constantia life & health assurance company limited

CONSTANTIA LIFE & HEALTH ASSURANCE COMPANY LIMITED(Registration number 1952/001635/06)ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018

Constantia Life & Health Assurance Company Limited(Registration number 1952/001635/06)Annual Financial Statements for the year ended 30 June 2018General Information

Country of incorporation and domicile South Africa

Nature of business and principal activities Long term insurance

Directors DJ Harpur

VEC von Widdern

J Mahlangu

TC Moodley

PG Todd

G Toet

NR Xaba

Registered office Unit 7 Tulbagh

360 Oak Avenue

Randburg

2194

Business address Unit 7 Tulbagh

360 Oak Avenue

Randburg

2194

Postal address PO Box 1436

Cramerview

2060

Holding company Constantia Risk and Insurance Holdings Proprietary Limited

incorporated in South Africa

Ultimate holding company Conduit Capital Limited

incorporated in South Africa

Bankers ABSA Bank LimitedFirst National Bank, a division of First Rand LimitedInvestec LimitedNedbank LimitedStandard Bank of South Africa Limited

Auditors Grant Thornton Johannesburg Partnership

Chartered Accountants (SA)

Registered Auditor

A South African member firm of Grant Thornton International

Secretary CIS Company Secretaries Proprietary Limited

Actuaries QED Actuaries and Consultants Proprietary Limited

Company registration number 1952/001635/06

Level of assurance These annual financial statements have been audited in compliancewith the applicable requirements of the Companies Act 71 of 2008.

Preparer The annual financial statements were prepared under the supervisionof:

M Botha CA (SA)

Group Accountant

Issued 15 October 2018

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Constantia Life & Health Assurance Company Limited(Registration number 1952/001635/06)Annual Financial Statements for the year ended 30 June 2018Index

The reports and statements set out below comprise the annual financial statements presented to the shareholder:

Page

Directors' Responsibilities and Approval 3

Company Secretary’s Certification 4

Audit Committee Report 5

Independent Auditor's Report 6 - 7

Directors' Report 8 - 9

Report of the Statutory Actuary 10 - 13

Statement of Financial Position 14

Statement of Profit or Loss and Other Comprehensive Income 15

Statement of Changes in Equity 16

Statement of Cash Flows 17

Accounting Policies 18 - 22

Notes to the Annual Financial Statements 23 - 35

2

Independent Auditor's Report

To the shareholder of Constantia Life & Health Assurance Company Limited

Report on the Audit of the Annual Financial Statements

Basis for opinion

Responsibilities of the directors for the Annual Financial Statements

6

Independent Auditor's Report

Report on other legal and regulatory requirements

__________________________________Grant Thornton Johannesburg PartnershipS HoRegistered Auditor15 October 2018Johannesburg

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Constantia Life & Health Assurance Company Limited(Registration number 1952/001635/06)Annual Financial Statements for the year ended 30 June 2018Directors' Report

The directors have pleasure in submitting their report on the annual financial statements of Constantia Life & Health AssuranceCompany Limited for the year ended 30 June 2018.

1. Nature of business

Constantia Life & Health Assurance Company Limited was incorporated in South Africa and provides long term insurance. Thecompany operates in South Africa.

There have been no material changes to the nature of the company's business from the prior year.

2. Review of financial results and activities

The annual financial statements have been prepared in accordance with International Financial Reporting Standards andthe requirements of the Companies Act 71 of 2008. The accounting policies have been applied consistently compared tothe prior year.

Full details of the financial position, results of operations and cash flows of the company are set out in these annual financialstatements.

3. Share capital

There have been no changes to the authorised or issued share capital during the year under review.

4. Dividends

The directors have resolved not to declare a dividend for the year (RNil).

5. Directorate

The directors in office at the date of this report are as follows:

Directors ChangesDJ Harpur Chairperson Appointed 30 November 2017VEC von Widdern Chief Executive OfficerJ MahlanguTC MoodleyPG Todd Appointed 03 November 2017G ToetNR XabaSR Bruyns Resigned 30 November 2017

6. Holding company

The company's holding company is Constantia Risk and Insurance Holdings Proprietary Limited which holds 100% (2017:100%) of the company's equity. Constantia Risk and Insurance Holdings Proprietary Limited is incorporated in South Africa.

7. Ultimate holding company

The company's ultimate holding company is Conduit Capital Limited which is incorporated in South Africa.

8. Events after the reporting period

The directors are not aware of any material event which occurred after the reporting date and up to the date of this report.

9. Going concern

The directors believe that the company has adequate financial resources to continue in operation for the foreseeable futureand accordingly the annual financial statements have been prepared on a going concern basis. The directors have satisfiedthemselves that the company is in a sound financial position and that it has access to sufficient borrowing facilities to meet itsforeseeable cash requirements. The directors are not aware of any new material changes that may adversely impact thecompany. The directors are also not aware of any material non-compliance with statutory or regulatory requirements or of anypending changes to legislation which may affect the company.

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Constantia Life & Health Assurance Company Limited(Registration number 1952/001635/06)Annual Financial Statements for the year ended 30 June 2018Directors' Report

10. Auditors

Grant Thornton Johannesburg Partnership continued in office as auditors for the company for 2018.

At the AGM, the shareholder will be requested to reappoint Grant Thornton Johannesburg Partnership as the independentexternal auditors of the company and to confirm Mrs S Ho as the designated lead audit partner for the 2019 financial year.

11. Secretary

The company secretary is CIS Company Secretaries Proprietary Limited.

Postal address: PO Box 61051Marshalltown2107

Business address: Rosebank Towers15 Biermann AvenueRosebankJohannesburg2196

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10

Statutory Actuary’s Report

Statement of Assets & Liabilities,

Excess Assets and Capital Requirements

of

Constantia Life & Health Assurance Company Limited

Published Reporting Basis

30 June 2018

R

30 June 2017

R

Balance Sheet Value of Assets 73,473,902 53,522,121

Less: Reinsurance Asset 8,986,098 8,825,099

A: Balance Sheet Value of Assets 64,487,805 44,697,022

Actuarial Liabilities 7,995,495 4,093,572

Other Policy Liabilities - -

Current and other Liabilities as per Balance Sheet 6,626,929 3,497,962

B: Total Value of Liabilities 14,622,424 7,591,534

Excess of Assets over Liabilities (A-B) 49,865,380 37,105,488

Statutory Basis

30 June 2018

R

30 June 2017

R

Balance Sheet Value of Assets 64,487,805 44,697,022

Less: Disallow ed Assets 677,417 -

A : Value of Assets on the Statutory basis 63,810,387 44,697,022

Actuarial Liabilities 7,995,495 4,093,572

Current and other liabilities as per Balance Sheet 6,626,929 3,497,962

B: Total Value of Liabilities 14,622,424 7,591,534

Excess of Assets over Liabilities (A-B) 49,187,963 37,105,488

Capital Adequacy Requirement 10,000,000 10,000,000

Ratio of Excess Assets

to Capital Adequacy Requirements 4.92 3.71

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Analysis of Change in Excess Assets on Published Reporting Basis

The excess of the value of assets over the value of liabilities has changed as follows over the reporting

period:

30 June 2018

R

30 June 2017

R

Analysis of Change in Excess Assets:

Excess Assets as at end of reporting period 49,865,380 37,105,489

Excess Assets as at beginning of reporting period 37,105,488 38,444,031

Change in Excess Assets over the reporting period 12,759,892 (1,338,543)

The change in excess assets is due to the following factors:

30 June 2018

R

30 June 2017

R

Investment return generated

Investment income 1,675,571 2,126,703

Capital Appreciation 2,990,460 254,608

Total Investment return 4,666,030 2,381,311

Operating profit 12,339,383 (3,163,174)

Change in valuation methods or assumptions (8,624) (19)

Taxation (4,236,897) (556,661)

Total Reported Earnings per

the Financial Statements12,759,892 (1,338,543)

Dividends Paid - -

Capital Injection - -

Total change in excess assets 12,759,892 (1,338,543)

Reconciliation of Excess Assets on Published and Statutory basis:

30 June 2018 30 June 2017

R R

Excess Assets on Published Reporting Basis 49,865,380 37,105,488

Less: Disallow ed Assets 677,417 -

Excess Assets on Statutory Basis 49,187,963 37,105,488

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Changes in Published Reporting Valuation Methods or Assumptions

The methodology and valuation assumptions used remained broadly the same as those applied as at

30 June 2017, except for the following changes for prospectively valued business (before allowing for

compulsory margins):

• The interest rate was increased from 7.70% p.a. to 8.00% p.a.;

• Expense inflation was increased from 6.20% p.a. 6.50% p.a.; and,

• The expense assumptions were reviewed in light of the latest expense investigation.

The impact of the above changes to the valuation basis (after elimination of negatives) was zero as

the prospectively valued liabilities are either 100% reinsured.

A claims and expense reserve (of R8,624) was raised for a small line of business due to the lack of

available data.

Published Reporting Valuation Methods and Assumptions

The valuation on insurance contracts was performed using the Financial Soundness Valuation method

in accordance with the Actuarial Society of South Africa’s Standard of Actuarial Practice 104

(SAP104). Assets and policy liabilities have been valued on methods and assumptions that are

consistent with each other.

The result of the valuation methods and assumptions used is that profits for insurance contracts are

released appropriately over the term of each policy, to avoid the premature recognition of profits that

may give rise to losses in later years.

Insurance Contracts

In the calculation of liabilities, provision has been made for:

• the best estimate of the future experience; plus,

• the compulsory margins prescribed by SAP104.

Discretionary margins in the form of the elimination of negatives amounting to R7,201 were held on

the individual funeral business that is not reinsured.

For the main group funeral business, an Incurred But Not Reported reserve was established based

on the most recent claims run-off investigation using the Bornheutter-Ferguson Method.

For Group business, where the operating ratio (including compulsory margins) exceeds 100%, a

deficiency reserves was retained. For the smaller group schemes, the Incurred But Not Reported

reserve was set equal to a proportion of premium.

Cognisance was taken of policyholder reasonable benefit expectations in that all contractual benefits

have been allowed for in the valuation. There is no participating business on the books.

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Published Reporting Asset Valuation Methods and Assumptions

All assets (including the excess assets over liabilities) have been valued at fair value (as described in

the notes to the company accounts).

Statutory Capital Adequacy Requirements

The Capital Adequacy Requirement (CAR) is the additional amount required, over and above the

actuarial liabilities, to enable a company to meet material deviations in the main parameters affecting

the life assurer’s business. The CAR was calculated according to the guidelines issued by the

Actuarial Society of South Africa (SAP104).

The Minimum Capital Adequacy Requirement (MCAR) exceeded the Termination Capital Adequacy

Requirement (TCAR) as well as the Ordinary Capital Adequacy Requirement (OCAR).

Hence, the CAR as at 30 June 2018 is MCAR which is equal to R10 million. The ratio of the statutory

excess of assets over liabilities to the CAR is 4.92.

Certification of Statutory Financial Position

I hereby certify that:

• The valuation on the Statutory basis of Constantia Life & Health Assurance Company Limited as

at 30 June 2018, the results of which are summarised above, has been conducted in accordance

with, and this Statutory Actuary’s report has been produced in accordance with, applicable

Actuarial Society of South Africa Professional Guidance Notes and Advisory Practice Notes.

• In terms of the Statutory Valuation Method, the Company has assets exceeding the liabilities and

CAR.

• In terms of Section 31(c) of the Long-Term Insurance Act of 1998 (asset spreading), some of the

Company’s assets exceed the maximum allowable level.

• After reducing these assets to the maximum allowable level, the Company is still financially sound

and the revised assets exceed the liabilities and CAR as per Section 31(c) of the Long-Term

Insurance Act of 1998.

• Therefore, the Company is financially sound in terms of Section 29 of the Act and is likely to remain

financially sound for the foreseeable.

P C Falconer

Statutory Actuary

Fellow of the Actuarial Society of South Africa

8 October 2018

Constantia Life & Health Assurance Company Limited(Registration number 1952/001635/06)Annual Financial Statements for the year ended 30 June 2018Statement of Financial Position as at 30 June 2018

Figures in Rand Notes 2018 2017

Assets

Non-Current Assets

Other financial assets 3 11,515,548 8,583,801

Reinsurance asset 5 8,986,098 8,825,099

20,501,646 17,408,900

Current Assets

Insurance and other receivables 4 17,240,080 1,945,816

Current tax receivable - 220,640

Cash and cash equivalents 6 35,732,176 33,946,767

52,972,256 36,113,223

Total Assets 73,473,902 53,522,123

Equity and Liabilities

Equity

Share capital and share premium 9 23,772,380 23,772,380

Retained income 26,093,000 13,333,109

49,865,380 37,105,489

Liabilities

Non-Current Liabilities

Deferred tax 10 839,110 254,040

Policyholder liabilities under insurance contracts 11 16,981,593 12,918,671

17,820,703 13,172,711

Current Liabilities

Insurance and other payables 12 2,510,897 3,243,923

Current tax payable 3,276,922 -

5,787,819 3,243,923

Total Liabilities 23,608,522 16,416,634

Total Equity and Liabilities 73,473,902 53,522,123

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Constantia Life & Health Assurance Company Limited(Registration number 1952/001635/06)Annual Financial Statements for the year ended 30 June 2018Statement of Profit or Loss and Other Comprehensive Income


Insurance premium income 85,397,714 18,414,346

Outward reinsurance premium income (247,682) (321,426)

Investment income 15 4,754,016 2,384,339

Gross profit 89,904,048 20,477,259

Insurance benefits and claims (38,841,064) (10,241,840)

Transfer to policyholder liabilities under insurance contracts (3,901,923) (1,986,081)

Portion of claim reinsured - 311,207

Operating expenses (8,344,725) (3,174,646)

Expenses for acquisition of insurance contracts (21,731,562) (6,087,542)

Operating profit (loss) 14 17,084,774 (701,643)

Finance costs (87,986) (80,238)

Profit (loss) before taxation 16,996,788 (781,881)

Taxation 16 (4,236,897) (556,662)

Profit (loss) for the year 12,759,891 (1,338,543)

Other comprehensive income - -

Total comprehensive income (loss) for the year 12,759,891 (1,338,543)

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Constantia Life & Health Assurance Company Limited(Registration number 1952/001635/06)Annual Financial Statements for the year ended 30 June 2018Statement of Changes in Equity

Figures in RandShare capital Share

premiumTotal sharecapital

Retainedincome

Total equity

Balance at 01 July 2016 13,782,380 9,990,000 23,772,380 14,671,652 38,444,032

Loss for the year - - - (1,338,543) (1,338,543)Other comprehensive income - - - - -

Total comprehensive Loss forthe year

- - - (1,338,543) (1,338,543)

Balance at 01 July 2017 13,782,380 9,990,000 23,772,380 13,333,109 37,105,489

Profit for the year - - - 12,759,891 12,759,891Other comprehensive income - - - - -

Total comprehensive incomefor the year

- - - 12,759,891 12,759,891

Balance at 30 June 2018 13,782,380 9,990,000 23,772,380 26,093,000 49,865,380

Note 9 9 9

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Constantia Life & Health Assurance Company Limited(Registration number 1952/001635/06)Annual Financial Statements for the year ended 30 June 2018Statement of Cash Flows


Cash flows from operating activities

Cash generated from (utilised by) operations 17 205,390 (348,967)

Interest income 15 1,721,662 2,023,706

Dividend income 15 41,895 106,025

Finance costs (87,986) (80,238)

Tax paid 18 (154,264) (67,229)

Net cash from operating activities 1,726,697 1,633,297

Cash flows from investing activities

Acquisition of investments in securities (2,072,071) (330,451)

Disposal of investments in securities 2,130,783 286,265

Investment in software development costs - (526,569)

Net cash from investing activities 58,712 (570,755)

Total cash movement for the year 1,785,409 1,062,542

Cash at the beginning of the year 33,946,767 32,884,225

Total cash at end of the year 6 35,732,176 33,946,767

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Constantia Life & Health Assurance Company Limited(Registration number 1952/001635/06)Annual Financial Statements for the year ended 30 June 2018Accounting Policies

1. Significant accounting policies

The principal accounting policies applied in the preparation of these annual financial statements are set out below.

1.1 Basis of preparation

The annual financial statements have been prepared on the going concern basis in accordance with, and in compliance with,International Financial Reporting Standards ("IFRS") as issued and effective at the time of preparing these annual financialstatements and the Companies Act 71 of 2008, as amended. They are presented in Rands, which is the company's functionalcurrency.

These accounting policies are consistent with the previous period.

1.2 Significant judgements and sources of estimation uncertainty

The preparation of annual financial statements in conformity with IFRS requires management, from time to time, to makejudgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities,income and expenses. These estimates and associated assumptions are based on experience and various other factors thatare believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates andunderlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period inwhich the estimates are revised and in any future periods affected.

Critical judgements in applying accounting policies

The critical judgements made by management in applying accounting policies, apart from those involving estimations, thathave the most significant effect on the amounts recognised in the financial statements, are outlined as follows:

Key sources of estimation uncertainty

Insurance and other receivables

The Company assesses its insurance and other receivables for impairment at the end of each reporting period. In determiningwhether an impairment loss should be recorded in profit or loss, the Company makes judgements as to whether there isobservable data indicating a measurable decrease in the estimated future cash flows from the financial asset.

Impairment testing

The Company reviews and tests the carrying value of assets when events or changes in circumstances suggest that thecarrying amount may not be recoverable. When such indicators exist, management determine the recoverable amount byperforming value in use and fair value calculations. These calculations require the use of estimates and assumptions. When itis not possible to determine the recoverable amount for an individual asset, management assesses the recoverable amount forthe cash generating unit to which the asset belongs.

Insurance liabilities

Insurance contract accounting requires estimates and judgements be made. In particular, judgement is required in thedetermination of the Incurred But Not Reported ("IBNR") provision (refer to note 11). In addition, estimation is required inprojecting liability outgo and expected future premiums and discounting these cashflows at the valuation date based on thevaluation interest rate.

Taxation

The tax expense and liability is managements estimate of the final tax liability of the entity, which will be finalised onceassessed by the Revenue authorities.

Management believes that the estimates and assumptions that were used in order to make these judgements at the end of thereporting period are reasonable.

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1.3 Financial instruments

Initial recognition and measurement

The Company classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financialliability or an equity instrument in accordance with the substance of the contractual arrangement.

Financial assets and financial liabilities are recognised on the statement of financial position when the Company becomes aparty to the contractual provisions of the instrument.

Financial assets and liabilities are initially recognised at fair value. Where financial assets or liabilities are not subsequentlyrecognised at fair value, transaction costs that are directly attributable to the acquisition or issue of the financial instrument areadded to the fair value.

Subsequent measurement

After initial recognition, these instruments are measured as follows:

Investment in securities

Investments in equity are recognised on a trade-date basis and are initially and subsequently measure at fair value, whichincludes directly attributable transaction costs, investments are classified as "at fair value through profit and loss" with changesin fair value being recognised in profit or loss.

Fair value represents the current market value based on the quoted market price where a regulated market exists. Otherwisefair value is determined by the directors on the basis of the more appropriate of either return, or the value of the most recentoffer to purchase the shares in an investment in instances where such an offer is a valid offer, or net asset value.

Loans, insurance and other receivables

Loans, insurance and other receivables are initially measured at fair value and are subsequently measured at amortised costusing the effective interest method, provided that the company's objective in holding the assets is to realise cashflows and thatcashflows associated with the assets comprise only repayment of principal and interest amounts thereon, on specific dates. Ifthese conditions are not met, they are measured subsequently at fair value.

Insurance and other payables

Other payables are classified as financial liabilities at amortised cost.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments thatare readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Cash and cashequivalents are measured at initial recognition at fair value, and thereafter at amortised cost provided that the company'sobjectives in holding the assets is to realise the contractual cashflows and that cashflows associated with the assets compriseonly payments of principal and interest amounts thereon, on specific dates. If these conditions are not met, they are measuredsubsequently at fair value. These are classified as loans and receivables.

Gains and losses

A gain or loss from a change in a financial asset or liability is recognised as follows:

�� a gain or loss on a financial asset or liability classified at fair value through profit or loss is recognised in profit or

loss;

�� where financial assets and liabilities are carried at amortised cost, a gain or loss is recognised in profit or loss

through the amortisation process or when the financial asset or liability is derecognised or impaired.

Offsetting

Financial assets and liabilities are offset and the net amount is reported in the statement of financial position when there is alegally enforceable right to set off the recognised amounts and there is the intention to settle on a net basis or realise the assetand settle the liability simultaneously.

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1.4 Tax

Current tax assets and liabilities

Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respectof current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset.

Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recoveredfrom) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of thereporting period.

Deferred tax assets and liabilities

Deferred tax is accounted for using the liability method in respect of temporary differences arising from differences between thecarrying amount of assets and liabilities in the Financial Statements and the corresponding tax base (or tax value) used in thecomputation of current taxable profits.

A deferred tax asset is recognised for the carry forward of unused tax losses to the extent that it is probable that future taxableprofit will be available against which the unused tax losses can be utilised.

In respect of temporary differences arising out of the fair value adjustment on investment properties, deferred taxation isprovided at the capital gains tax rate to the extent that the carrying value is expected to be recovered through sale of theproperty.

Tax expense and income

Current and deferred taxes are recognised as income or an expense and included in profit or loss for the period, except to theextent that the tax arises from:

�� a transaction or event which is recognised, in the same or a different period, in other comprehensive income, or

�� a business combination.

1.5 Impairment of assets

Receivables and payables related to insurance contracts

Receivables and payables are recognised when due. These include amounts due to and from insurance contract holders. Ifthere is objective evidence that the insurance receivable is impaired, the Company reduces the carrying amount of theinsurance receivable accordingly and recognises the impairment loss in profit or loss. The Company gathers the objectiveevidence that an insurance receivable is impaired using the same process adopted for reinsurance assets. The impairmentloss is also calculated under the same method used for other assets.

Other assets

The Company assesses at each financial statement date whether there is any indication that an asset may be impaired. If anysuch indication exists, the Company estimates the recoverable amount of the asset. If it is not possible to estimate therecoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs isdetermined. The recoverable amount of an asset or cash-generating unit is the higher of its fair value less costs to sell and itsvalue in use.

If the recoverable amount of an asset is less than its carrying value, the carrying amount of the asset is reduced to itsrecoverable amount. The reduction is an impairment loss which is immediately recognised in profit or loss.

A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other than goodwill isrecognised immediately in profit or loss. Any reversal of an impairment loss of a revalued assets is treated as a revaluationincrease.

1.6 Share capital and equity

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of itsliabilities.

Ordinary shares are classified as equity.

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1.7 Income from investments

Interest is recognised, in profit or loss, using the effective interest method.

Dividends are recognised, in profit or loss, when the company’s right to receive payment has been established.

1.8 Insurance contracts

Classification of insurance contracts

A contract is classified as an insurance contract if it is a contract under which the Company accepts significant insurance riskfrom another party, the policyholder, by agreeing to compensate the policyholder or other beneficiary if a specified uncertainfuture event, the insured event, adversely affects the policyholder. Such contracts are accounted for in terms of IFRS 4:Insurance Contracts.

Insurance risk is risk other than financial risk, transferred from the holder of a contract to the issuer. Financial risk is defined asthe 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 prices or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract.

An insurance risk is significant if the benefits to be paid under the contract, if the insured event occurs, are materially higherthan any benefit to be paid under the contract should the insured event not occur.

The Company classifies financial guarantee contracts as insurance contracts.

Premiums

Premium income relates to premiums received on insurance contract business entered into during the period. Premiums areshown gross of commission payable to intermediaries and management fees payable to underwriting managers and excludevalue added taxation levied on premiums, where applicable.

Acquisition costs

Acquisition costs, which include commissions paid to intermediaries, are recognised over the period in which the relatedpremiums are earned.

Claims

Claims paid are recognised in profit or loss and consists of claims and related expenses paid in the reporting period andchanges in the provision for outstanding claims, together with any other adjustments to claims estimates from previous years.

The provision for outstanding claims comprises the Company's estimate of the undiscounted ultimate cost of settling all claimsincurred but unpaid at the reporting date, whether reported or not, and related internal and external claims handling expenses.Related anticipated reinsurance recoveries are disclosed separately as assets. These estimated reinsurance and otherrecoveries are assessed in a manner similarly to the assessment of the claims outstanding.

Adjustments to the amounts of claims provisions established in prior years are reflected in the Annual Financial Statements forthe period in which the adjustments are made. Liabilities for unpaid claims are estimated using the input of assessments forindividual cases reported to the Company and statistical analyses including an implicit risk margin to allow for the ultimate costof claims incurred but not reported and to estimate the expected ultimate cost of more complex claims that may be affected byexternal factors such as court rulings. The methods used to value these provisions, and the estimates made, are reviewedregularly.

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1.8 Insurance contracts (continued)

Profit commission

In terms of agreements entered into with the underwriting managers, whereby a profit commission will become due andpayable if a loss ratio below a stipulated level is achieved, a provision is made to cover estimated profit commissions payable.The provision is based on the performance of the affected underwriting managers as at the statement of financial position date.However, this provision may change should the results be affected by any claims developments after this date. Final paymentof profit commission is only made after these subsequent claims developments.

Reinsurance

Reinsurance contracts are contracts entered into by the Company with reinsurers under which the Company is compensatedfor the entire or a portion of losses arising on one or more of the insurance contracts issued by the Company.

The Company cedes reinsurance in the normal course of business for the purpose of limiting its net loss exposure.Reinsurance arrangements do not relieve the Company from its direct obligations to its policyholders.

Only contracts that give rise to a significant transfer of insurance risk are accounted for as reinsurance. Amounts recoverableunder such contracts are recognised in the same year as the related claim.

The benefits to which the Company is entitled under its reinsurance contracts held are recognised as reinsurance assets.These assets consist of current balances due from reinsurers as well as longer-term receivables that are dependant on theexpected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from or due toreinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordancewith the terms of each reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contractsand are recognised as an expense when due.

Outward reinsurance premiums are recognised as an expense in accordance with the pattern of reinsurance services received.

Amounts recoverable under reinsurance contracts are assessed for impairment at each reporting date. Such assets aredeemed impaired if there is objective evidence, as a result of an event that occurred after its initial recognition, that theCompany may not recover all amounts due and that there is a reliably measurable impact on the amounts that the Companywill receive from the reinsurer. Impairment losses are recognised in profit or loss.

Policyholder liabilities under long term insurance contracts

The Company's liabilties under unmatured policies of long-term insurance contracts are calculated at the reporting date by theindependent Statutory Actuary in accordance with prevailing legislation, on the "Financial Soundness Valuation" basis using adiscounted cash flow methodology as prescribed by SAP 104 issued by the Actuarial Association of South Africa. The transferto or from the policyholder liabilities under insurance contracts reflected in profit or loss represents the increase or decrease inactuarial liabilities. The reports of the Statutory Actuary are included in the Annual Financial Statements.

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Constantia Life & Health Assurance Company Limited(Registration number 1952/001635/06)Annual Financial Statements for the year ended 30 June 2018Notes to the Annual Financial Statements

2. New Standards and Interpretations

2.1 Standards and interpretations effective and adopted in the current year

In the current year, the company has adopted the following standards and interpretations that are effective for the currentfinancial year and that are relevant to its operations:

Amendments to IAS 7: Cash flow disclosure initiative

The amendment requires entities to provide additional disclosures for changes in liabilities arising from financing activities.Specifically, entities are now required to provide disclosure of the following changes in liabilities arising from financing activities:

�� changes from financing cash flows;

�� changes in fair values; and

�� other changes.

The effective date of the amendment is for years beginning on or after 01 January 2017.

The company has adopted the amendment for the first time in the 2018 annual financial statements.

The impact of the amendment is not material.

2.2 Standards and interpretations not yet effective

The company has chosen not to early adopt the following standards and interpretations, which have been published and aremandatory for the company’s accounting periods beginning on or after 01 July 2018 or later periods:

IFRS 17 Insurance Contracts

Insurance contracts issued in May 2017. The standard establishes the principles for the recognition, measurement,presenatation and disclosure of insurance contracts within the scope of the standard. Initial work performed on the impact ofIFRS 17 indicates that there will be a significant impact on the underlying valuation models, systems and process.

The effective date of the standard is for years beginning on or after 01 January 2021.

The company expects to adopt the standard for the first time in the 2022 annual financial statements.

The Company is in the process of assessing the requirements of the standard against current data, processes and valuationmodels and is expected to finalise this assessment during the second half of 2018.

Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts

The amendment to IFRS 4 provides a temporary exemption, allowing insurers to apply IAS 39 rather than IFRS 9. Theexemption only applies in certain circumstances and only for annual periods beginning before 1 January 2021.

The exemption also introduces an "overlay approach" in specific circumstances. This approach requires the insurer toreclassify an amount between other comprehensive income and profit or loss. This results in the profit or loss for designatedfinancial assets being the same as if the insurer had applied IAS 39 rather than IFRS 9.

The effective date of the amendment is for years beginning on or after 01 January 2018.

The company expects to adopt the amendment for the first time in the 2019 annual financial statements.

It is unlikely that the amendment will have a material impact on the company's annual financial statements.

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2. New standards and Interpretations (continued)

IFRS 9 Financial Instruments

A final version of IFRS 9 has been issued which replaces IAS 39 Financial Instruments: Recognition and Measurement. Thecompleted standard comprises guidance on Classification and Measurement, Impairment Hedge Accounting andDerecognition:

�� IFRS 9 introduces a new approach to the classification of financial assets, which is driven by the business model in

which the asset is held and their cash flow characteristics. A new business model was introduced which does allowcertain financial assets to be categorised as “fair value through other comprehensive income” in certaincircumstances. The requirements for financial liabilities are mostly carried forward unchanged from IAS 39.However, some changes were made to the fair value option for financial liabilities to address the issue of own creditrisk.

�� The new model introduces a single impairment model being applied to all financial instruments, as well as an

“expected credit loss” model for the measurement of financial assets.

�� IFRS 9 carries forward the derecognition requirements of financial assets and liabilities from IAS 39.

The effective date of the standard is for years beginning on or after 01 January 2018.

The company expects to adopt the standard for the first time in the 2019 annual financial statements.

The impact of this standard is currently being assessed.

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Figures in Rand 2018 2017

3. Other financial assets

At fair value through profit or loss - designatedListed equities, property units and bonds, at fair value 11,515,548 8,583,801

Opening balance at the beginning of the year 8,583,802 8,285,007Acquisitions 2,072,071 330,451Disposals (2,130,784) (286,264)Fair value movements 2,990,460 254,608

A register of investments is available for inspection at the registered office of the Company. The fair value hierarchy of theabove listed investments has been disclosed in note 8.

4. Insurance and other receivables

Trade receivables 30,393 482,858Prepayments 587,301 -Premiums receivables 16,622,386 1,462,958

17,240,080 1,945,816

The carrying value of other receivables closely approximates fair value.

5. Reinsurance asset

Reinsurance asset 8,986,098 8,825,099

6. Cash and cash equivalents

Cash and cash equivalents consist of:

Call accounts 32,724,471 33,645,587Current accounts 3,007,705 301,180

35,732,176 33,946,767

7. Financial assets by category

2018

Loans andreceivables

Fair valuethrough profitor loss - heldfor trading

Total

Trade and other receivables 30,393 - 30,393Other financial assets - 11,515,547 11,515,547Cash and cash equivalents 35,732,176 - 35,732,176

35,762,569 11,515,547 47,278,116

2017

Loans andreceivables

Fair valuethrough profit

or loss

Total

Trade and other receivables 482,858 - 482,858Other financial assets - 8,583,801 8,583,801Cash and cash equivalents 33,946,767 - 33,946,767

34,429,625 8,583,801 43,013,426

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8. Fair value information

Fair value hierarchy

The table below analyses assets and liabilities carried at fair value. The different levels are defined as follows:

Level 1: Quoted unadjusted prices in active markets for identical assets or liabilities that the company can access atmeasurement date.

Level 2: Inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly orindirectly.

Level 3: Unobservable inputs for the asset or liability.

Levels of fair value measurements

30 June 2018 Level 1 Level 2 Level 3Financial assetsInvestments in securities 11,515,548 - -

30 June 2017 Level 1 Level 2 Level 3Financial assetsInvestment in securities 8,583,801 - -

9. Share capital and share premium

Authorised15,000,000 Ordinary shares of R1 each 15,000,000 15,000,000

Issued13,782,380 Ordinary shares of R1 each 13,782,380 13,782,380Share premium 9,990,000 9,990,000

23,772,380 23,772,380

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10. Deferred tax

Deferred tax liability

Fair value adjustment of listed investments (711,565) (254,040)Prepayments (164,444) -

Total deferred tax liability (876,009) (254,040)

Deferred tax asset

Tax losses available for set off against future taxable income 36,899 -

The deferred tax assets and the deferred tax liability relate to income tax in the same jurisdiction, and the law allows netsettlement. Therefore, they have been offset in the statement of financial position as follows:

Deferred tax liability (876,009) (254,040)Deferred tax asset 36,899 -

Total net deferred tax liability (839,110) (254,040)

Reconciliation of deferred tax liability

At beginning of year (254,040) 43,481Tax loss available for set off against future taxable income 36,899 -Prepayments (164,444) -Fair value adjustments on listed investments (457,525) (297,521)

(839,110) (254,040)

11. Policyholder liabilities under insurance contracts

Balance at the beginning of the year 12,918,671 10,808,264Increase in incurred but not reported reserve 4,062,921 2,110,407

Transfer from policyholder liabilities under insurance contracts 5,397,360 1,986,081Movement in funeral assurance business 128,076 124,326Movement in deficiency reserve (1,462,515) -

Balance at the end of the year 16,981,592 12,918,671

Maturity analysis of policyholder liabilitiesGroup funeral coverLess than 1 year 7,955,120 4,023,347

Individual funeral coverLess than 1 year 175,215 167,3111 to 5 years 1,467,296 1,527,018More than 5 years 7,383,961 7,200,995

9,026,472 8,895,324

16,981,592 12,918,671

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11. Policyholder liabilities under insurance contracts (continued)

Notes and valuation assumptions

There were no changes to the valuation basis from the prior year.

In the calculation of liabilities, provision was made for the best estimate of the future experience plus the compulsory marginsprescribed by the Actuarial Society of South Africa's Standard of Actuarial Practice (SAP) 104. SAP 104 is intended to providefor a minimum level of financial resilience in the liabilities to ensure that profits are not recognised prematurely.

Discretionary margins in the form of the elimination of negatives amounting to R7,201 (2017: R8,402) were held on theindividual funeral business that is not reinsured. For the individual funeral business, the policy liabilties were estimated basedon the number of policies still in force and the total expected benefits payable.

For the group funeral business an "Incurred But Not Reported" reserve was established based on the most recent claims run-off numbers. These claims run-off numbers were based on the results of "experience investigations" and current and expectedfuture market conditions. In certain instances a deficiency reserve was established to allow for any expected losses on thegroup funeral policies.

All business is non-participating business and policyholders would have a reasonable expectation that contractual benefitswould be met and that there would be no undue delay in the processing of claims and queries.

Key assumptions

A prospective valuation is carried out with the following principal assumption:

�� Inflation rate 6.50% (2017: 6.20%)

�� Interest rate 8.00% (2017: 7.70%)

�� The withdrawal assumptions are based on market and the portfolio experience.

�� Mortality was allowed for based on SA85/90 Heavy and the relevant AIDS tables adjusted to reflect the

most recent claims experience investigated.

Matching of assets and liabilities

The Company only underwrites assistance insurance business and, to that extent, the matching of assets and liabilities isreasonably simple. In the settlement of policyholder liabilities, cash resources and, where required the equity investments, areutilised. Cash resources and the equity investments provide sufficiently liquid funds for the settlement of liabilities and aretherefore suitable for the matching of assets and liabilities in providing for the settlement patterns of the funeral business.

Analysis of policyholder liabilities 30 June 2018 30 June 2017Group funeral cover 7,955,120 4,023,347Individual funeral cover 9,026,472 8,895,324

16,981,592 12,918,671

Sensitivities

The sensitivity of the liabilities have been tested to the main assumptions by calculating the effect of certain assumptions notbeing met. The following sensitivities have been tested (net liabilitiy figures):

Factor Percentagechange

Resultingliability

% Change

Main basis None 7,995,495 %-Renewable expenses 10% increase 8,016,197 %0.26Inflation 1% increase 7,995,592 %-Investment returns 1% decrease 7,995,495 %-Mortality (and other claims) 10% increase 11,250,686 %40.71Withdrawals 1% increase 7,995,495 %-

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12. Insurance and other payables

Trade and other payables 303,539 1,071,740Outstanding claims liability - 269,266Accruals 584,113 797,282Insurance payables 1,623,245 1,105,635

2,510,897 3,243,923

The carrying value of other payables closely approximates fair value.

13. Financial liabilities by category

The accounting policies for financial instruments have been applied to the line items below:

2018

Financialliabilities at

amortised cost

Total

Other payables 303,536 303,536

2017

Financialliabilities at

amortised cost

Total

Other payables 1,071,740 1,071,740

14. Operating profit (loss)

Operating profit (loss) for the year is stated after charging (crediting) the following, amongst others:

Auditor's remuneration - externalAudit fees 336,058 259,200Adjustment for previous year (236,839) 157,892

99,219 417,092

Remuneration, other than to employeesConsulting and professional services 1,129,453 609,389Secretarial services 11,579 12,568

1,141,032 621,957

Impairment lossesIntangible assets - 1,797,935

15. Investment income

Dividend income - listed equities 41,895 106,025Interest received 1,721,662 2,023,706Unrealised fair value adjustments on investments in securities 3,036,701 373,095Realised fair value adjustments on investments in securities (46,242) (118,487)

4,754,016 2,384,339

The amounts as presented above relate to financial assets held at amortised cost and fair value through profit or loss.

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16. Taxation

Major components of the tax expense

CurrentLocal income tax - current period 3,560,031 256,068Local income tax - recognised in current tax for prior periods 91,795 (100)Foreign income tax or withholding tax - current period - 3,173

3,651,826 259,141

DeferredOriginating and reversing temporary differences 585,071 297,521

4,236,897 556,662

The Income Tax Act views long term assurers as comprising a number of taxpayers, with specific rules to determine the taxableprofits or losses for each taxpayer and the taxation treatment for transfers between taxpayers. This results in a hybrid approachto taxation which considers both certain elements of income and certain movements in financial position in assessing the taxpayable by the entity and the usual tax rate reconciliation not would not be meaningful to readers of the Annual FinancialStatements under the circumstances, and no reconciliation has, for this reason been provided.

17. Cash generated from/(utilised by) operations

Profit before taxation 16,996,788 (781,881)Adjustments for:Unrealised and realised fair value adjustments on investments in securities (2,990,460) (254,608)Dividend income (41,895) (106,025)Interest income (1,721,662) (2,023,706)Finance costs 87,986 80,238Impairment losses and reversals - 1,797,935Changes in working capital:Decrease in insurance and other receivables (15,294,264) (5,820)Increase in reinsurance asset (160,999) -Decrease in insurance and other payables (733,026) (1,041,181)Transfer to policyholder liabilities under insurance contracts 4,062,922 1,986,081

205,390 (348,967)

18. Tax paid

Balance at beginning of the year 220,640 412,552Current tax for the year recognised in profit or loss (3,651,826) (259,141)Balance at end of the year 3,276,922 (220,640)

(154,264) (67,229)

19. Contingent liability

The Company is not aware of any current or pending legal cases that would have a material adverse effect on the Company'sresults.

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20. Related parties

`

RelationshipsUltimate holding company Conduit Capital LimitedHolding company Constantia Risk and Insurance Holdings Proprietary

LimitedCompanies under common control with which the Company transactedduring the year

Constantia Insurance Company LimitedConstantia Life Limited

Directors during the year DJ HarpurPG ToddJ MahlanguTC MoodleyG ToetNR XabaVEC von Widden (Chief Executive)SR Bruyns (Resigned 30 November 2017)

Related party balances

Amounts included in trade receivable (trade payable) regarding relatedpartiesConstantia Life Limited - 5,364Constantia Insurance Company Limited (61,047) -

Related party transactions

Directors fees paidConstantia Insurance Company Limited (207,776) (195,824)

Reinsurance premium paidConstantia Life Limited (247,682) (321,426)

Reinsurers share of claimsConstantia Life Limited 317,594 311,207

21. Risk management

21.1. Interest rate risk

Interest rate risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market interest rates.

The Company does not have any borrowings. Exposure to interest rate risk is in the form of cash balances held at call withbanks (see note 6), which earn interest at rates that vary on a daily basis.

At 30 June 2018, an increase or decrease of 2% in the interest rates relating to cash and cash equivalents would result in anincrease in income and equity of R 714,644 (2017: R 678,935)or a decrease in income of R 714,644 (2017: R 678,935respectively.

The Company monitors and manages this risk through the Company's investment committee and the Company's board'soversight.

21.2.Market risk

Market risk is the risk of adverse financial impact due to changes in fair value or future cash flows of financial instruments fromfluctuation in interest rates and equity prices, besides those disclosed more specifically under interest rate risk. Key areaswhere the Company is exposed to market risk are:

�� Listed investments in equity

The Company regularly reviews and actively manages these risks through the Company's investment committee.

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21. Risk management (continued)

21.3.Credit risk

Credit risk is the risk of loss in the value of financial assets due to counterparties failing to meet all or part of their obligations.

Key areas where the Company is exposed to credit risk are:

�� Cash and cash equivalents

�� Insurance and other receivables

�� Other financial assets

The Company determines counterparty credit quality by reference to rating from independent rating agencies or, where suchratings are not available, by internal analysis. The Company seeks to avoid concentration of credit to groups of counterparties,business sectors, product types and geographical segments.

30 June 2018 BBB BBB- Not rated Carrying valueCash and cash equivalents - 35,732,176 - 35,732,176Other receivables - - 30,393 30,393

- 35,732,176 30,393 35,762,569

30 June 2017 BBB BBB- Not rated Carrying valueCash and cash equivalents - 33,946,767 - 33,946,767Other receivables - - 482,858 482,858

- 33,946,767 482,858 34,429,625

Other receivables consist mainly of accounts receivable from the Company's customer base. The Company and contractedunderwriting managers monitor the financial position of their customers, which include insurance clients, on an ongoing basis.Credit, other than in the insurance division, is extended in terms of an agreement and provisions are made both specific andgeneral bad debts.

Investments held in listed shares (note 3) have not been rated as these represent investments in equities listed on the JSELimited and are managed by third party investment managers.

The carrying amount of assets included on the balance sheet represents the maximum credit exposure. At the end of thereporting period management did not consider there to be any material credit risk exposure that was not already covered by adoubtful debt allowance.

Impairment history

The following tables provide information regarding the carrying value of financial assets that have impaired and the ageing offinancial assets that have not been impaired:

30 June 2018 Neither pastdue norimpaired

1 - 3 monthspast due butnot impaired


6 - 12months pastdue but notimpaired

Greater than1 year pastdue but notimpaired

Total

Cash and cashequivalents

35,732,176 - - - - 35,732,176

Other receivables 30,393 - - - - 30,393

35,762,569 - - - - 35,762,569

30 June 2017 Neither pastdue norimpaired



6 - 12months pastdue but notimpaired

Greater than1 year pastdue but notimpaired

Total

Cash and cashequivalents

33,946,767 - - - - 33,946,767

Other receivables 482,858 - - - - 482,858

34,429,625 - - - - 34,429,625

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21.4.Liquidity risk

Liquidity risk is defined as the risk that the Company will encounter difficulty in meeting obligations associated with financialliabilities that are settled by delivering cash or another financial asset.

Management monitors this risk on a daily basis through a review of available cash resources and expected and possiblefuture commitments.

The following maturity analysis provides details on expected settlement of financial liabilities recognised at reporting date:

At 30 June 2018 Less than 1year

Total

Other payables 303,536 303,536

At 30 June 2017 Less than 1year

Total

Other payables 1,071,740 1,071,740

21.5. Insurance risk

Management continuously manages and monitors the Company's risk profile and reports the risk relating to the Company'sinsurance operations to the risk & compliance committee.

21.5.1. Types of insurance policies

The Company writes long-term insurance business. The long-term business consists mainly of funeral cover, comprising bothindividual business and Group schemes.

21.5.2. Management of insurance risks

The acceptance of insurance risk is the core activity of the Company. As a result, the risk management approach is to ensurethat risks are within acceptable limits rather than totally nullified. The principal risk is that frequency or severity of claims aregreater than expected or that premiums have not been correctly rated for the level of risk adopted.

The underwriting results of each underwriting manager and of each risk class are monitored on a regular basis by theinsurance portfolio management function and corrective measures are actioned where applicable. This can include the reviewof Underwriting Manager procedures for the acceptance of new business, rating procedures and claims administration, the re-rating of existing business, where applicable, or the cancellation of contracts with Underwriting Managers when justified. Thereare clearly defined limits within which business may be written.

An independent actuary is utilised to ensure that adequate premiums are being levied and that the Capital Adequacy Reserveis well covered by asset.

21.5.3. Key insurance risk

Claims risk

Claims risk is the risk that the Company may pay claims not legitimately incurred. The legitimacy of claims is verified byinternal, financial and operating controls that are designed to contain and monitor claims where required.

Lapse risk

Lapse risk is the risk of financial loss due to negative lapse experience, particularly as it impacts the actuarially assessedpolicyholder liabilities. Lapse experience is monitored to ensure that negative experience is timeously identified and correctiveaction taken.

Expense risk

Expense risk is the risk of loss due to actual expense experience being worse than that assumed in premium rates andactuarially calculated policy liabilities. Expenses are continuously monitored and managed through the Company's budgetingand financial reporting processes.

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Pricing and Underwriting risk

Pricing and Underwriting risks are the risks that inappropriate business is accepted or that business is not correctly pricedrelative to the level of risk assumed. These risks are mitigated by an ongoing review of underwriting activities, claimsexperience and financial performance, as well as periodic reviews of product rating of the Company's actuarial resource.

21.6.Capital risk management

The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern inorder to provide returns for shareholder and benefits for other stakeholders and to maintain an optimal capital structure whichbalances the required returns on the shareholder's capital with the risks associated with the entity's business.

The capital structure of the Company consists of invested share capital and retained earnings as disclosed on the Company'sstatement of financial performance. The Company has no external borrowings.

In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to the shareholder,return capital to the shareholder, raised additional capital from the shareholders or review of quantum of risk carried by theentity by passing on risk to reinsurers through proportional reinsurance structures.

Consistent with others in the industry, the Company monitors capital on the basis of the capital adequacy requirements (CAR).The Company targets a CAR ratio of 150% over the medium to long term. This ratio is calculated as the Company's net assetsdivided by its Capital Adequacy Requirements as calculated on the Financial Soundness Valuation basis disclosed in theActuary's Report.

As of 1 July 2018, the SAM regime has gone live as the industry standard for measuring a company's solvency capitalrequirements. The key measures of capital adequacy under SAM are the SCR ratio (Solvency Capital Requirement) and theMCR ratio (Minimum Capital Requirement).

These SCR and MCR components are calculated using the Regulator defined standard formula, these are then divided by theeligible own funds.

Constantia Life & Health Assurance Company Limited’s CAR was 5.15 (2017: 3.71).

The Company is required, by law, to maintain a minimum level of solvency and a prescribed spread of assets in terms of theLong Term Insurance Act and submits returns on a quarterly and annual basis to the Financial Services Board. Solvency forthis purpose is calculated in terms of the Act.

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constantia life & health assurance company limited

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