2022 AVBOB Integrated Annual Report - FINANCIALS

CHAPTER 8 | FINANCIAL STATEMENTS 120 INTEGRATED ANNUAL REPORT 2022 AVBOB MUTUAL ASSURANCE SOCIETY AND ITS SUBSIDIARIES NOTES TO THE SUMMARISED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2022 (continued) 15. POLICYHOLDER LIABILITIES (continued) 15.1 Assumptions (continued) • Bonus rates on with-profit policies The following future experience elements are not covered by the PPFM: • Non-profit policyholders will receive no future bonus declarations. Past declared "ad-hoc" or special bonus increases will remain, but no further special bonuses will be declared to these policies. 15.2 Compulsory margins The best estimate assumptions have been adjusted for the following compulsory margins: Assumption Margin Mortality Increase mortality rates by 7.5% Disability Increase disability rates by 10% Lapses Increase / decrease lapse rates by 25% Surrenders Increase / decrease surrender rates by 10% Investment return Decrease investment returns by 0.25% Expenses Increase expenses by 10% Transport and funeral subsidy cost Expense inflation Increase escalation by 10% Average number of children Increase number of children by 20% Premium escalation take-up rate Increase take-up rate by 10% 15.3 Change in valuation methodology For the year under review no changes were made to the valuation methodology. 15.4 Change to valuation assumptions • • • • • The retrenchment claim rate assumption was changed to more closely reflect the claims experience, resulting in a profit of R63,7 million The actual mortality experience during 2021 was below the expected experience. The assumptions were updated and this resulted in a profit of R192,3 million. This was mostly due to the mortality assumption on child benefits, resulting in a profit of R118,6 million. A reduction in the accidental death assumption on the cashback funeral product resulted in a profit of R96,4 million. Increases to the mortality assumption on assistance and level premium products resulted in losses of R55,4 million and R31,0 million respectively. Increase expenses by 10% For the year under review a number of changes were made to the assumptions which had an impact on earnings. The impact of these changes on the pre-tax earnings for the year is as follows: The Society's interpretation of policyholder reasonable benefit expectations regarding bonuses has been documented in the Principles and Practices of Financial Management (PPFM). Policyholder reasonable benefit expectations regarding future bonus distributions are considered in determining the policyholder liabilities. The bonus rate assumptions are unchanged from the previous year. The renewal expense assumption per policy reduced, resulting in a profit of R325,2 million. The average age calculation on parent and extended lives was improved, which resulted in a profit of R89,8 million. The economic assumptions were changed to reflect the expected future investment returns, based on the long term assumed assets held by the business, as well as the expected future inflation rate. The inflation gap remained unchanged at 2.8% below bond yields. The change in the economic assumptions resulted in a loss of R129,3 million.