
      25.2   Aggregate summarised income statements of joint ventures (group’s share):
             Income from operations                                                                                                               21
             Operating expenses                                                                                                                   (14)
             Profit before tax                                                                                                                      7
             Taxation                                                                                                                              (2)
             Profit for the period                                                                                                                  5

      25.3   Aggregate summarised balance sheets of joint ventures (group’s share):
             Assets
             Non-current assets                                                                                                                    5
             Current assets                                                                                                                       14
             Total assets                                                                                                                         19
             Equity and liabilities
             Equity                                                                                                                               12
             Non-current liabilities                                                                                                               4
             Current liabilities                                                                                                                   3
             Total equity and liabilities                                                                                                         19
             At 31 March 2008, the group had a financial interest in two unlisted joint ventures, namely Ticketseg Corretora de Seguros SA and Alexander
             Forbes UK Direct Limited, the details of which are provided in Annexure C to these financial statements.
                                                                                                                 Alexander Forbes Equity
                                                                                                                 Holdings (Proprietary) Limited
                                                                                           37                    Financial Statements
                                                                                                                 for the period ended 31 March 2008




                                                                                                                                  31 March
                                                                                                                                     2008
                                                                                                                                       Rm

26.    Investment in associates
26.1   Equity accounted carrying value
       Cost                                                                                                                              10
       Share of cumulative post-acquisition reserves                                                                                      3
                                                                                                                                         13
       Directors’ valuation of associates                                                                                                21

26.2   Reconciliation of movement in equity accounted carrying value
       Opening balance                                                                                                                    —
       Movement during period:
       Take-on balance at effective date                                                                                                 10
       Share of profits of associates for the period                                                                                       3
         Profit before tax                                                                                                                 4
         Taxation                                                                                                                         (1)

       Closing balance                                                                                                                   13

26.3   Aggregate summarised income statements of associates (group’s share)
       Income from operations                                                                                                            14
       Operating expenses                                                                                                                (10)
       Trading results                                                                                                                    4
       Net interest costs                                                                                                                 —
       Profit before tax                                                                                                                   4
       Taxation                                                                                                                           (1)
       Profit for the period                                                                                                               3

26.4   Aggregate summarised balance sheets of associates (group’s share)
       Assets
       Non-current assets                                                                                                                 3
       Current assets                                                                                                                    29
       Total assets                                                                                                                      32

       Equity and liabilities
       Equity                                                                                                                            10
       Non-current liabilities                                                                                                            2
       Current liabilities                                                                                                               20
       Total equity and liabilities                                                                                                      32
       At 31 March 2008, the group had a financial interest in two unlisted associates, Tibiyo Insurance Brokers (Pty) Limited and Eagle Africa
       Insurance Brokers Kenya Limited, the details of which are provided in Annexure C to these financial statements.
     38
Notes to the group financial statements (continued)
for the period ended 31 March 2008




                                                                                                                                                  31 March
                                                                                                                                                     2008
                                                                                                                                                       Rm

      27.    Financial assets
      27.1   Total financial assets
             Current financial assets                                                                                                                     154
             Non-current financial assets                                                                                                                202
                                                                                                                                                        356

      27.2   Analysis of financial assets
             Financial assets classified as ”available-for-sale”
              Equity securities – unlisted                                                                                                                 1
             Financial assets designated as “fair value through profit or loss”                                                                            90
              Preference shares                                                                                                                           55
              Unit trusts                                                                                                                                 29
              Bonds                                                                                                                                        6
             Financial assets classified as “held-to-maturity”
              Preference shares                                                                                                                           75
             Financial assets classified as “loans and receivables”                                                                                       190
              Premium finance receivables                                                                                                                  1
                                                                                                                                                         10
              Loan note held from sale of a UK business                                                                                                   49
              Equity housing loans                                                                                                                        17
              Other loans (mainly staff loans)                                                                                                            14

                                                                                                                                                        356


      28.    Insurance related receivables
             Insurance brokerage income receivable and other insurance balances                                                                            3
             Reinsurance brokerage income receivables                                                                                                     50
             Receivables from short-term insurance contracts                                                                                             149
              Premium debtors                                                                                                                              9
              Reinsurers’ share of unearned premium provision                                                                                             21
              Reinsurers’ share of outstanding claims provision                                                                                          102
              Reinsurers’ share of IBNR provision                                                                                                         17
             Receivable from long-term insurance contracts                                                                                               109
              Premium debtors                                                                                                                             14
              Reinsurers’ share of policyholder liability (group life)                                                                                    88
              Policyholder asset under long-term insurance contract (individual life)                                                                      7
             Other insurance related receivables                                                                                                          13
                                                                                                                                                        324
             A reconciliation of the receivables from short-term and long-term insurance contracts with the payables from such contracts is provided in note 41
             to these financial statements.
                                                                                                 Alexander Forbes Equity
                                                                                                 Holdings (Proprietary) Limited
                                                                                            39   Financial Statements
                                                                                                 for the period ended 31 March 2008




                                                                                                                  31 March
                                                                                                                     2008
                                                                                                                       Rm

29.    Trade and other receivables
       Trade receivables                                                                                               670
       Receivable under cash flow hedge contracts                                                                       666
       Work-in-progress                                                                                                207
       Accrued income and prepayments                                                                                   140
       Prepaid taxation                                                                                                  18
       Other receivables                                                                                               261
                                                                                                                     1 964

30.    Cash and cash equivalents
30.1   Total cash and cash equivalents
       Cash and bank balances                                                                                        2 762
       Short-term deposits                                                                                             566
       Bank overdraft under cash management arrangements                                                                 (6)
                                                                                                                     3 322

30.2   Analysis of cash resources
       Total cash and cash equivalents                                                                               3 322
       Less: Fiduciary cash balances                                                                                 (1 746)
        Insurance related payables                                                                                     (503)
        Policyholder and securitisation payables included in other payables                                          (1 243)
       Less: Capital adequacy and regulatory requirements                                                              (281)
       Less: Cash held against current payables of insurance and other regulated entities                              (187)
       Less: Restricted cash balances held within cell captive insurance facilities                                    (302)
       Available cash resources                                                                                        806

31.    Shareholders’ funds
31.1   Total shareholders’ funds
       Ordinary share capital (note 31.2)                                                                                 4
       Preference share capital (note 31.3)                                                                               3
       Share premium (note 31.4)                                                                                     3 254
       Cash flow hedge (note 31.5)                                                                                      648
       Non-distributable reserves (note 31.6)                                                                           43
       Accumulated loss                                                                                                (165)
                                                                                                                     3 787
     40
Notes to the group financial statements (continued)
for the period ended 31 March 2008




                                                                                               31 March                   28 February
                                                                                                  2008                       2007
                                                                                                           Share                         Share
                                                                                         Number of        capital    Number             capital
                                                                                            shares         at par   of shares            at par
                                                                                              ‘000            Rm         ‘000               Rm

      31.    Shareholders’ funds (continued)
      31.2   Analysis of ordinary share capital
             Authorised
             Ordinary shares of 1 cent each                                               700 000              7        500                  —**
             Issued
             Ordinary shares of 1 cent each
             At 1 March 2007                                                                    10             —           —                 —
             Issued during the period                                                     377 348              4          10                 —
             At 31 March 2008                                                             377 358              4          10                 —*
              * The issued ordinary share capital at 28 February 2007 was
                10 000 shares and the par value was R100
             ** The authorised ordinary share capital at 28 February 2007
                was R5 000


      31.3   Analysis of preference share capital
             Authorised
             Preference shares of 1 cent each                                             645 000              6      2 655                  —*
             Issued
             Preference shares of 1 cent each                                                   —              —           —                 —
             At 1 March 2007
             Issued during the period                                                     340 623              3           —                 —
             At 31 March 2008                                                             340 623              3           —                 —**
             * The authorised preference share capital at 28 February 2007 was R26 550
             ** No preference shares had been issued at 28 February 2007

                                                                                                                                   31 March
                                                                                                                                      2008
                                                                                                                                        Rm

      31.4   Share premium
             Opening balance                                                                                                                 —
             Movement during period:
             Premium arising from the issue of preference shares                                                                         3 316
             Equity raising fees deducted from share premium                                                                               (62)
             Closing balance                                                                                                            3 254
                                                                                                                       Alexander Forbes Equity
                                                                                                                       Holdings (Proprietary) Limited
                                                                                                41                     Financial Statements
                                                                                                                       for the period ended 31 March 2008




                                                                                                                                         31 March
                                                                                                                                            2008
                                                                                                                                              Rm

31.    Shareholders’ funds (continued)                                                                                                           —

31.5   Cash flow hedge
       Opening balance
       Movement during period:
       Raised during the period from:
        Foreign currency swap                                                                                                                 653
        Interest rate swap                                                                                                                      13
        Fee income hedge                                                                                                                        (18)
       Closing balance                                                                                                                        648

       No cash flow hedge movements were recognised in the income statement during the period.

       Foreign currency swap
       The high yield bridge loan is denominated in Euro, thus exposing the group to currency risk. A hedge was taken out with
       JP Morgan, the lead bridge provider, to hedge expected interest on coupon date and the capital amount to 25 July 201  1.
       The hedging instrument is a cross currency swap.

       Interest rate swap
       The senior debt preference shares bear a dividend coupon at a variable rate linked to the prime overdraft lending rate in
       South Africa, thus exposing the group to interest rate risk.
       A hedge was taken out with the three senior debt lenders to hedge expected dividend payments.
       The hedge profile is on a sliding scale basis commencing at 100% being hedged for 2,5 years and thereafter reducing
       to 75% for the following year and reducing to 50% for the next year.
       The hedging instrument is a prime interest rate swap.

       Fee income hedge
       The South African multi-manager investment subsidiary of the group, Investment Solutions, entered into a hedge arrangement
       during the period to set the amount of future fee income earned on local equities included in assets under management
       and administration.
                                                                                        2
       A hedge has been taken out with a local financial institution to cover a rolling 1 month period, covering approximately
                                                                                                                        2
       85% of the fee income from local equities included in assets under management and administration for the first 1 months
                                               2
       and approximately 75% for the second 1 months. The contracts cover successive months over the hedge period and
       expire one month apart. Settlement under the hedge occurs monthly at the maturity of each contract. The hedging instrument
       is a monthly zero coupon spot forward contract on the SWIX40.
31.6   Non-distributable reserves
       Arising during the period through equity:
       Available-for-sale financial assets reserve                                                                                                4
       Unrealised foreign exchange profit reserve                                                                                                37
       Contingency reserve                                                                                                                       2
                                                                                                                                                43
       All the NDR reserves arose in the current period, subsequent to the effective date.

       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.
     42
Notes to the group financial statements (continued)
for the period ended 31 March 2008


                                                                                                                                                            31 March
                                                                                                                                                               2008
                                                                                                                                                                 Rm

      32.    Financial liabilities held under multi-manager investment contracts
             These are financial liabilities classified at fair value through profit or loss – held for trading.
      32.1   Movement in liabilities under multi-manager and unit trust investment contracts
             Opening balance                                                                                                                                      —

             Movement during period:

             Take-on balance at effective date                                                                                                                48 88
                                                                                                                                                             1 1

             Premium inflows                                                                                                                                    9
                                                                                                                                                              1 546

             Withdrawals                                                                                                                                       9 68)
                                                                                                                                                             (1 1

             Investment return net of taxation                                                                                                                1 293
             Fees and other payments                                                                                                                             98
             Liabilities reduced through disposals                                                                                                            (1 522)
             Deconsolidation of mutual funds liabilities                                                                                                      (7 658)
             Foreign subsidiaries exchange differences*                                                                                                       2 696
             Closing balance                                                                                                                                  43
                                                                                                                                                             1 473
             * The foreign subsidiary exchange difference is taken to the foreign currency translation reserve. This amount is off-set by a corresponding
               movement in multi-manager and unit trust investment contract assets (refer note 1  8).


      32.2   Maturity analysis of liabilities under multi-manager and unit trust investment contracts
             Due within one year                                                                                                                               3169
             Due between two and five years                                                                                                                       88
             Due after five years                                                                                                                                675
             Open ended                                                                                                                                      39
                                                                                                                                                            1 541
                                                                                                                                                              43
                                                                                                                                                             1 473
             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.

      33.    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 balance sheet of the group. An analysis of the
             policyholders’ and cell owners’ interests in the financial liabilities of these cell captive insurance companies is provided
             below. The promoter cell (or shareholder’s interest) in the other financial liabilities of the cell captive insurance companies
             are included in the relevant line item in the group balance sheet.
             Short-term insurance technical liabilities                                                                                                       3 088
               Gross unearned premium provision                                                                                                               1 561
               Gross outstanding claims provision                                                                                                               981
               Gross IBNR provision                                                                                                                             546
             Long-term insurance technical liabilities
               Policyholder liability                                                                                                                          1 310
             Insurance liabilities of cell captive insurance facilities                                                                                       4 398
             Other liabilities attributable to policyholders and cell owners                                                                                  2 397
               Cell owners’ equity                                                                                                                            1 497
               Payables                                                                                                                                         838
               Taxation payable                                                                                                                                  62

                                                                                                                                                              6 795
             The “Other liabilities attributable to policyholders and cell owners” are designated as financial liabilities at fair value through profit or loss.
                                                                                                                       Alexander Forbes Equity
                                                                                                                       Holdings (Proprietary) Limited
                                                                                               43                      Financial Statements
                                                                                                                       for the period ended 31 March 2008




                                                                                                                                        31 March
                                                                                                                                           2008
                                                                                                                                             Rm

34.    Securitisation funding for housing loans
       A subsidiary company of the group has issued AAA paper to corporate investors through a private placing securitised by
       housing loans granted to clients. The housing loans are secured by the clients’ retirement fund assets. The instruments bear
       interest at market related rates. These loans are classified as financial liabilities at amortised cost.
       Subordinated loan                                                                                                                      75
       AAA paper issued to corporate investors                                                                                               675
       Securitised funding for housing loans                                                                                                 750

34.1   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.

34.2   Maturity analysis of securitisation funding for housing loans
       The first issue of AAA paper under the securitised funding programme has an amortisation date of 25 July 2010.

35.    Borrowings
35.1   Total borrowings
       Current borrowings                                                                                                                       2
       Non-current borrowings                                                                                                              5140
                                                                                                                                           5142

35.2   Reconciliation of movement in borrowings
       Opening balance                                                                                                                         —
       Movement during period:
       Take-on balance at effective date                                                                                                        2
       Debt funding obtained for purposes of the private equity transaction
        Senior debt preference shares                                                                                                      2 681
        High yield bridge loan                                                                                                             1 500
        PIK debentures                                                                                                                       750
       Senior debt preference shares redeemed                                                                                                 (11)
       Dividend/interest accrued                                                                                                             262
       Debt raising costs capitalised                                                                                                         (48)
       Amortisation of debt raising costs for the period                                                                                        6
       Closing balance                                                                                                                     5142

       There was no breach or default of the covenants of the borrowings during the period.
     44
Notes to the group financial statements (continued)
for the period ended 31 March 2008


                                                                                                                                               31 March
                                                                                                                                                  2008
                                                                                                                                                    Rm

      35.    Borrowings (continued)
      35.3   Analysis of borrowings
             Senior debt preference shares issued to three local banks pay dividends at a dividend rate of 85% of the
             South African prime rate. The preference shares are repayable in 7 years (note 35.5)                                                 2 736
              Capital advanced (net of redemption during the period)                                                                              2 670
              Debt raising costs capitalised (net of amortisation)                                                                                   (42)
              Dividend accrued                                                                                                                       108
             High yield bridge loan issued by two foreign financial institutions bearing interest at a fixed rate of
             9,2% Euro. The bridge loan has a one year term period, rolling into term loan notes for a further period
             of seven years (note 35.6)                                                                                                           1 564

              Capital advanced (Euro equivalent of €1 million)
                                                     58                                                                                           1 500

              Interest accrued                                                                                                                        64
             PIK debentures bearing an interest rate of 17% per annum compounded semi-annually.
             The PIK debentures have a term of 10 years from the date of issue (note 35.7)                                                          840
              Capital advanced                                                                                                                      750
              Interest accrued                                                                                                                        90

             Total interest bearing borrowings                                                                                                     5140
             Loan notes issued in the UK                                                                                                               1
             Unsecured, non-interest bearing loans with no fixed terms of repayment                                                                     1
             Total borrowings                                                                                                                      5142

      35.4   Maturity analysis of borrowings
             Payable on demand                                                                                                                         —
             Due within one year                                                                                                                  1 668
             Due between two and five years                                                                                                          790
             Due after five years                                                                                                                  2 684
                                                                                                                                                   5142

      35.5   Senior debt preference shares
             A subsidiary company, Alexander Forbes Acquisition (Proprietary) Limited (“AF Acquisition”) has issued preference shares which effectively
             correspond to senior debt in equal proportion to three South African banks. The preference shares have been issued in two tranches, with the
             first tranche being the issue of 2 420 000 shares used to finance the acquisition of the share capital of Alexander Forbes Limited (“AFL”). The
             second tranche, which may not exceed 480 000 shares, may be issued at any time prior to July 2009. The issue price of the second tranche
             will be used to repay outstanding senior debt and any potential bulking or related liabilities and/or tax or legal payments as a result of the
             acquisition of the share capital of AFL.
             The preference shares pay semi-annual dividends at a dividend rate of 85% of the South African prime rate with the first payment made on
             30 November 2007.
             The preference shares are redeemed on a semi-annual basis after the third year from issue date. If the full 2 900 000 preference shares are
             issued, the redemption schedule is as follows:
             — R471 million redeemable on 30 November 2010;
                 27
             — R1 million redeemable on 31 May 2011;
                 41
             — R1 million redeemable on 30 November 2011;
                 41
             — R1 million redeemable on 31 May 2012;
             — R164 million redeemable on 30 November 2012;
             — R164 million redeemable on 31 May 2013;
                                                         3;
             — R846 million redeemable on 30 November 201 and
             — Final amount of R846 million redeemable on 31 May 2014
                                                                                                                              Alexander Forbes Equity
                                                                                                                              Holdings (Proprietary) Limited
                                                                                                     45                       Financial Statements
                                                                                                                              for the period ended 31 March 2008




35.    Borrowings (continued)
35.5   Senior debt preference shares (continued)
       AF Acquisition is entitled to make one voluntary early redemption per calendar month in the minimum amount of 25 000 preference shares. If,
       during an excess cash flow period, AF Acquisition should have excess cash flows (as defined in the Preference Share Subscription Agreement),
       then the preference shareholders are entitled to require AF Acquisition to redeem the eligible number of preference shares. If during such
       a period, AF Acquisition disposes of the whole or a major portion of its assets, business or undertaking or where such a disposal realises
                                      5
       net proceeds in excess of R1 million, then AF Acquisition is required to offer to use the net proceeds to redeem the eligible number of
       preference shares.
       The preference share facility is subject to certain early redemption events and certain mandatory redemption events customary for senior
       financing the occurrence of which would require the redemption of all of the preference shares. The early redemption events include, but are
       not limited to, the sale of substantially all of the group’s businesses and the performance of any of the group’s obligations becoming unlawful.
       The mandatory redemption events include, but are not limited to, failing to declare or pay a dividend on its due date, failing to comply with the
       terms of the preference share agreement or memorandum of association, a material group entity becoming insolvent or an occurrence with a
       material adverse effect.
       The preference shares are subject to certain negative undertakings that, without the prior consent of the preference share agent and subject to
       certain customary and other agreed exceptions, limit the ability of AF Acquisition to, among other things:
       • Enter into amalgamations, mergers, consolidation or corporate transactions;
       • Change the scope of its business;
       • Incur capital expenditure in excess of 20% of the projected capital expenditure, unless the projected capital expenditure
         has not been completely used in the financial year, in which case the unused amount can be used in addition to the
         projected capital expenditure for the following financial year only;
       • Incur any financial indebtedness except in the ordinary course of business and for special permitted purposes;
       • Give any guarantee or security interest except for permitted guarantees and security interests;
       • Issue additional equity instruments except for the permitted distributions or grant any loans other than permitted loans.
       The preference share facility also requires AF Acquisition to observe certain positive undertakings subject to materiality and other customary
       and agreed upon exceptions. These positive undertakings include, but are not limited to, obtaining and maintaining all necessary consents,
       filings and authorisations; effecting insurance; effecting intellectual property rights; ensuring the composition of the management team and
       finalising the strategic management incentives; declaring dividends and implementing the daily cash management system.
       The preference shares receive a first-ranking guarantee and the repurchase obligation is effectively secured over the assets of each of AF
       Acquisition, AFL and various security entities.

35.6   High yield bridge loan
       A subsidiary company, Alexander Forbes Funding (Pty) Limited (“AF Funding”) has obtained a high yield bridge loan (“bridge loan”) for the Euro
       equivalent of R1,5 billion from two foreign financial institutions. The bridge bears interest at a rate of 9,2% per annum payable in Euro. The
       capital and interest payments have been hedged for a four year period (refer to the cash flow hedge note to these financial statements).
       Additional interest is payable on the bridge loan in terms of a put and call option agreement. Under this agreement, AF Funding issued
       preference shares to a security agent on behalf of the bridge loan lenders. The shares vest in accordance with a schedule set forth in the put
       and call option agreement and redemption of these shares occurs if AF Funding repays or prepays any portion of the bridge loan. The put or
       call price payable on redemption of these shares is calculated as a fixed interest rate on the capital of the bridge loan and commences at 1%
       per annum increasing by 0,5% every quarter capped to a maximum of 3%. The put or call price is payable in Euro and is unhedged.
       The bridge loan matures on 26 July 2008. If at this date, the bridge loan has not been repaid in full, and provided a conversion default (as
       defined below) has not occurred and is continuing, the bridge loan is automatically converted into a high yield term loan due with a seven
       year maturity date from July 2008. The high yield term loans will have the benefit of the same guarantees and security as the bridge loan. A
       “conversion default” means any payment default in respect of the preference shares of AF Acquisition or the revolving credit facility or any
       default or event of default under any high yield bridge finance document.
       The bridge loan may be prepaid at any time, in whole or in part, which would include the capital plus any accrued and unpaid interest to the
       prepayment date.
       The bridge loan is subject to certain mandatory repayment events. These include, but are not limited to, (i) any direct or indirect public offering
       or private placement of any debt or equity securities of the group (not including the facility in respect of the preference shares, the bridge loan
       facility and the revolving credit facilities); (ii) any future bank borrowings by AF Funding or its subsidiaries, other than indebtedness incurred
       under the preference shares, the bridge loan facility and the PIK finance documents as in effect at the acquisition closing date, the revolving
       credit facilities, any permanent securities used to refinance the bridge loans, the exchange notes and any permitted financial indebtedness and
       (iii) certain disposals (e.g. asset sales or leases) that are not otherwise permitted by the bridge loan agreement after the acquisition closing date,
       subject, in the case of clauses (ii) and (iii) only, to the required prior repayment of any amount outstanding under the preference shares to the
       extent such payment is required thereunder.
       In addition, all amounts outstanding on the bridge loan, together with accrued and unpaid interest, shall become immediately due and payable
       in the event of a sale of all or substantially all of the assets or business of the group or a change of control occurs. Finally, AF Funding must repay
       or prepay the bridge loan if the lender becomes aware that it is unlawful in any applicable jurisdiction for such lender to perform its obligations
       under a bridge finance document.
       The bridge loan is guaranteed by a senior first-ranking guarantee from Alexander Forbes PIK Funding (Pty) Limited (“AF PIK”) secured only by
       a pledge over AF PIK’s shares in AF Funding, claims against AF Funding under reorganisation loans and acquisition debt and any other and
       future claims of AF PIK against AF Funding. The bridge loan also benefits from subordinated guarantees from AF Acquisition, Alexander Forbes
       Limited and various group subsidiaries.
     46
Notes to the group financial statements (continued)
for the period ended 31 March 2008



      35.    Borrowings (continued)
      35.6   High yield bridge loan (continued)
             The bridge is the senior debt of AF Funding and senior subordinated debt of each guarantor, subordinated in right of payment to the indebtedness
             of each guarantor under the revolving credit facilities, the preference shares and certain hedging obligations and pari passu or senior in right of
             payment to all other indebtedness of the borrower and the guarantors.

      35.7   Pay-in-Kind (“PIK”) debenture
             A subsidiary company, Alexander Forbes PIK Funding (Pty) Limited (“AF PIK”) has issued 100 000 000 unsecured debentures for a principal
             amount of R7,50 each. The debentures bear interest at 1  7% per annum compounded semi-annually on 31 May and 30 November each year.
             This interest together with the capital amount is redeemable on the 10th anniversary from the date of issue, namely on 26 July 2017.
             AF PIK may at any time purchase any debentures from any debenture holder at such price or consideration as may be agreed upon between
             it and the debenture holder concerned (provided that the price so mutually agreed upon may not exceed the then market price thereof if the
             debentures are listed on a recognised exchange at that time).
             The capital and accrued interest unpaid on the debentures shall become immediately repayable if one of the following occurs, without the prior
             approval by way of an extraordinary resolution of the debenture holders or without the prior consent in writing of debenture holders holding not
             less than 75% in aggregate principal amount of the debentures then outstanding:
             – There is a change of control.
               Change of control is defined (in the PIK Debenture Trust Deed) as (a) the effective equity interest of Actis in AF PIK falling below 10%; (b) the effective
               equity interest of the consortium investors in AF PIK falling below 50% plus one ordinary share; (c) the consortium investors cease to have the right to
               appoint or remove a majority of AF PIK’s board of directors or the members of the body that controls the management of AF PIK (as the case may be);
               (d) AF PIK ceases to hold 100% of the ordinary shares of its subsidiary, AF Funding as the direct registered holder; or (e) AF Funding ceases to hold
               100% of the ordinary shares of AF Acquisition as the direct registered holder; provided that any effective equity interest that a consortium investor
               holds in AF PIK by virtue of any share capital or other equity instruments that such consortium investor holds in the company, if any, shall be excluded
               in determining whether a change of control has occurred pursuant to (a) through (e) (inclusive) of this definition;
             – There is a disposal of all or substantially all of the assets or business of AF PIK and its subsidiaries (“the group”) other than a disposal of any
               asset by any member of the group to another member of the group or any disposal pursuant to a Permitted Reorganisation. “Substantially all
               of the assets or business of the group” means more than 50% by value of the total assets or business of the group as reflected in the latest
               audited annual consolidated financial statements of the group at the time of such disposal.

                                                                                                                                                            31 March
                                                                                                                                                               2008
                                                                                                                                                                 Rm

      36.    Deferred consideration for acquisitions
      36.1   Total deferred consideration for acquisitions
             Current deferred consideration                                                                                                                          6
             Non-current deferred consideration                                                                                                                      —
                                                                                                                                                                     6
             The deferred consideration arises from acquisitions made on deferred payment terms. The deferred payments are
             generally contingent on the future revenue and/or profits recorded by the acquired businesses over periods of up to five years.

      36.2   Reconciliation of movement in deferred consideration
             Opening balance
             Movement during period:                                                                                                                                 —
             Take-on balance at effective date                                                                                                                     52
             Payments made                                                                                                                                         (46)
             Closing balance                                                                                                                                         6

      36.3   Maturity analysis of deferred consideration
             Due within one year                                                                                                                                     6
             Due between two and five years                                                                                                                           —
                                                                                                                                                                     6
                                                                                                                                   Alexander Forbes Equity
                                                                                                                                   Holdings (Proprietary) Limited
                                                                                                         47                        Financial Statements
                                                                                                                                   for the period ended 31 March 2008




                                                                                                                                                    31 March
                                                                                                                                                       2008
                                                                                                                                                         Rm

37.    Retirement benefit obligations
37.1   Total retirement benefit obligations
       Defined benefit pension fund obligation – South Africa (note 37.2)                                                                                    —
       Post-retirement medical benefit obligation – South Africa (note 37.3)                                                                               85
                                                                                                                                                          85
       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.
       All retirement benefit obligations are non-current in nature.

37.2   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. At 31 March 2008, all pension fund assets were invested in money market instruments.
       The fund is valued by the statutory actuary on a tri-annual basis, with the last full actuarial assessment being completed
       on 1 March 2006. 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. This is based on an actuarial projection of the statutory valuation
       updated to 31 March 2008 taking into account market conditions and the fund's experience to date.
       Prior to the acquisition, an offer was made to all members of the defined benefit pension fund. The offer provided members
       with the option of continuing to be members of the pension fund or to take their portion of the surplus in the pension fund at
       offer date and leave the fund. The transfer value of the offer was determined as the actuarially assessed value of the relevant
       member's current pension obligation, plus 27%, representing the surplus of fund assets over fund obligations at offer date.
       The offer was finalised in July 2007.
       In the case of pensioners who elected to leave the fund, the transfer value was applied to purchase an annuity from a life
       insurer or similar body. 107 pensioners elected this option.
       In the case of active members who elected to leave the fund, their transfer value was moved to the group’s defined contribution
       fund in South Africa. 45 active members elected this option.
       The membership of the fund as at the last statutory actuarial valuation at 1 March 2006 comprised 93 active members
       and 190 pensioners. This was before the above mentioned settlement offer was taken into account.
       The latest actuarial valuation reflected the following:

       Defined benefit obligation                                                                                                                           86
       Fair market value of fund assets                                                                                                                  (141)
       Funded status                                                                                                                                      (55)
       Less: Unrecognised amount *                                                                                                                        55
       Amount recognised in the balance sheet                                                                                                              —
                                               9,
       * In terms of paragraph 58 of IAS 1 Employee Benefits, ownership of the surplus in the defined benefit pension fund cannot be recognised by,
         nor is it currently available to the group.
     48
Notes to the group financial statements (continued)
for the period ended 31 March 2008


                                                                                                                                                       31 March
                                                                                                                                                          2008
                                                                                                                                                            Rm

      37.    Retirement benefit obligations (continued)
      37.2   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 period:
             Take-on balance at effective date                                                                                                                  —
             Charge per income statement                                                                                                                        4
             Contribution paid*                                                                                                                                (4)
             Closing unrecognised asset                                                                                                                         —
             * Expected contributions to be paid for the 2009 financial year are R3 million.

             A reconciliation of the movement in fair market value of fund assets is as follows:
             Opening balance                                                                                                                                    —
             Movement during period:
             Take-on balance at effective date                                                                                                               132
             Expected return on plan assets                                                                                                                     6
             Contributions                                                                                                                                      4
             Risk premiums                                                                                                                                     (1)
             Benefits paid                                                                                                                                      (5)
             Actuarial gain                                                                                                                                     5
             Closing balance                                                                                                                                 141
             The charge per the income statement is made up as follows:
             Current service cost                                                                                                                               2
             Interest cost                                                                                                                                      7
             Expected return on plan assets                                                                                                                    (6)
             Termination benefits                                                                                                                                2
             Amortisation charge in terms of paragraph 58 of IAS 19                                                                                            (1)
             Charge per income statement                                                                                                                        4
             The principal actuarial assumptions applied are as follows:
             Discount rate                                                                                                                                9,25%
             Inflation rate                                                                                                                                6,25%
             Salary increase rate                                                                                                                         7,25%
             Pension increase allowance                                                                                                                   3,07%
             Expected rate of return on assets                                                                                                            7,00%

             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,
             use was made of the asset split as at 31 December 2007. The expected long-term rate of return on bonds was set at the same level as the
             discount rate. This implies a yield on government bonds of 9,25% per annum as at 31 March. The expected long-term rate of return on equities
             was set at a level of 3% above the bond rate, whilst the expected long-term rate of return on cash was set at a level of 2% below the bond rate.
             Adjustments were made to reflect the effect of retirement funds tax (RFT) and expenses.
      37.3   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
                                                                                         43
             31 March 2008, this applies to a total of 422 people and comprises 1 active employees and 279 pensioners. 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
             2008. 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 R71 million at 31 March 2008).
                                                                                                                          Alexander Forbes Equity
                                                                                                                          Holdings (Proprietary) Limited
                                                                                                49                        Financial Statements
                                                                                                                          for the period ended 31 March 2008




                                                                                                                                           31 March
                                                                                                                                              2008
                                                                                                                                                Rm

37.    Retirement benefit obligations (continued)
37.3   Post-retirement medical benefit obligation – South Africa (continued)
       The latest actuarial valuation reflected the following:
       Medical benefit obligation                                                                                                                 86
       Hardship fund liability                                                                                                                    10
       Less: Unrecognised actuarial loss                                                                                                         (16)
       Add: Unrecognised past service cost                                                                                                         5
       Recognised liability in the balance sheet                                                                                                 85
       A reconciliation of the movement in the post-retirement medical benefit obligation in South Africa is as follows:
       Opening balance                                                                                                                            —
       Movement during period:
       Take-on balance at effective date                                                                                                         83
       Charge per income statement                                                                                                                 6
       Contributions paid*                                                                                                                        (4)
       Closing balance                                                                                                                           85
       * Expected contributions to be paid for the 2009 financial year are R6 million.

       The charge per the income statement is made up as follows:
       Current service cost                                                                                                                        1
       Interest cost                                                                                                                               5
       Charge per income statement                                                                                                                 6
       The principal actuarial assumptions applied are as follows:
       Discount rate                                                                                                                          9,25%
       Inflation (CPIX) rate                                                                                                                   6,25%
       Retirement age                                                                                                                  60/65 years
       If an inflation rate of 5,25% was applied, the liability would have been R77 million and the related current service cost and
       interest cost remaining unchanged at R8 million. Correspondingly, had an inflation rate of 7,25% been applied, the liability
       would have been R97 million with related costs increasing to R10 million .

38.    Deferred taxation
38.1   Net deferred tax asset/(liability) balance
       Deferred tax assets (refer note 38.3)                                                                                                    124
       Deferred tax liabilities (refer note 38.4)                                                                                              (930)
                                                                                                                                               (806)

38.2   Reconciliation of movement in the net deferred tax asset/(liability) balance
       Opening balance                                                                                                                            —
       Movement during period:
       Credit per income statement                                                                                                               29
       Deferred tax recognised in terms of IFRS 3                                                                                              (830)
       Foreign subsidiaries exchange differences                                                                                                  (5)
       Closing balance                                                                                                                         (806)

38.3   Analysis of deferred tax assets
       Deferred income                                                                                                                            1
                                                                                                                                                 17
       Unrecognised tax losses                                                                                                                    19
       Provisions                                                                                                                                22
       Other items                                                                                                                               (34)
       Total deferred tax assets                                                                                                                124
     50
Notes to the group financial statements (continued)
for the period ended 31 March 2008


                                                                                                                                                   31 March
                                                                                                                                                      2008
                                                                                                                                                        Rm

      38.    Deferred taxation (continued)
      38.4   Analysis of deferred tax liabilities
             Work-in-progress                                                                                                                             (10)
             Deferred tax on policyholder assets                                                                                                          (28)
             Accelerated tax allowances, provisions and other items                                                                                       (45)
             Deferred tax recognised in terms of IFRS 3                                                                                                 (798)
             Potential degrouping tax charge resulting from the sale of IRS business                                                                      (49)
             Total deferred tax liabilities                                                                                                             (930)

                                                                                                     Provision for
                                                                                       Proposed         potential
                                                                                           client            E&O         Leave
                                                                                     settlements       exposures           pay           Other          Total
                                                                                              Rm              Rm           Rm              Rm            Rm

      39.    Provisions
      39.1   Analysis and reconciliation of movement in provisions
             Opening balance                                                                    —               —             —              —               —
             Movement during period:
             Take-on balance at effective date                                               400             162             58             44           664
             Additional provisions recognised in terms of IFRS 3                                —               —             —            1
                                                                                                                                           12              1
                                                                                                                                                          12
             Increase in provision                                                              —              70             9             11             90
             Interest accrued on proposed client settlements                                  25                —             —              —             25
             Decrease in provision/settlements made                                           (87)              —            (3)             —            (90)
             Release of provisions recognised in terms of IFRS 3 expensed in                    —               —             —            (45)           (45)
             current year
             Foreign subsidiaries exchange differences                                          —              25             1              7             33
             Closing balance at 31 March 2008                                                338             257             65            129           789
             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.

      39.2   Provision for proposed client settlements
             Alexander Forbes Limited appointed independent legal advisers and auditors to conduct a full review of past and current business practices
             across all of the South African operations of the group. The results of this review were fully disclosed to the regulator and published on the
             group’s website. Following this review, the provision for proposed client settlements for historical income earned in respect of which adequate
             disclosure could not be proven and other historical business practices, including the practice referred to as “bulking” was made of R500 million.
             R480 million was provided in the income statement in the 2006 financial year and R20 million was provided in the income statement in the
             2007 financial year. Interest accrues on this provision at the South African prime lending rate less 4% up to the date of settlement payments.
             To date, the group has made substantial progress in relation to the client settlement process regarding bulking, with approximately 87% 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.

      39.3   Provision for potential errors and omissions exposures
             This represents a provision for potential exposure from litigation and other claims against the group. The nature of the actual expenditure and
             quantum of these claims will be determined by future uncertain events. The provision is held in the group’s insurance cell which is consolidated by
             the group. Potential provisions are determined using a rating scale which considers the likelihood and potential value of each reported claim.

      39.4   Provision for leave pay
             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 period.
                                                                                                                                           Alexander Forbes Equity
                                                                                                                                           Holdings (Proprietary) Limited
                                                                                                               51                          Financial Statements
                                                                                                                                           for the period ended 31 March 2008




39.    Provisions (continued)
39.5   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, but this may not
           be representative of future client lapse experience which will affect the quantum of commission required to be repaid to insurers.
         – Provision for contractual obligations in relation to premises leases entered into in the United Kingdom, which require the relevant buildings
           to be refurbished at the end of the lease term. The nature of the actual expenditure and quantum thereof will only be determined at the
           end of the lease term.
         – Provision for onerous premises leases. This provision is based on management’s best estimate but conditions may change regarding the
           likelihood, timing and commercial terms of sub-lease arrangements in respect of unoccupied office space.
         – Provision for potential exposure from litigation and other claims against the group. The nature of the actual expenditure and quantum of
           these claims will be determined by future uncertain events.

                                                                                                                                                           31 March
                                                                                                                                                              2008
                                                                                                                                                                Rm

40.    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 Circular 7/2005 issued by the South Africa Institute of Chartered Accountants                                         155
       Current deferred income
       Risk Services: Insurance broking commission and fee income – income deferred to cover future servicing costs, together
       with a reasonable margin thereon                                                                                                                           90
       Risk Services: Underwriting agency income – income deferred to cover future servicing costs, together with a reasonable
       margin thereon                                                                                                                                               2
       Financial Services: Commission income on insurance and investment products – income deferred to cover future servicing
       costs, together with a reasonable margin thereon                                                                                                            19
       Multi-manager investment and Financial Services: Structured product fees spread evenly over the expected period of the contract                              1
                                                                                                                                                                 267

41     Insurance related payables
41.1   Total insurance related payables
       Insurance related payables from broking activities                                                                                                        434
       Reinsurance creditors                                                                                                                                      78
       Payables from short-term insurance contracts                                                                                                              231
         Gross unearned premium provision                                                                                                                         38
         Gross outstanding claims provision                                                                                                                      166
         Gross IBNR provision                                                                                                                                     27
       Payables from long-term insurance contracts
       Policyholder liability under long-term insurance contracts (group life)                                                                                   102
       Payables from umbrella fund activities*                                                                                                                 1198
                                                                                                                                                               2 043
       * The substantial portion of the payables from umbrella fund activities in the 2008 financial period resulted from a timing difference between the
         receipt of funds from new clients at the period end and the investment of these funds with the group’s multi-manager investment subsidiary.

41.2   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 41.1 above)                                                                                                      102
       Less: Reinsurance assets relating to the policyholder liability (refer note 28)                                                                            (88)
       Net liability to policyholders                                                                                                                              14
       A reconciliation of the movement in the net policyholder liability is as follows:
       Opening balance                                                                                                                                             —
       Movement during period:
       Take-on balance at effective date                                                                                                                           14
       Net contribution earned                                                                                                                                     6
       Benefit payments and withdrawals                                                                                                                             (7)
       Investment income                                                                                                                                           1
       Closing balance                                                                                                                                             14
     52
Notes to the group financial statements (continued)
for the period ended 31 March 2008


                                                                                                                                       31 March
                                                                                                                                          2008
                                                                                                                                            Rm

      41.    Insurance related payables (continued)
      41.3   Net payables from short-term insurance contracts
             The net payables from short-term insurance contracts arise from short-term insurance business written by the short-term
             insurance subsidiaries of the group. The net payables position comprises:
             Payables from short-term insurance contracts (refer note 41.1 above)                                                          231
             Less: Receivables from short-term insurance contracts (refer note 28)                                                         (149)
             Net payables from short-term insurance contracts                                                                                82
             A reconciliation of the movement in the net payable is as follows:
             Opening balance                                                                                                                  —

             Movement during period:
             Take-on balance at effective date                                                                                               60
             Net claims incurred                                                                                                             36
             Other movements                                                                                                                 (14)
             Closing balance                                                                                                                 82

      42.    Trade and other payables
             Trade payables                                                                                                                257
             Accrued expenses                                                                                                              650
             Taxation payable                                                                                                                23
             Payable under cash flow hedge contract                                                                                           18
             Other payables                                                                                                                421
                                                                                                                                         1 369

                                                                                                                          Equipment        Total
                                                                                                                          and motor    31 March
                                                                                                          Premises          vehicles      2008
                                                                                                               Rm                Rm         Rm

      43.    Commitments
      43.1   Operating lease commitments
             The future minimum lease payments under non-cancellable operating leases
             are as follows:
             Due within one year                                                                               146                15        161
             Due between two to five years                                                                      476                 6        482
             Due after five years                                                                                31                 —         31
                                                                                                              653                 21        674

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

                                                                                                                                       31 March
                                                                                                                                          2008
                                                                                                                                            Rm

      43.2   Capital commitments
             Commitments in respect of capital expenditure approved by directors:
             Contracted for                                                                                                                   4
             Not contracted for                                                                                                               5
                                                                                                                                              9
             The funds to meet these commitments will be provided from internal cash resources generated by operations.
                                                                                                                             Alexander Forbes Equity
                                                                                                                             Holdings (Proprietary) Limited
                                                                                                    53                       Financial Statements
                                                                                                                             for the period ended 31 March 2008




43.    Commitments (continued)
43.3   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 rate plus an applicable
       margin and accrues on a daily basis. The Sterling denominated facility to AFIL bears interest at a variable rate equal to LIBOR 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 reduces to 3,5%. The revolving credit facility is available for drawing until July 201 4
       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 draw-down during the quarter, calculated daily and payable in
       arrears on 31 May and 30 November each calendar year.
       The outstanding balance on the revolving credit facility is obliged to be repaid upon a “mandatory redemption event” or “early redemption
       event”, both as defined in the preference share agreement (refer to the borrowings note to these financial statements). The repayment must
       occur within 30 days of demand of such repayment.
       This facility ranks pari passu with the senior debt preference shares issued by AF Acquisition as set out in the Intercreditor Agreement. The
       Sterling revolving credit facility has a guarantee by AF Acquisition who 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.

43.4   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 intercreditor agreement sets out the relative ranking of the financing obtained and of
       the security granted within the subsidiary company of the group. The intercreditor agreement also sets out when payments can be made in
       respect of the debt, when enforcement action can be taken in respect of the debt, the terms pursuant to which certain of the debt will be
       subordinated upon the occurrence of certain insolvency events, turnover provisions and when security and guarantees can be released to
       permit an enforcement sale.

43.5   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.

44.    Contingencies
44.1   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 errors and omissions insurance programme is explained in note 9 to these financial statements.

44.2   Proposed client settlements 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, voluntarily terminated the practice of receiving income for bulking in September 2004.
       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 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 group from the bulking practice together with interest thereon over the entire period
                                                                                                                                      2
       that the group historically benefited from the arrangements. The aggregate cost thereof is R380 million, which includes a R1 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 group has made substantial progress in relation to the client settlement process regarding bulking, with approximately 87% 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.
     54
Notes to the group financial statements (continued)
for the period ended 31 March 2008



      44.    Contingencies (continued)
      44.2   Proposed client settlements arising from historical business practices (continued)
             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 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.
                                                                                                                                            20
             As a result of this review and on advice from the independent advisors, the company made provision for an additional R1 million in relation
             to additional specific proposed client settlements in respect of specific 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 commenced making
             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.

      44.3   Lifecare matter
             During the period 1992 to 1997, and through its South African Financial Services business unit, the group provided consulting, actuarial and
             administrative services to the Lifecare Group Holdings Pension Fund (“the Lifecare Fund’’). According to allegations brought by the SAFSB, the
             Lifecare Fund was used in an 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. The SAFSB’s investigation into these transactions, conducted under the provisions of the Inspection of Financial Institutions Act 80 of
             1998, uncovered eight such transactions. The group co-operated fully with the SAFSB in its investigation.
             As a result of the aforementioned investigation, a number of individuals and entities have been criminally charged by the State, including three
             former employees of the Financial Services business unit. In addition, the Financial Services business unit 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. Consequently, whenever a current or former employee, servant and/or director of a
             company is charged in respect of an offence committed in the course and scope of his or her employment or with the purpose to further the
             interests of the company, it is competent also to charge the company. The trial is expected to commence on 4 August 2008, and the company
             has briefed senior counsel to represent it.
             Alexander Forbes has also received a civil summons relating to the Lifecare matter. Whilst the curators of the various funds involved are claiming
             in excess of R1 billion damages allegedly sustained by these funds, the curators have not taken into account significant amounts already
             received from certain of the other individuals and financial institutions involved in the matter. There is no allegation and no evidence that either
             Alexander Forbes or any of its employees or former employees received any of the surpluses that allegedly left these funds.
             The group has been advised by its attorneys and senior counsel that it is, at this stage, not possible to express an opinion on whether the civil
             claims will be successful, or to quantify the potential liability if any. This matter is expected to be substantially covered by professional indemnity
             insurance and it is unlikely that it will have a material financial effect on the group. The group’s attorneys are defending the matter.

      44.4   Road Accident Fund (“RAF”) matter
             The Road Accident Fund (“RAF”) brought an application by way of notice of motion and affidavit in the High Court. In this application the RAF
             seeks a declaratory order that provisional payments totaling R56,8 million made by the RAF in terms of an agreement entered into between
             the Road Accident Fund and Alexander Forbes Compensation Technologies (Pty) Ltd (“AFCT”) during 2002 was ultra vires the RAF Act. The
             RAF further claims that an order be granted in terms of which AFCT be ordered to repay the amount not yet refunded to the RAF in the sum of
             R38,5 million (as at the time of the issuing of the application). AFCT is not in possession of any funds as these funds have been paid to medical
             emergency suppliers in terms of the agreement entered into with the RAF. The advice given by Senior Counsel is that the RAF is not likely to
             succeed in its claim. The claim is being strenuously opposed. The amount not yet refunded to the RAF is R20,4 million. The remaining amount
             (i.e. the portion of advance for which the related claims have not yet been processed by the RAF so as to offset the advance) amounts to an
                            5
             estimated R1 million.
             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 historical claims are settled by the RAF. Simultaneously the group is launching
             action against the RAF to recover the outstanding fees due to attorneys. Management strongly disagree with the RAF interpretation of the
             legislation and in particular its attempt to retrospectively apply the new interpretation. This prejudices the attorneys concerned and potentially
             the group’s clients. Management base their view on senior counsel opinion obtained in regard to this matter.

      44.5   Warranty claims relating to the sale of International Risk Services
             The group has been notified of a potential impending warranty claim relating to the International Risk Services operations that were previously
             disposed of as part of the sale of Lockton International Limited (formerly Alexander Forbes Risk Services Holdings Limited), a disposal which
             occurred before the effective date. Details of the impending claim have not yet been provided.
                                                                       Alexander Forbes Equity
                                                                       Holdings (Proprietary) Limited
                                                                  55   Financial Statements
                                                                       for the period ended 31 March 2008




                                                                                        31 March
                                                                                           2008
                                                                                             Rm

45.   Cash generated from trading operations
      Loss before taxation from continuing operations                                          (6)
      Non-cash items
      Net interest paid                                                                      515
      Share of net profits of associates                                                        (3)
      Exceptional losses (non-cash component)                                                  16
      Depreciation of property and equipment                                                  49
      Amortisation of purchased and developed computer software                               33
      Amortisation of other intangible assets                                                104
      Recognition of previously impaired loan note                                            (14)
      Profit recognised on sale of associate                                                   (20)
      Capital gains and impairment charges                                                    (39)
      Income statement charge for retirement benefit obligations                                 6
      Movement in provisions and other non-cash items                                         86
                                                                                             727

46.   Movement in working capital and insurance balances
      Movement in working capital balances
       Trade and other receivables                                                           (212)
       Trade and other payables                                                              496
      Movement in insurance balances
       Insurance related receivables                                                          (51)
       Insurance related payables                                                            615
      Foreign subsidiaries exchange differences                                                16

                                                                                             864

47.   Taxation paid
      Taxation payable at beginning of period                                                  —
      Charge in income statement                                                             (109)
      Adjusted for:
      Take-on balance as a result of business combination                                     (81)
      Tax attributable to policyholders                                                       (11)
      Deferred tax charge per income statement                                                (29)
      Foreign subsidiaries exchange differences                                               (13)
      Prepaid taxation at end of period                                                       (18)
      Taxation payable at end of period                                                       23
                                                                                            (238)
     56
Notes to the group financial statements (continued)
for the period ended 31 March 2008



      48.    Acquisition of subsidiaries and businesses
      48.1   Allocation of purchase consideration
             On 26 July 2007, the company acquired, through its subsidiary Alexander Forbes Acquisition (Pty) Limited, the entire share capital of Alexander
                                                                            26
             Forbes Limited group for a total purchase consideration of R8,1 million. The components of this purchase price have been disclosed below.
             The allocation of the excess purchase consideration over net assets to goodwill and other intangible assets has been done on a provisional
             basis. A comprehensive purchase price allocation exercise is in the process of being completed.
                                                                                                                                                 31 March
                                                                                                                                                      2008
                                                                                                                                                        Rm
             Fair value of net assets acquired (refer note 48.2)                                                                                   1 028
             Minority interest                                                                                                                       (129)
             Fair value of net assets attributable to ordinary shareholders                                                                           899
             Liabilities recognised in terms of IFRS 3                                                                                                (90)
             Purchase of minority shareholder's interest                                                                                              (81)
             Intangible assets arising on acquisition                                                                                              2 958
             Less: Deferred tax arising on intangible assets                                                                                         (830)
             Goodwill arising on acquisition                                                                                                       5 420
             Total purchase consideration                                                                                                          8 276
             Cash flows arising from acquisition of subsidiaries and businesses
             Total purchase consideration                                                                                                          (8 276)
             Deferred consideration paid on previous acquisitions                                                                                     (46)
             Total cash flows from acquisitions                                                                                                     (8 322)
             Cash balances of subsidiaries acquired                                                                                                2 562
                                                                                                                                                   (5 760)
             * These comprise intangible asset values attributed to customer-related, market-related
               and technology related intangible assets acquired through business acquisitions.

      48.2   Fair value of net assets acquired
             The fair value of net assets acquired consists of:
             Financial assets held under multi-manager investment contracts                                                                       48
                                                                                                                                                 1 225
             Financial assets of cell captive insurance facilities                                                                                 6 047
             Housing loans secured by retirement fund assets                                                                                         750
             Property, equipment and computer software                                                                                               230
             Intangible assets                                                                                                                        37
             Investments in associates                                                                                                                 10
             Deferred tax assets                                                                                                                     129
             Financial assets                                                                                                                        332
             Insurance related receivables                                                                                                           273
             Trade and other receivables                                                                                                           11 30
             Cash and cash equivalents                                                                                                             2 562
             Fair value of assets acquired                                                                                                       159 725
             Financial liabilities held under multi-manager investment contracts                                                                   48 88)
                                                                                                                                                 (1 1
             Liabilities of cell captive insurance facilities                                                                                      (6 047)
             Securitisation funding for housing loans                                                                                                (750)
             Borrowings                                                                                                                                  (2)
             Deferred consideration                                                                                                                    (52)
             Retirement benefit obligations                                                                                                             (83)
             Deferred tax liabilities                                                                                                                 (155)
             Provisions                                                                                                                              (664)
             Deferred income                                                                                                                         (309)
             Insurance related receivables                                                                                                         (1 427)
             Trade and other payables                                                                                                              (1 020)
             Fair value of liabilities acquired                                                                                                 (158 697)
             Fair value of net assets acquired                                                                                                      1 028
             The fair value of the assets and liabilities above are equivalent to their carrying value.
                                                                                                                            Alexander Forbes Equity
                                                                                                                            Holdings (Proprietary) Limited
                                                                                                    57                      Financial Statements
                                                                                                                            for the period ended 31 March 2008




49.    Related party disclosure
       List of related party relationships

49.1   Major shareholders
       The shareholders of the company are detailed in Annexure D to these financial statements.
       The private equity consortium investors together have a 50,1% interest in the company, however no single member of the consortium or any
       other shareholder has an equity interest of more than 17% in the company.

49.2   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 C to these financial statements.

49.3   Post-employment benefit plans
       Details of retirement benefit plans are provided in the relevant note to these financial statements.

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

49.5   Key management personnel
       Key management personnel have been defined as group executive committee of the Alexander Forbes Limited group.

49.6   Transactions with shareholders
       Equity raising fees of R36 million are payable to the shareholders. Fees paid to non-executive directors during the period of R0,8 million are
       paid to the shareholder company that the non-executive directors represent.

49.7   Transactions with subsidiaries and joint ventures
       Details of dividends and fees received from subsidiary companies, where applicable, are provided in the company financial statements. The
       company has loans to and from its subsidiary companies, details of which are provided in Annexure C 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 during the period.

49.8   Transactions with associates
       Details of dividends received from associates and the proceeds received on the sale of the group’s associate investment in Medscheme in
       September 2006 are provided in the relevant notes to these financial statements.

49.9   Transactions with post-employment benefit plans
       Contributions to retirement benefit plans amounted to R4 million to the defined benefit fund and R4 million to the post-retirement medical
       obligation plan, as detailed in the relevant note to these financial statements. There are no amounts outstanding at period end.

    0
49.1 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.
       Executive directors’ and chairman’s remuneration paid to current officeholders during the period is as follows:

                                                                                   Benefits and Retirement fund                Sign on
                                                                     Salaries       allowances    contributions             payments                Total
                                                                      R‘000              R‘000           R‘000                 R‘000               R‘000

       2008:
       MS Moloko (chairman)                                            3 592                  14                63              3 000              6 669
       B Campbell (group chief executive)                              2 069                 59                221              3
                                                                                                                               1 000               5
                                                                                                                                                  1 349
       DM Viljoen (group finance director)                              1 425                133                165                   —             1 723
       An accrual of R7,3 million was raised during the current period in respect of bonuses to be approved by the remuneration committee for the
       period ended 31 March 2008.
     58
Notes to the group financial statements (continued)
for the period ended 31 March 2008



      49.   Related party disclosure (continued)
          0
      49.1 Transactions with directors (continued)
            Non-executive directors’ fees paid during the financial period are as follows:

                                                                                                                                               31 March
                                                                                                                                                  2008
            Name                                         Representing                                                                             R‘000
            AJ Claerhout                                 Ontario Teachers’ Pension Plan Board                                                        100
            T Espiard                                    Caisse de Dépôtet Placement du Québec                                                       100
            L Konar                                      Independent director                                                                        100
            PG Nkadimeng                                 Shanduka Advisors (Pty) Limited                                                             100
            MC Ramaphosa                                 Shanduka Advisors (Pty) Limited                                                             100
            A Roux                                       Ethos Capital v GP (SA) Limited                                                             100
            P Schmid                                     Actis AF Holdings Limited                                                                   100
            JA van Wyk                                   Actis AF Holdings Limited                                                                   100
            Three directors are beneficiaries of the Alexander Forbes Management Trust (“the trust”), which is an incentive scheme arrangement for senior
            executives of the the Alexander Forbes Limited group. These directors do not directly own shares in the company however, the trust holds
            shares in the company.
            Each director made a contribution of capital to the trust. The equivalent beneficial interest of the directors is detailed below.

                                                                                                                                               31 March
                                                                                                                                                    2008
                                                                                                                                               Beneficial
                                                                                                                                                 interest
                                                                                                                                                      Rm
            MS Moloko                                                                                                                                 1,3
            B Campbell                                                                                                                               4,0
            DM Viljoen                                                                                                                                1,5


                                                                                                                                                31 March
                                                                                                                                                   2008
                                                                                                                                                     Rm

          1
      49.1 Transactions with key management personnel
            The amounts presented below exclude compensation paid to directors of the company who are members
            of the group executive committee whose compensation has been presented above in note 49.10.
            Short-term employee benefits (salary, bonus and other benefits)                                                                             63
            Post-employment benefits                                                                                                                    2
            Other long-term employee benefits                                                                                                           1
                                                                                                                                                      66
            During the year, certain directors exercised share options and received proceeds of R8,5 million.

            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 company.
                                                                                                                                 Alexander Forbes Equity
                                                                                                                                 Holdings (Proprietary) Limited
                                                                                                       59                        Financial Statements
                                                                                                                                 for the period ended 31 March 2008




50.    Insurance risk
50.1   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 licenses 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 incorporation)                                        Nature of insurance operations
       Guardrisk Insurance Company Limited (South Africa, Namibia and Mauritius)                        Cell captive and contingency short-term insurance
       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 Africa)                                        Personal lines short-term insurance
       Alexander Forbes Life Limited (South Africa)                                                     Long-term insurance

                                                                                                                                                    31 March
                                                                                                                                                       2008
                                                                                                                                                         Rm

50.2   Insurance contract liabilities of insurance subsidiaries included in the balance sheet (by nature of liability)
       Net unearned premium provision from short-term insurance contracts                                                                                   17
         Gross unearned premium provision                                                                                                                   38
         Less: Reinsurers’ share of unearned premium provision                                                                                             (21)

       Net outstanding claims provision from short-term insurance contracts                                                                                 64
         Gross outstanding claims provision                                                                                                                166
         Less: Reinsurers’ share of outstanding claims provision                                                                                          (102)
       Net IBNR provision from short-term insurance contracts                                                                                               10
         Gross IBNR provision                                                                                                                               27
         Less: Reinsurers’ share of IBNR provision                                                                                                          (17)
       Policyholder liability under long-term insurance contracts (group life)                                                                              14
         Gross policyholder liability                                                                                                                      102
         Less: Reinsurers’ share of policyholder liability                                                                                                 (88)
       Policyholder asset under long-term insurance contracts (individual life)                                                                              (7)
       Net liabilities under insurance contracts                                                                                                            98
     60
Notes to the group financial statements (continued)
for the period ended 31 March 2008



      50.    Insurance risk (continued)
      50.3   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 counter party exposures and the appropriateness and viability of major product development initiatives to confirm
             regulatory, legal, tax and accounting standards.
             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 are audit committees for each business division within the group. These audit committees report to the Group Audit Committee and to the
             operational boards of directors. The relevant business audit committee deals with the insurance subsidiary that reports into that business operation.
             These committees serve to satisfy the group and operational boards of directors that adequate internal and financial controls are in place and that
             material risks are managed appropriately. More specifically, these committees are responsible for reviewing the financial statements and accounting
             policies, the effectiveness of the management information and systems of internal control, compliance with statutory and regulatory requirements,
             interim and final reporting, 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.

             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 2008, the CAR held by the long-term insurance companies amounted
             to R45 million. On a times cover to shareholders’ funds, the two long-term insurance subsidiaries are covered as follow: Guardrisk Life is covered
             3.6 times by the shareholders’ funds and Alexander Forbes Life is covered 3.6 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 ten percent of net written premiums as defined by the relevant legislation and no distribution can be made from this
             reserve without the prior approval of the Registrar of Short-Term Insurance. As at 31 March 2008, the contingency reserve held by the short-
             term insurance companies for all their lines of business written amounted to R242 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.
                                                                                                                                   Alexander Forbes Equity
                                                                                                                                   Holdings (Proprietary) Limited
                                                                                                         61                        Financial Statements
                                                                                                                                   for the period ended 31 March 2008




50.    Insurance risk (continued)
50.3   General management of insurance risk (continued)
       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 each 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.

50.4   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 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.

50.5   Cell captive arrangements – contractual terms of 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.

50.6   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 health care liabilities in terms of accounting standard, IAS 19.

50.7   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.

50.8   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.
     62
Notes to the group financial statements (continued)
for the period ended 31 March 2008



      50.    Insurance risk (continued)
      50.9   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 insurance 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.

          0
      50.1 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.

          1
      50.1 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.

             Mitigation of insurance risks
             Insurance risk is managed by centralised control of pricing and acceptance criteria, underwriting limits, reinsurance and continual monitoring
             of emerging issues.
             There is proportional reinsurance in place for between 87,5% and 90% of the property and motor personal lines insurance book. Hence the net
             retention on personal lines products is no more than 12,5% of the risk on the book. There is also non-proportional reinsurance providing protection on
             a per risk and 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.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.

             Sensitivity analysis
             The most sensitive assumptions in the claims provisioning for the personal lines business relate to assumptions used in the calculation of IBNR.
             A 50% deviation from these assumptions would result in a change to the company’s pre-taxation results of not greater than R1,7 million.
                                                                                                                                Alexander Forbes Equity
                                                                                                                                Holdings (Proprietary) Limited
                                                                                                      63                        Financial Statements
                                                                                                                                for the period ended 31 March 2008




50.    Insurance risk (continued)
    2
50.1 Long-term insurance
      Terms and conditions of insurance contracts
      The insurance contracts consist of annually renewable group life mortality and morbidity contracts 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.
       An individual assurance product was launched during the 2006 financial year. As at 31 March 2008, 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 2008, the group had exposure with the supporting actuarial reserves of approximately R8,7 million in group assurance
       business. The individual life business has no exposure and reflects a negative actuarial reserves asset of R7 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 R1 million. The negative liabilities arising from the
       individual assurance contracts are R7 million and any sensitivity to the assumptions are currently insignificant.

51.    Financial risk management
       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 which comprises interest rate risk, currency risk and other price risk. Each of these risks is 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 financial instruments.
       Market risk
       Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate, principally as a result of changes in equity
       market conditions, interest rates and foreign currency exchange rates.
       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.
     64
Notes to the group financial statements (continued)
for the period ended 31 March 2008



      51.   Financial risk management (continued)
            Market risk (continued)
            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 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 the 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. A summary of the financial assets and
            financial liabilities for the group, split per the operations, is presented below:
                                                                                                                                                31 March
                                                                                                                                                   2008
                                                                                                                                                     Rm

            Financial assets
            Multi-manager investment operations
            Financial assets held at fair value through profit or loss
              Held for trading                                                                                                                     43
                                                                                                                                                  1 501
            Cell captive insurance operations
            Financial assets held at fair value through profit or loss
              Designated as such upon initial recognition                                                                                           6 795
            Pension-backed lending operations
            Loans and receivables                                                                                                                     750
            General operations                                                                                                                      5 966
            Financial assets held at fair value through profit or loss
              Designated as such upon initial recognition                                                                                               90
            Held to maturity financial assets                                                                                                            75
            Loans and receivables
              Financial assets                                                                                                                         190
              Insurance related receivables                                                                                                           324
              Trade and other receivables                                                                                                           1 964
            Available-for-sale financial assets                                                                                                           1
            Cash and cash equivalents                                                                                                               3 322

            Total financial assets of the group                                                                                                    157 012

            Financial liabilities
            Multi-manager investment operations
            Financial liabilities held at fair value through profit or loss
              Held for trading                                                                                                                     43
                                                                                                                                                  1 473
            Cell captive insurance operations
            Financial assets held at fair value through profit or loss
              Designated as such upon initial recognition                                                                                           6 795
            Pension-backed lending operations
            Financial liabilities held at amortised cost                                                                                              750
            General operations
            Financial assets held at fair value through profit or loss                                                                               8 560
            Financial liabilities held at amortised cost
              Borrowings                                                                                                                             5142
              Deferred consideration for acquisitions                                                                                                    6
              Insurance related payables                                                                                                            2 043
              Trade and other payables                                                                                                              1 369

            Total financial liabilities of the group                                                                                               159 578
                                                                                                                                    Alexander Forbes Equity
                                                                                                                                    Holdings (Proprietary) Limited
                                                                                                          65                        Financial Statements
                                                                                                                                    for the period ended 31 March 2008




51.    Financial risk management (continued)
51.1   Multi-manager investment operations
       The financial assets held under multi-manager investment operations are policyholders’ assets directly matched by linked obligations to
       policyholders. Both the assets and the liabilities are classified at fair value through profit or loss held for trading and are carried at fair value. No
       assets of multi-manager investment operations have been pledged as collateral.
       Credit risk
       There is no direct significant credit risk to the group on these assets as they are directly matched to policyholders’ liabilities.
       Liquidity risk
       The multi-manager investment operations are conducted through long-term insurance subsidiary companies who issue insurance contracts to
       policyholders. These long-term insurance companies are registered financial institutions and are required to hold minimum solvency capital to, inter
       alia, reduce policyholder exposure to the group’s liquidity risk. The regulator of insurance companies, the 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 manage and monitor 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.
       Market risk
       Policyholders’ liabilities are linked to investments in equity securities, preference shares, debt securities, unit trusts, mutual funds, cash and
       other assets. These are valued at ruling market values and are therefore susceptible to daily market fluctuations. 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, multiple layer diversification.
       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.
       There is no direct significant market risk, either by interest rate 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. During the current period, the
       group entered into a hedge to protect a substantial portion of its fee income earned on South African equity markets included in assets from
       multi-manager investment operations. The hedge covers approximately 85% of the fee income from South African equities included in assets
                                                            2                                                   2
       under management and administration for the first 1 months and approximately 75% for the second 1 months. Full details of the hedge are
       contained in the cash flow hedge note to these financial statements. At balance sheet date, the hedge had a value of R18 million in favour of
       the counterparty to the hedge (ie an R18 million debit cash flow hedge value). A 10% strengthening of the SWIX40 would have increased the
       debit value of the hedge by R45 million to R63 million in favour of the counterparty to the hedge. A 10% weakening of the SWIX40 would
       have decreased the debit value of the hedge by R45 million to reflect a R27 million credit in favour of the group. Neither has any impact on the
       group’s profit before tax, but has an impact on equity.

51.2   Cell captive insurance facilities
       The financial assets of cell captive insurance facilities are assets attributable to policyholders and cell owners in the group’s cell captive
       insurance companies and are directly matched by linked obligations to policyholders and cell owners. Both the assets and the liabilities are
       classified at fair value through profit or loss designated as such upon initial recognition and are carried at fair value. No assets of cell captive
       insurance facilities have been pledged as collateral.
     66
Notes to the group financial statements (continued)
for the period ended 31 March 2008



      51.    Financial risk management (continued)
      51.2   Cell captive insurance facilities (continued)
             Credit risk
             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 the 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. 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
             shareholder's 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 panel 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.
             Liquidity risk
             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 manage and monitor 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.

             Market risk
             The structure of investment portfolios within the cell captive insurance facilities are based on a unitised portfolio and consists primarily of cash
             and money market balances, preference shares and unlisted equity securities. 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.
             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.

      51.3   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.
             Credit risk
             Credit risk on the housing loans is managed by ensuring that, on inception, all home loans granted are for an amount not exceeding 80% of the
             lowest benefit which the retirement fund member would receive from the retirement fund upon exit, net of income tax. In addition, the loans
             are secured by the member’s retirement fund asset. The carrying amounts of housing loan assets reflected on the balance sheet represent the
             group’s maximum exposure to credit risk in relation to these assets.
                                                                                                                                Alexander Forbes Equity
                                                                                                                                Holdings (Proprietary) Limited
                                                                                                       67                       Financial Statements
                                                                                                                                for the period ended 31 March 2008




51.    Financial risk management (continued)
51.3   Pension-backed lending operations (continued)
       Liquidity risk
       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.
       Market risk
       The housing loans bear interest at a floating rate linked to the South Africa prime rate. The funding, provided via securitised notes, bears interest
       at a floating rate linked to JIBAR. The sensitivity of net interest income, calculated by initially determining the average balance of the interest
       bearing assets and the interest bearing borrowings throughout the period and then multiplying this by a variable assumption of a 100 basis
       point movement in the interest rate, is less than R0,6 million for the 2008 financial period.

51.4   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.
       Credit risk
       Credit risk of 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.
       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 loss have been pledged as collateral.
       Financial assets mainly comprise preference shares, premium finance receivables, loan notes and equity housing loans.
       The held-to-maturity financial assets, being preference shares totalling R75 million, represents 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 balance sheet date and represent
       the group’s maximum exposure to credit risk in relation to these assets.
                                          10
       Premium finance receivables of R1 million are monitored as part of the credit process. The group is substantially protected from credit risk on
       some of the receivables as there is recourse against the insurer on non-payment from the client and on others the group has legally enforceable
       rights to offset them with financial liabilities. There is no concentration of credit risk 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.
       The loan note of R49 million represents the deferred consideration due from the sale by the acquired Alexander Forbes Limited group of its
       International Risk Services business in November 2006. The consideration is due from the purchaser and as such, the group is exposed to
       credit risk. The carrying amount of this loan note approximates the fair value at each balance sheet date and represents the group’s maximum
       exposure to credit risk in relation to this loan note.
                                     7
       Equity housing loans of R1 million 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. 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. The loans are secured by a first mortgage registered over each borrower’s residential property
       and the carrying amounts of these assets approximate the fair values at each balance sheet date and represent the group’s maximum exposure to
       credit risk in relation to these assets.
     68
Notes to the group financial statements (continued)
for the period ended 31 March 2008



      51.    Financial risk management (continued)
      51.4   General operations (continued)
             Credit risk (continued)
             Credit risk of insurance related receivables
             Reinsurers are utilised in the group’s underwriting activities conducted in the insurance-licensed subsidiary companies. Under the terms of
             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 group has specific reinsurance 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 arrangements periodically. Various market security and underwriting committees are in place to evaluate, approve and
             monitor both insurance and reinsurance markets of the group companies conducting insurance operations and report back to the group with
             recommendations. The committees’ decisions are supported by both local and international professional rating agencies. The group also has
             reinsurance vetting procedures in place. These procedures include limiting individual cessions and accumulations per reinsurer in accordance
             with their rating. The financial condition of the reinsurers and intermediaries in relation to their credit standing is evaluated each time they are
             rated by an external rating agency. The group limits the level of credit risk it accepts by placing limits on its exposures to a single counterparty.
             The exposure limits of each reinsurer vary depending on their credit rating.
             Receivables from insurance contracts, whether from intermediaries or policyholders, are monitored as part of the credit process. The group
             is protected by guarantees issued by the Intermediary Guarantee Facility for the non-payment of premiums collected by intermediaries as
             provided in the Short-term Insurance Act. Non-payment from policyholders over the specified time period results in the cancellation of the
             insurance cover and thus is no material risk to the group.
             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.

             Credit risk of trade and other receivables
             Trade and other receivables are managed through ongoing review and impaired if objective evidence is established that the group will not
             collect all amounts due according to the original terms of the receivable. The group has policies in place to ensure that services are provided
             to customers with an appropriate credit history. The 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 comprises 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.
             At balance sheet date, the ageing of trade receivables was as follows:
             31 March 2008                              0 – 30 days           30 – 60 days              60 – 90 days              90+ days                  Total
             Loans and receivables
             Trade receivables                                    395                     94                       42                   139                  670
             None of the trade receivables reflected above is impaired. The majority of the trade receivables fall within 90 days.
             Credit risk of cash and cash equivalents
             Cash and cash equivalents balances and transactions are limited to high credit quality institutions. 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 Acts for minimum
             levels of asset spreading that are applicable to the insurance subsidiary companies. The financial institutions used in the current financial period
             had ratings, as determined by external credit rating agencies Fitch and Standard & Poor's, of between AA and BBB. 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.

             Liquidity risk
             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.
                                                                                                                              Alexander Forbes Equity
                                                                                                                              Holdings (Proprietary) Limited
                                                                                                     69                       Financial Statements
                                                                                                                              for the period ended 31 March 2008




51.    Financial risk management (continued)
51.4   General operations (continued)
       Liquidity risk (continued)
       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 closely monitored 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 to,
       inter alia, 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 manage and monitor compliance with these minimum capital requirements.
       Assets linked to investments are realisable at short notice.
       Included in borrowings are senior debt preference shares issued during the financial period by a subsidiary of the group, Alexander Forbes Acquisition
       (Proprietary) Limited, to three South African banks for a principal amount of R2 670 million. The preference shares are redeemable on a semi-annual
       basis after the third year from issue and have a sliding scale for the redemption amounts. Details of the redemption profile are provided in the
       borrowings note to these financial statements. Also included in borrowings is a high yield bridge loan provided by two foreign banks to a subsidiary
                                                                                                   59
       company, Alexander Forbes Funding (Proprietary) Limited, for a principal amount of Euro 1 million. The bridge loan matures on 26 July 2008 and
       converts into a high yield term loan if not replaced. The high yield term loan has a seven year maturity date from July 2008. Details of the high yield
       bridge loan are provided in the borrowings note to these financial statements. The other significant borrowing is Pay-in-Kind (“PIK”) debentures issued
       by a subsidiary of the group, Alexander Forbes PIK Funding (Proprietary) Limited, for a principal amount of R750. The capital and interest on the PIK
                                                                                                                         7.
       debentures are redeemable on the 10th anniversary from the date of issue, namely redeemable on 26 July 201 Details of the PIK debentures are
       provided in the borrowings note to these financial statements.
       A maturity analysis showing the undiscounted value of remaining contractual liabilities has been provided in the applicable notes to these
       financial statements.

       Market risk
       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
       the value of such assets arising from fluctuations in interest rates. The group does not hedge against this interest rate exposure 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. A 10% increase or decrease in
       both debt securities and cash balances would increase or decrease the group’s profit before tax by approximately R8,6 million and R8,5 million
       respectively.
       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. An increase or decrease of the South African interest rate of
       100 basis points would have increased or decreased the group’s profit before tax by approximately R4,6 million respectively.
       The dividend rate payable on the senior debt preference shares is linked to prime overdraft lending rates in South Africa. The variable preference
       rate risk was substantially swapped into a fixed rate at the time of issuing the preference shares. Details of the swap are provided in the cash
                                                                                                             3
       flow hedge note to these financial statements. At balance sheet date, the rate swap had a value of R1 million in favour of the group. If the prime
       overdraft lending rate in South Africa increased by 100 basis points, the value of this instrument would have been R51 million in favour of the
       group, resulting in an increase of R38 million to equity. If the prime overdraft lending rate in South Africa decreased by 100 basis points, the
       value of this instrument would have been R25 million in favour of the swap counterparty, resulting in a R38 million decrease to equity.
       The high yield bridge loan bears interest at pre-determined fixed rate to a maximum of 1       2,5% per annum, payable in Euro. This rate would
       also be the maximum rate should the bridge loan be replaced and therefore the group is not exposed to any further upward changes in
       interest rates. A decrease of 100 basis points in the interest rate when the bridge loan is replaced will have a positive impact of approximately
          5
       R1 million per annum on the group’s profit before tax.
       The PIK debentures bear interest at a fixed rate of 17% per annum, compounded semi-annually, and therefore the group is not exposed to
       changes in interest rates.
       Currency risk
       The group operates internationally and is exposed to foreign exchange risk arising from various currency exposures. As reflected in the
       segmental profit analysis contained in these financial statements, the group derives a portion of its trading results in foreign currencies.
       Approximately 14% of the group’s trading results from operations are derived from its international operations, primarily in the United Kingdom,
       and 4% from operations in Africa outside of South Africa. The group does not hedge against this currency exposure and the board has
       accepted that changes in exchange rates can result in volatility in the group’s earnings when reported in Rand.
     70
Notes to the group financial statements (continued)
for the period ended 31 March 2008



      51.    Financial risk management (continued)
      51.4   General operations (continued)
             Currency risk (continued)
             As detailed above, fee income derived by the group on assets from multi-manager investment operations will also be impacted by any changes
             in the value of such assets, arising from fluctuations in foreign currency exchange rates. The group does not hedge against this currency
             exposure and the board has accepted that changes in exchange rates can result in volatility in the group’s earnings when reported in Rand. A
             10% strengthening or weakening in foreign currencies against the Rand would increase or decrease the group’s profit before tax derived from
             fee income from multi-manager investment operations by approximately R7,5 million, respectively.
             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. A 10% strengthening or weakening in foreign currencies against
             the Rand would increase or decrease the group’s profit before tax by approximately R1,8 million, respectively.
             Approximately 8% of commission and fee income earned by the insurance broking activities is linked to US Dollar policies. The group does
             not hedge against this currency exposure 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. A 10% strengthening or weakening of the US Dollar against the South African Rand, would decrease or increase the group’s
             profit before tax by approximately R2,4 million, respectively.
             The senior debt preference shares included in borrowings are Rand denominated and thus not exposed to currency risk.
             The high yield bridge loan is denominated in Euro but both interest coupon and capital payments have been hedged by a cross currency swap
                            1.
             to 25 July 201 As a result, the group is not exposed to currency risk in respect of the high yield bridge loan. The value of the swap is affected
             by movements in South African prime overdraft lending rate, the European prime overdraft rate and the Euro:Rand exchange rate. At balance
             sheet date, the value of the swap was R653 million in favour of the group. If the prime overdraft lending rate in South Africa increased by
             100 basis points, the value of the swap would have been R725 million, resulting in an increase of R72 million to equity. If the prime overdraft
             lending rate in South Africa decreased by 100 basis points, the value of the swap would have been R579 million, resulting in a R74 million
             decrease to equity. If the European prime overdraft rate increased by 100 basis points, the value of the swap would have been R577 million,
             resulting an decrease of R76 million to equity. If the European prime overdraft rate decreased by 100 basis points, the value of the swap would
             have been R732 million, resulting in a R79 million increase to equity. A 10% strengthening of the Euro against the South African Rand would
             have increased the value of the swap by R32 million to R685 million. A 10% weakening of the Euro against the South African Rand would have
                                                                       4
             decreased the value of the swap by R39 million to R61 million.
             The PIK debentures are Rand denominated and thus not exposed to currency risk.

             Other price risk
             As detailed above, fee income derived by the group on assets from multi-manager investment operations will be impacted by any changes
             in the value of such assets, arising from fluctuations in equity markets. The group entered into a hedge to protect a substantial portion of its
             fee income earned on South African equity markets included in assets from multi-manager investment operations during the current financial
             period. A 10% strengthening or weakening in equity markets, calculated by spreading the increase or decrease over the financial period (ie a
             change of 0,83% per month), would increase or decrease the group’s profit before tax derived from fee income from multi-manager investment
                                              3,7
             operations by approximately R1 million and R1     3,3 million, respectively.
             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. A 10% strengthening or weakening in equity markets would
             increase or decrease the group’s profit before tax by approximately R4,1 million, respectively.

      51.5   Property risk
             There is inherent property risk in the equity housing loans activities with the possibility of the secured properties depreciating extensively over
             the lifetime of the loan. In order to mitigate this risk, the valuation of borrower’s properties is outsourced to a professional valuation firm, which
             ensures that a consistent methodology is applied to all properties. Risk ratings applicable to both the property and area are followed, ensuring
             that only suitable properties are utilised for security. Similar to credit risk, the risk of "negative equity" is managed in relation to an approved risk
             management framework, and fully reinsured through a registered reinsurer in South Africa.

      51.6   Underwriting risk
             The short-term and long-term underwriting activities of insurance-licensed entities in South Africa, Namibia, Mauritius and Gibraltar expose
             the group to the possibility that actual claims experience will exceed that anticipated in the setting of premium rates. Underwriting results also
             impact on profit shares received from insurers and reinsurers in respect of underwriting management and insurance operations. The insurance-
             licensed entities have their own board and audit committee structures and the long-term insurance subsidiary companies have appointed an
             independent actuarial firm to provide statutory and advisory services. Their underwriting mandates are subject to oversight by the risk and
             underwriting committees which are responsible for setting the parameters within which the insurance-licensed entities may accept underwriting
             risk. Both the short-term and long-term insurance companies operate under limited risk taking mandates.
                                                                                                                          Alexander Forbes Equity
                                                                                                                          Holdings (Proprietary) Limited
                                                                                                  71                      Financial Statements
                                                                                                                          for the period ended 31 March 2008




52.    Operational, legal and capital risk management
52.1   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 back-up procedures, contingency planning and insurance.

52.2   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 eventuating, 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 or 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.

52.3   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
                                                                                   3
       guidance issued by ASSA but is subject to a minimum of R10 million or 1 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 R33 million representing an excess of assets over liabilities of
       6,7 times.
       The CAR held by Alexander Forbes Life at balance sheet date was R22 million, representing an excess of assets over liabilities of 3,1 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:
       • to comply with capital requirements required for insurers as determined by legislation and
       • safeguard the group’s ability to continue as a going concern so that it can provide returns for its shareholder and benefits for other
         stakeholders.
       The cell captive insurance subsidiary companies submit quarterly and annual returns to the South African Financial Services Board in terms of
       the Short-term Insurance Act, 53 of 1998 of South Africa (“the Act”). The companies are required at all times to maintain a statutory surplus
       asset ratio as defined in the Act. The returns submitted to the regulator showed that the companies have met the minimum capital requirements
       throughout the reporting period.
       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 balance sheet date 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 intragroup loans from its direct or indirect holding
       company as a source of funds.
     72
Company income statement
for the period ended 31 March 2008


                                                 31 March
                                                    2008
                                                      Rm

      Operating expenses                               (1)

      Operating loss                                   (1)
      Investment income                                11
      Finance costs                                   (36)

      Loss before taxation                            (26)
      Taxation                                         (3)
      Loss for the period                             (29)




Company balance sheet
at 31 March 2008



                                                 31 March
                                                    2008
                                         Notes        Rm

      Assets
      Non-current assets
      Investment in subsidiary              1        146
      Receivables from group companies             3 059
      Current assets
      Other receivables                                 1
      Cash and cash equivalents                      135
      Total assets                                 3 341

      Equity and liabilities
      Share capital and share premium       2      3 261
      Accumulated loss                                (29)
      Total equity                                 3 232

      Current liabilities
      Payables to group companies                     20
      Other payables                                  89
      Total liabilities                              109
      Total equity and liabilities                 3 341
                                                                              Alexander Forbes Equity
                                                                              Holdings (Proprietary) Limited
                                                             73               Financial Statements
                                                                              for the period ended 31 March 2008

Company cash flow statement
for the period ended 31 March 2008


                                                                                              31 March
                                                                                                 2008
                                                                                Notes              Rm

      Cash flows from operating activities
      Cash utilised in operations                                                   3            (2 955)
      Investment income                                                                               11
      Finance costs                                                                                  (36)
      Net cash outflow from operating activities                                                  (2 980)

      Cash flows from investing activities
      Net investment in subsidiaries                                                                (146)
      Net cash outflow from investing activities                                                     (146)

      Cash flows from financing activities
      Net proceeds of share issues                                                                3 261
      Net cash inflow from financing activities                                                     3 261
      Net movement in cash and cash equivalents                                                     135
      Cash and cash equivalents at beginning of period                                                 –
      Cash and cash equivalents at end of period                                                    135




  Company statement of changes in equity
  for the period ended 31 March 2008


                                                          Share capital   Accumulated
                                                          and premium            loss              Total
                                                                   Rm             Rm                Rm

      At 28 February 2007                                            –              –                  –
      Shares issued                                             3 323               –             3 323
      Share issue expenses written off to share premium            (62)             –                (62)
      Loss for the year                                              –            (29)               (29)
      At 31 March 2008                                          3 261             (29)            3 232
     74
Notes to company financial statements
for the period ended 31 March 2008



                                                                                                                                               31 March
                                                                                                                                                  2008
                                                                                                                                                    Rm

      1.    Investment in subsidiary
            Opening carrying amount                                                                                                                   –
            Movement during year:
            Costs incurred on the acquisition of wholly owned subsidiary                                                                           139
            Closing carrying amount                                                                                                                139
            The investment in subsidiary is carried at cost less provision for impairment and
            amounts written off.
            Details of the group’s financial interests in its subsidiaries are set out in Annexure B to these financial statements.

      2.    Share capital and share premium
            Share capital                                                                                                                             7
            Share premium                                                                                                                        3 254
                                                                                                                                                 3 261

                                                                                                                                    31 March
                                                                                                                                     2008
                                                                                                                               Number     Share capital
                                                                                                                              of shares          at par
                                                                                                                                   ‘000             Rm

      2.1   Share capital
            Authorised
            Ordinary shares of 1 cent each                                                                                    700 000                 7
            Non-convertible redeemable “A” preference shares of 1 cent each                                                   600 000                 6
            Non-convertible redeemable “B” preference shares of 1 cent each                                                     45 000                4
            Issued
            Ordinary shares of 1 cent each                                                                                     377 358                4
            Non-convertible redeemable “A” preference shares of 1 cent each                                                      9
                                                                                                                               31 462                 3
            Non-convertible redeemable “B” preference shares of 1 cent each                                                     21 161               —
            At 31 March                                                                                                          7
                                                                                                                               71 981                 7

                                                                                                                                               31 March
                                                                                                                                                  2008
                                                                                                                                                    Rm

      2.2   Share premium
            Opening balance                                                                                                                           –
            Movement during period:
            Premium arising from share issues                                                                                                     3 316
            Share issue expenses written off                                                                                                        (62)
            Closing balance                                                                                                                      3 254

      3.    Cash utilised in operations
            Loss before taxation                                                                                                                    (29)
            Cash items
              Investment income                                                                                                                     (11)
              Finance costs                                                                                                                         36
            Movement in working capital balances
              Other receivables                                                                                                                      (1)
              Other payables                                                                                                                        89
              Payables and receivables to/from group companies                                                                                   (3 039)
                                                                                                                                                 (2 955)
                                                                                                                              Alexander Forbes Equity
                                                                                                                              Holdings (Proprietary) Limited
                                                                                                       75                     Financial Statements
                                                                                                                              for the period ended 31 March 2008

Annexure A
Segmental report of Alexander Forbes Limited



      Segmental income and profit analysis for Alexander Forbes Limited
      for the year ended 31 March 2008
                                                                                Income from                                    Trading results
                                                                            continuing operations                               of operations
                                                                  2008                  %           2007           2008                %            2007

      Africa (Rm)
      Risk & Insurance Services                                       989            11%              888           257             25%              206
      Financial Services                                         1 352               12%            1 205            313             14%              274
      Multi-manager investment                                        809            10%              735           252               5%              241
      Afrinet (Africa ex-South Africa)                                226             (5%)            237             48            30%                37
      Total Africa (Rm)                                          3 376               10%            3 065            870             15%              758

      International (£m)
      Financial Services                                           01
                                                                  1 ,1                8%             93,4           10,2             (8%)             11,1
      Multi-manager investment                                        8,4            18%              7,1            (0,5)          38%               (0,8)
      Total International (£m)                                   109,5                9%            100,5            9,7             (6%)            10,3
      Total International (Rm)                                   1 575               16%            1 355            144              3%              140
      Total group (Rm)                                           4 951               12%            4 420          1 014             13%             898


      Review of segmental operations of Alexander Forbes Limited
      The Alexander Forbes Limited group achieved strong organic growth as evidenced by the 1        2% growth in income from operations, which totalled
      R4 951 million for the year. Trading results of operations grew by 1           4
                                                                          3% to R1 01 million for the year, exceeding the R1 billion mark for the first time.
      A brief commentary on the operating results of each of the main businesses is detailed below.
      SA Risk & Insurance Services
      Income from operations increased by 1   1% to R989 million for the year driven by strong new business gains in Risk Services (the core corporate
      broking division). Benefits were also derived from higher interest rates. Alexander Forbes Insurance, the personal lines insurance business recorded
      continued good growth, having successfully implemented its move to a full service insurer model at the beginning of the financial year. Alexander
      Forbes Compensation Technologies reported pleasing results and Guardrisk once again delivered strong growth in revenues and profits. Our Cre8
      business, which has experienced difficulties, has been restructured.
      Continuing disciplined expense management contributed to the 25% growth in trading results, which totalled R257 million for the year.
      SA Financial Services
      Income from operations increased by 12% to R1 352 million for the year. All businesses had excellent client retention in the year.
      There has been an ongoing effort to restructure the business in aligning it to meet the stated objective of providing holistic financial wellness to
      individuals who are members of retirement funds. The newly formed Retail Cluster (comprising Financial Planning Consultants, Individual Client
      Administration and Fiduciary Services) showed stellar performance despite challenging market conditions. Within the Institutional Cluster, there was
      exceptional performance from the Administration business and FIHRST on the back of new business and growth opportunities. The Consultants and
      Actuaries division had a challenging year. The Healthcare Cluster showed strong performance over the year. Areas of the business that experienced
      difficulties in the year were our Homeplan division which was negatively impacted by the National Credit Act and our Healthcare Management Solutions
      division which showed poor performance and has subsequently been restructured.
      Trading results increased by 1         3
                                    4% to R31 million for the year.
     76
Annexure A (continued)
Segmental report of Alexander Forbes Limited


      Africa Investment Solutions
      Income from operations increased by 10% to R809 million for the year. Notwithstanding the volatile market conditions, the business succeeded in
                                                            39
      growing assets under management by R5 billion to R1 billion. Including the international operations, global assets under management totalled
        59
      R1 billion at 31 March 2008. The integration of the retail business under the SA Financial Services business was a success.
      Trading results increased by 5% to R252 million for the year.
      Afrinet (Africa ex-South Africa)
      Income from operations decreased by 5% to R226 million for the year due to the deconsolidation of the Kenya Risk Services operation. During the
      year under review, the group continued its coordinated focus on expansion into other African territories. The group’s presence in Nigeria is now well
                                          1
      established and with operations in 1 other African countries outside of South Africa, the group is able to capitalise on the opportunities brought about
      by growing demand for our services in this region. There was strong organic growth in Namibia and Botswana and solid growth in Kenya despite
      political unrest.
      International Financial Services
      Income from operations increased by 8% to £101,1 million for the year with continued strong performances being delivered especially in core
      businesses in the UK and Switzerland. The actuarial consulting business, Lane Clark & Peacock, reported revenue growth of 9% and continues to
      expand its operations having expanded into the Netherlands and Ireland. The UK-based employee benefits IFA (Independent Financial Advisory)
      and Healthcare businesses recorded revenue growth, although profits were down as the business continues to invest in operating and management
      infrastructure.
      The combined effect of the continued investment in, particularly, the IFA business and an increased premises cost base, supporting growth, has
      resulted in an 8% reduction in trading results to £10,2 million for the year.
      The loss-making DC Link administration business was disposed of during the second half of the financial year.
      The business received four corporate advisor awards and accreditation for “Investors in Customers” in the UK.
      International Investment Solutions
      Income from operations for the year increased by 18% to £8,4 million. Assets under management totalled £1,3 billion at 31 March 2008, reflecting
      growth over the £1,1 billion at the previous year end. New business gains remain the key driver to successfully growing assets under management to
      profitable critical mass.
      The trading loss recorded for the year amounted to £0,5 million, reflecting the continued investment in growing this strategically important area
      of operations.




Annexure B
Segmental report of Alexander Forbes Equity Holdings (Proprietary) Limited

      Segmental income and profit analysis for Alexander Forbes Equity Holdings (Proprietary)
      Limited for the period ended 31 March 2008
                                                                                                                          Income from              Trading
                                                                                                                            continuing           results of
                                                                                                                            operations          operations
                                                                                                                                 2008                2008

      Africa (Rm)
      Risk and insurance services                                                                                                  668                  159
      Financial services                                                                                                           959                  219
      Multi-manager investment                                                                                                     548                  175
      Afrinet (Africa ex-South Africa)                                                                                             165                   37
      Total Africa (Rm)                                                                                                          2 340                 590

      International (£m)
      Financial services                                                                                                          72,4                  8,7
      Multi-manager investment                                                                                                      5,9                   –
      Total International (£m)                                                                                                    78,3                  8,7
      Total International (£m)                                                                                                     ,1
                                                                                                                                  1 25                  129
      Total group (Rm)                                                                                                           3,465                  719
                                                                                                            Alexander Forbes Equity
                                                                                                            Holdings (Proprietary) Limited
                                                                                       77                   Financial Statements
                                                                                                            for the period ended 31 March 2008

Annexure B (continued)
Segmental report of Alexander Forbes Equity Holdings (Proprietary) Limited



          Segmental balance sheet for Alexander Forbes Equity Holdings (Proprietary) Limited
          at 31 March 2008
                                                                                                Africa   International           Total
                                                                                                2008            2008            2008
                                                                                                   Rm              Rm             Rm

          Assets

          Financial assets held under multi-manager investment contracts                        27 71
                                                                                               1 1             6
                                                                                                              1 330            43
                                                                                                                              1 501
          Assets of cell captive insurance facilities                                           5 365          1 430            6 795
          Housing loans secured by retirement fund assets                                        750                –             750
          Property and equipment                                                                  137              78             215
          Purchased and developed computer software                                              229               30             259
          Goodwill                                                                              4 577            843            5 420
          Other intangible assets                                                               1 574          1 071            2 645
          Investments in associates                                                                13               –               13
          Deferred tax assets                                                                      67              57             124
          Financial assets                                                                       302               54             356
          Insurance related receivables                                                          324                –             324
          Trade and other receivables                                                           1 266            698            1 964
          Cash and cash equivalents                                                             2 895            427            3 322
          Total assets                                                                          44
                                                                                               1 670          21 018           65
                                                                                                                              1 688

          Equity and liabilities
          Total equity                                                                          1 365          2 674            4 039
          Financial liabilities held under multi-manager investment contracts                   27 43
                                                                                               1 1             6
                                                                                                              1 330            43
                                                                                                                              1 473
          Liabilities of cell captive insurance facilities                                      5 365          1 430            6 795
          Securitisation funding for housing loans                                               750                –             750
          Borrowings                                                                            5141                1           5142
          Deferred consideration for acquisitions                                                   6               –                6
          Retirement benefit obligations                                                            85               –              85
          Deferred tax liabilities                                                               930                –             930
          Provisions                                                                             730               59             789
          Deferred income                                                                        252               15             267
          Insurance related payables                                                            2 031              12           2 043
          Trade and other payables                                                               872             497            1 369
          Total liabilities                                                                     44
                                                                                               1 398           8
                                                                                                              1 344            61
                                                                                                                              1 649
          Total equity and liabilities                                                          45
                                                                                               1 763          21 018           65
                                                                                                                              1 688
      78
Annexure C
Material subsidiaries, joint ventures and associates in which the group has a financial interest


                                                                                                                                 Economic
                                                                                                                                   interest
                                                                                                                      Year end       2008
           Entity                                                            Nature of business                           date           %

      1.   Holding companies above the operational
           Alexander Forbes Limited group
           Alexander Forbes Holdco (Pty) Limited                             Holding company                          31 March         100

           Alexander Forbes PIK Funding (Pty) Limited                        Holding company                          31 March         100

           Alexander Forbes Funding (Pty) Limited                            Holding company                          31 March         100

           Alexander Forbes Acquisition (Pty) Limited                        Holding company                          31 March         100

           Alexander Forbes Limited                                          Holding company                          31 March         100

      2.   Operational companies within the Alexander
           Forbes Limited group
           South Africa

           Alexander Forbes Administration Services (Pty) Limited            Risk services                            31 March         100

           Alexander Forbes Compensation Technologies (Pty) Limited          Facilitation of injury on duty and       31 March         100
                                                                             road accident claims
           Alexander Forbes Cre8 (Pty) Limited                               Risk services                            31 March         100

           Alexander Forbes Direct (Pty) Limited                             Risk services                            31 March         100

           Alexander Forbes Financial Planning Consultants (Pty) Limited     Financial planning                       31 March         100

           Alexander Forbes Financial Services (Pty) Limited                 Financial services                       31 March         100

           Alexander Forbes Group & Technology Services (Pty) Limited        Technology and corporate services        31 March         100

           Alexander Forbes Health (Pty) Limited                             Healthcare                               31 March         100

           Alexander Forbes i-Connect (Pty) Limited                          Risk services                            31 March         100

           Alexander Forbes Individual Client Administration (Pty) Limited   Financial services administration        31 March         100

           Alexander Forbes Insurance Company Limited                        Short-term personal lines insurer        31 March         100

           Alexander Forbes Life Limited                                     Long-term insurer                        31 March         100

           Alexander Forbes Retail Holdings (Pty) Limited                    Financial services                       31 March         100

           Alexander Forbes Risk Services (Pty) Limited                      Risk services                            31 March         100

           Caveo Fund Solutions (Pty) Limited                                Hedge fund management company            31 March          50
           Faranani Risks Solutions (Pty) Limited                            Risk services                            31 March         100

           FIHRST Management Services (Pty) Limited                          Payroll transaction management           31 March         100

           Guardrisk Insurance Company Limited                               Short-term cell captive insurer          31 March         100

           Guardrisk Life Limited                                            Long-term cell captive insurer           31 March         100

           Homeplan Financial Solutions (Pty) Limited                        Pension-backed lending                   31 March         100

           Investment Solutions Limited                                      Multi-manager investment                 31 March         100

           Investment Solutions Trustees (Pty) Limited                       Securities holding                       31 March         100

           Investment Solutions Unit Trust Limited                           Unit trust management                    31 March         100

           Premium Payment Plan (Pty) Limited                                Premium financing                         31 March         100

           Seniors Finance (Pty) Limited                                     Equity housing finance                    31 March          72

           Superflex Limited                                                  Multi-manager investment                 31 March         100

           Alexander Forbes Afrinet Investments (Pty) Limited                Holding company for African operations   31 March         100
                                                                                                                   Alexander Forbes Equity
                                                                                                                   Holdings (Proprietary) Limited
                                                                                                 79                Financial Statements
                                                                                                                   for the period ended 31 March 2008




                                                                                                                                   Economic
                                                                                                                                     interest
                                                                                                                      Year end         2008
Entity                                                            Nature of business                                      date             %

Rest of Africa
Alexander Forbes Financial Services Botswana (Pty) Limited        Financial services (Botswana)                       31 March            67
Alexander Forbes Risk Services Botswana (Pty) Limited             Risk services (Botswana)                            31 March            71
Alexander Forbes Financial Services (East Africa) (Pty) Limited   Financial services (Kenya)                       31 December            60
Alexander Forbes Malawi Limited                                   Risk services (Malawi)                              31 March            51
Guardrisk International Limited                                   Cell captive insurance (Mauritius)                  31 March           100
Alexander Forbes Mozambique Lda                                   Risk services (Mozambique)                       31 December            83
Guardrisk Namibia Insurance Company Limited                       Cell captive insurance (Namibia)                    31 March            70
Alexander Forbes Group Namibia (Pty) Limited                      Financial services and risk services (Namibia)      31 March            70
Investment Solutions Namibia Limited                              Multi-manager investment (Namibia)                  31 March            70
Alexander Forbes Consulting Actuaries Nigeria Limited             Financial services (Nigeria)                        31 March            83
Swaziland Employee Benefit Consultants (Pty) Limited               Financial services (Swaziland)                      31 March            50
Alexander Forbes Tanzania Limited                                 Risk services (Tanzania)                         31 December            55
Alexander Forbes Uganda Limited                                   Risk services (Uganda)                           31 December            55
Alexander Forbes Zambia Limited                                   Risk services (Zambia)                              31 March           100
Alexander Forbes Zimbabwe Holdings (Pty) Limited                  Risk services (Zimbabwe)                            31 March            60
Associates:
Eagle Africa Insurance Brokers Kenya Limited                      Risk services (Kenya)                            31 December            40
Tibiyo Insurance Brokers (Pty) Limited                            Risk services (Swaziland)                           31 March            40

Latin America
Ticketseg Corretora de Seguros S.A.                               Financial services (Brazil)                         31 March            50

United Kingdom/Europe
Alexander Forbes International Limited                            Ultimate holding company for International          31 March           100
                                                                  group
Alexander Forbes Channel Islands Limited                          Financial services                                  31 March           100
Alexander Forbes Financial Services Limited                       Employee benefit services                            31 March           100
Alexander Forbes Financial Services Holdings Limited              Holding company for UK financial                     31 March           100
                                                                  services and LCP entities
Alexander Forbes Group Jersey Limited                             Holding company in Jersey                           31 March           100
Alexander Forbes Holdings Limited                                 Holding company in the United Kingdom               31 March           100
Alexander Forbes Services Limited                                 Group services                                      31 March           100
Alexander Forbes Trustee Services Limited                         Corporate trustee services                          31 March           100
Chambers Townsend Consultancy Limited                             Software development for financial services          31 March           100
Euroguard Insurance Company PCC Limited                           Short-term cell captive insurer (Gibraltar)         31 March           100
GCW Actuarial Limited                                             Holding company – Ireland                        31 December            30
HLD Actuarial Consultants Limited                                 Actuarial consulting                             31 December            30
Investment Solutions Limited                                      Multi-manager investment                            31 March           100
Investment Solutions Fund Managers Limited                        Multi-manager investment                            31 March           100
Lane Clark & Peacock LLP                                          Actuarial consulting                                31 March            60
Lane Clark & Peacock Belgium CVBA                                 Actuarial consulting                                31 March            80
LCP Libera AG                                                     Actuarial consulting                                 30 June            95
LCP Netherlands BV                                                Actuarial consulting                             31 December            48
Media Insurance Services Limited                                  Direct marketing entity in run-off                  31 March            80

Joint venture:
Alexander Forbes UK Direct Limited                                Direct marketing                                    31 March            40
     80
Annexure D
Shareholding information


                                                                                Number of
                                                                                   shares          %
      Analysis of shareholders                                                       ‘000    of total

      Ordinary shareholders of the company at 31 March 2008 are as follows:
      Actis AF Holdings Limited                                                46 096 679     12,2%
      Ontario Teachers’ Pension Plan Board                                     62 230 516     16,5%
      Caisse de Dépôt et Placement du Québec                                   34 470 276      9,1%
      Ethos Capital v GP (SA) Limited                                          32 267 675      8,6%
      Harbourvest International Private Equity Partners                         3
                                                                               1 829 004       3,7%
      Alexander Forbes Preference Share Investment Limited                    100 000 000    26,5%
      Dream World Investments 518 (Pty) Limited                                  7 3
                                                                                1 01 839       4,5%
      Born Free Investments 580 (Pty) Limited                                   8 296 746      2,2%
      Golden Falls Trading 485 (Pty) Limited                                            1
                                                                                30 161 1 3     8,0%
      Alexander Forbes Management Trust                                        27 735 849      7,3%
      Alexander Forbes Management Co-Investment Trust                           5 256 794      1,4%
      Total issued ordinary share capital                                     377 358 491    100,0%
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