2022 AVBOB Integrated Annual Report - FINANCIALS

121121 FINANCIAL STATEMENTS Continued 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) 15.5 Sensitivity analysis of the policyholder liabilities Change in the liability 2022 2021 R 000 R 000 10% increase in mortality 1 154 899 1 250 968 1% decrease in investment return 1 103 334 1 145 127 10% increase in expenses 977 933 901 330 1% increase in expense inflation 1 143 701 1 070 238 20% increase in lapses ( 476 553) ( 418 375) 10% increase in surrenders ( 21 238) ( 25 323) 10% decrease in surrenders 32 700 28 457 SOCIETY GROUP 2022 2021 2022 2021 R 000 R 000 R 000 R 000 16. Balance at the beginning of the year 4 403 969 1 574 692 4 403 969 1 574 692 Movement for the year Additions 4 406 401 2 826 864 4 406 401 2 826 864 Interest expense 383 166 146 270 383 166 146 270 Withdrawals ( 386 652) ( 143 857) ( 386 652) ( 143 857) Balance at the end of the year 8 806 884 4 403 969 8 806 884 4 403 969 8 810 370 17. EMPLOYEE BENEFIT OBLIGATIONS Financial liabilities at amortised cost comprise of single premium investment product liabilities. Refer to note 14 of the notes to the summarised financial statements for the associated asset. The analyses are based on a change in an assumption while holding all other assumptions constant. In practice this is unlikely to occur, as changes in some of the assumptions may be correlated. A correlation exists between the inflation rate and investment returns, as well as between the inflation rate and renewal expenses. The policyholder liabilities are calculated according to best estimate assumptions plus compulsory margins - the valuation assumptions. To illustrate sensitivity to the assumptions, changes in the valuation assumptions were calculated, as set out in the following table: FINANCIAL LIABILITIES AT AMORTISED COST The Group has liabilities in respect of gratuities and medical benefits payable to qualifying employees with- and post- retirement. The gratuities payable with-retirement is a percentage of total guaranteed package, with certain employees being limited to a R50 000 benefit. The medical benefits payable post-retirement are equivalent to 50% of the total medical contribution on the chosen benchmark plan at retirement. The medical contribution subsidy increases annually with CPI up to a maximum of 10%. The current benchmark plan is the Discovery Health Classic Priority plan with 25% savings. The annual amount and payment of the pensioner benefit is at the discretion of the Society. The estimated cost of these benefits is provided over the projected service periods of employees. The valuation of these liabilities is performed by management based on the projected unit credit method. Any surplus or shortfall between the actuarial valuation and the accumulated liability is apportioned to and from the statement of comprehensive income as other comprehensive income. Employees appointed after 1 November 1998 (post-retirement benefit), 1 November 2000 (with- retirement benefit) and employees who retired after 31 October 2019 (pensioners' benefit) do not qualify for these benefits. Included in the amortised cost is day one fair value of R100,5 million (2021: R66,3 million) that is amortised over the period of the contract. The market value of the financial liability at amortised cost is R8 228,0 million (2021: R4 393,1 million).