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TIGER BRANDS MEDICAL SCHEME
(Reference Number: 1544)
ANNUAL FINANCIAL STATEMENTS
31 DECEMBER 2009
1
TIGER BRANDS MEDICAL SCHEME
(Reference Number : 1544)
ANNUAL FINANCIAL STATEMENTS
for the year ended 31 DECEMBER 2009
CONTENTS
Page
Statement of responsibility by the Board of Trustees 2
Statement of corporate governance by the Board of Trustees 3
Report of the independent auditors to the members of Tiger Brands Medical Scheme 4
Report of the Board of Trustees 5 - 10
Statement of financial position 11
Statement of comprehensive income 12
Statement of changes in funds and reserves 13
Statement of cash flows 14
Notes to the annual financial statements 15 – 38
5
TIGER BRANDS MEDICAL SCHEME
REPORT OF THE BOARD OF TRUSTEES
for the year ended 31 December 2009
The Board of Trustees hereby presents its report for the year ended 31 December 2009.
1. DESCRIPTION OF THE MEDICAL SCHEME
1.1 Terms of registration
Tiger Brands Medical Scheme is a not-for-profit closed medical scheme registered in terms of the Medical Schemes Act 131
of 1998 (the Act), as amended.
1.2 Benefit options within Tiger Brands Medical Scheme
The scheme’s benefit structure provides for three levels of annual routine care benefits with different contribution rates for
each level. The Council for Medical Schemes (“the Council”) regards this as three separate options. The Council has,
however, granted the scheme exemption allowing the scheme to continue with the present structure in a single benefit option.
This option is available to employees of the Tiger Brands Group as defined in the rules of the scheme.
1.3 Risk transfer arrangement
The scheme has entered into an agreement with Tiger Brands Ltd (“the company”) to protect the scheme from any unusual
exposure to high cost incidence claims. In terms of this agreement, the company, on request, undertakes to pay to the
scheme the excess over R300 000 of any major medical expense per member per event where the total claim exceeds
R300 000. The company’s obligation is limited to an accumulative amount of R4 000 000 in total. Investment growth on
this sum may also be used by the scheme to meet the cost of high cost incidence claims. No premium or other consideration
is payable by the scheme. There are no further amounts available to meet future high cost claims at 31 December 2008.
Refer Note 11 to the annual financial statements.
2. MANAGEMENT
2.1 Board of Trustees in office during the year under review and up to the date of this report
Mr I Isdale Chairperson and Employer Trustee
Ms C Fry Employer Trustee Resigned 16 March 2009
Dr W Riback Employer Trustee Resigned 18 February 2009
Mr G Mucheka Employer Trustee
Mr N Naidoo Employer Trustee Appointed 9 April 2009
Mr R Behrens Employer Trustee Appointed 9 April 2009
Mr G Nortje Employer Trustee Appointed 22 February 2010
Mr K O’Brien Member Trustee
Ms H Geustyn Member Trustee
Mr N Siebert Member Trustee
Mr A van Rhyn
Member Trustee
2.2 Principal Officer
Mr F Koekemoer
3010 William Nicol Drive
BRYANSTON
2021
PO Box 78056
SANDTON
2146
2.3 Registered office address and postal address
C/o Status Medical Aid Administrators (Pty) Ltd
Status House
15 Tambach Road
SUNNINGHILL PARK
Sandton
Private Bag X131
RIVONIA
2128
6
TIGER BRANDS MEDICAL SCHEME
REPORT OF THE BOARD OF TRUSTEES (continued)
for the year ended 31 December 2009
2. MANAGEMENT (continued)
2.4 Medical Scheme Administrator during the year
Status Medical Aid Administrators (Pty) Ltd
Status House
15 Tambach Road
SUNNINGHILL PARK
Sandton
PO Box 1411
RIVONIA
2128
Accreditation number: ADMIN: 5
2.5 Investment managers during the year
The scheme is invested in two equity fund portfolios:
Nedcor Collective Investments Ltd
PO Box 1510
CAPE TOWN
8000
Investec Fund Managers SA Ltd
PO Box 785700
SANDTON
2146
Cash management of the scheme is undertaken by Status Medical Aid Administrators (Pty) Ltd.
2.6
Auditors
KPMG Inc.
KPMG Crescent
85 Empire Road
PARKTOWN
2193
Private Bag X9
PARKVIEW
2122
2.7
Actuarial services
The Health Monitor Company
400 16th
Road
Block G Central Park
Midrand
1685
Private Bag X17
Halfway House
1685
3. INVESTMENT STRATEGY OF THE MEDICAL SCHEME
The scheme’s investment objectives are to maximise the return on its investments on a long term basis at minimal risk. The
investment strategy takes into consideration both constraints imposed by legislation and those imposed by the Board of
Trustees. Details of investments are set out in the annual financial statements.
Investment decisions are made by the Board of Trustees to ensure that:
the scheme remains liquid;
investments are placed at minimum risk and the best possible rate of return;
investments are made in compliance with the regulations of the Act; and
a risk assessment is performed.
7
TIGER BRANDS MEDICAL SCHEME
REPORT OF THE BOARD OF TRUSTEES (continued)
for the year ended 31 December 2009
3. INVESTMENT STRATEGY OF THE MEDICAL SCHEME (continued)
The scheme invested in call and term deposits and unit trusts during 2009. This policy is reviewed regularly, taking into
consideration compliance with the Act, the risk and returns of the various investment instruments and the surplus of funds
available.
4. MANAGEMENT OF INSURANCE RISK
The primary insurance activity carried out by the scheme assumes the risk of loss from members and their dependants that
are directly subject to the risk. This risk relates to the health of the scheme members. As such the scheme is exposed to the
uncertainty surrounding the timing and severity of claims under the contract.
The scheme manages its insurance risk through benefit limits and sub-limits, approval procedures for transactions that
involve pricing guidelines, pre-authorisation and case management, service provider profiling, centralised management of
risk transfer arrangements, and the monitoring of emerging issues.
The scheme uses several methods to assess and monitor insurance risk exposures both for individual types of risks insured
and overall risks. The principal risk is that the frequency and severity of claims are greater than expected.
Insurance events are, by their nature, random, and the actual number and size of events during any one year may vary from
those estimated with established statistical techniques. There are no changes to assumptions used to measure insurance
assets and liabilities that have a material effect on the financial statements and there are no terms and conditions of insurance
contracts that have a material effect on the amount timing and uncertainty of the scheme’s cash flows.
5. REVIEW OF THE ACCOUNTING PERIOD’S ACTIVITIES
5.1 Operational statistics
2009 2008
Average number of members during the accounting period 5 014 5 061
Number of members at 31 December 4 972 5 011
Average number of beneficiaries during the accounting period 11 576 11 675
Number of beneficiaries at 31 December 11 482 11 539
Dependant ratio at 31 December 1.3 1.3
Net contributions per average beneficiary per month R1 120 R979
Relevant healthcare expenditure per average beneficiary per month R1 093 R1 027
Non-health expenditure per average beneficiary per month R84 R74
Relevant healthcare expenditure as a percentage of gross contributions 98,0% 105,0%
Non-healthcare expenditure as a percentage of gross contributions 7,50% 7,60%
Average age 38 39
Pensioner ratio at 31 December 16.16% 17,0%
Average accumulated funds per member at year-end R16 145 R15 748
Breakdown of total amount paid to administrator:
- Administration fees R7 144 756 R6 567 373
- Fund manager fees R227 985 R210 702
- Medical advisor fees
- Cash management fees
R66 381
R17 049
R61 350
-
Return on investments as a percentage of investments 8,3% 10,3%
8
TIGER BRANDS MEDICAL SCHEME
REPORT OF THE BOARD OF TRUSTEES (continued)
for the year ended 31 December 2009
5. REVIEW OF THE ACCOUNTING PERIOD’S ACTIVITIES (continued)
5.2 Results of operations
The results of the scheme are set out in the annual financial statements, and the trustees believe that no further clarification is
required.
2009 2008
R R
5.3 Solvency ratio
Total members’ funds per statement of financial position 92 764 154 88 605 253
Less: Available-for-sale reserve 12 493 691 9 690 751
Accumulated funds per Regulation 29 80 270 463 78 914 502
Gross contributions 155 517 162 137 211 541
Solvency ratio:
= Accumulated funds/Gross annual contributions X 100% 51,6% 57,5%
5.4 Reserve accounts
Movements in the reserves are set out in the Statement of Changes in Funds and Reserves. There have been no unusual
movements that the trustees believe should be brought to the attention of the members of the scheme.
5.5 Outstanding claims
The basis of calculation of the outstanding claims provision is discussed in Note 7 to the annual financial statements and this
is consistent with the prior year. Movements on the outstanding claims provision are set out in Note 7 to the annual
financial statements. There have been no unusual movements that the trustees believe should be brought to the attention of
the members of the scheme.
6. ACTUARIAL SERVICES
The scheme's actuaries were consulted during the year in the determination of the contribution and benefit levels for the 2010
financial year.
7. EVENTS AFTER STATEMENT OF FINANCIAL POSITION DATE
There have been no events that have occurred subsequent to the end of the accounting period that affect the annual financial
report and that the trustees consider should be brought to the attention of the members of the scheme.
8. INVESTMENTS IN AND LOANS TO PARTICIPATING EMPLOYERS OF MEMBERS OF THE MEDICAL
SCHEME AND TO OTHER RELATED PARTIES
The scheme holds no direct investments in participating employers of scheme members.
9. RELATED PARTY TRANSACTIONS
Related party transactions are set out in Note 17 to the annual financial statements.
9
TIGER BRANDS MEDICAL SCHEME
REPORT OF THE BOARD OF TRUSTEES (continued)
for the year ended 31 December 2009
10. AUDIT COMMITTEE
An audit committee was established in accordance with provisions of the Act. The committee is mandated by the Board of
Trustees by means of written terms of reference as to its membership, authority and duties. The committee consists of five
members of which two are members of the Board of Trustees. The majority of the members, including the chairperson, are
not officers of the scheme or its third party administrator. The committee met on two occasions during the course of the
year.
In accordance with the provisions of the Act, the primary responsibility of the committee is to assist the Board of Trustees in
carrying out its duties relating to the scheme’s accounting policies, internal control systems and financial reporting practices.
The external auditors formally report to the committee on critical findings arising from their audit activities.
The committee presently comprises:
* Mr M Fleming Chairperson
* Mr S Hynes
Mr G Mucheka Employer Trustee
Mr A van Rhyn Member Trustee
* Mr G King - Appointed 5 June 2009
Mr R Behrens - Resigned 5 June 2009
* Independent member
11. BOARD OF TRUSTEES AND AUDIT COMMITTEE MEETING ATTENDANCE
The following schedule sets out Board of Trustees and Audit Committee meeting attendances. Trustees are not remunerated
by the scheme for services rendered. Costs incurred in execution of trustee duties are borne by the employer group.
Trustee/ Audit Committee Member Board Meetings Audit Committee Meetings
A B A B
* Mr I Isdale 6 6 N/A N/A
* Ms C Fry 1 1 N/A N/A
* Ms H Geustyn 6 5 N/A N/A
* Mr W Riback 0 0 N/A N/A
* Mr K O’Brien 6 4 N/A N/A
* Mr N Naidoo 5 1 N/A N/A
* Mr N Siebert 6 5 N/A N/A
* Mr R Behrens 5 4 1 1
* Mr G Mucheka 6 5 2 2
* Mr A van Rhyn 6 3 2 2
Mr M Fleming N/A N/A 2 2
Mr S Hynes N/A N/A 2 2
Mr G King N/A N/A 1 1
A – Total possible number of meetings could have attended
B – Actual number of meetings attended
* Trustee
10
TIGER BRANDS MEDICAL SCHEME
REPORT OF THE BOARD OF TRUSTEES (continued)
for the year ended 31 December 2009
12. NON-COMPLIANCE WITH THE MEDICAL SCHEMES ACT (“THE ACT”)
In accordance with the Council for Medical Schemes circular 11/2006 the scheme is required to report all non-compliance
with the Act noted during the course of the audit irrespective of whether the auditor considers the non-compliance as material
or immaterial.
Payment of contributions
Section 26(7) of the Act requires contributions to be paid to a scheme not later than three days after payment thereof
becoming due. Whilst every effort is made to enforce this requirement the onus is on the member/ employer group to ensure
compliance. During the financial year certain contributions were identified that were not paid to the scheme within three
days of becoming due.
The non-compliance increases the liquidity risk to the scheme and could result in amounts due to the scheme being
irrecoverable. Credit control procedures are followed to collect outstanding amounts.
Foreign component of unit trusts
Regulation 30 under the Act, read with Annexure B, which governs the limitations on the assets, prohibits the investment of
the scheme’s assets in territories outside the Republic of South Africa. At 31 December 2009 the foreign component of unit
trusts held by the scheme amounted to R784 917.
This occurred as a result of the scheme inadvertently acquiring shares in British American Tobacco Plc as a result of the
unbundling of Remgro Ltd.
The Board of Trustees have requested exemption until 31 December 2010 from the Council for Medical Schemes to dispose
of the unit trusts in order to consider alternative investment options during the 2010 financial year.
11
TIGER BRANDS MEDICAL SCHEME
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2009
Notes 2009 2008
R R
ASSETS
Non-current asset
Available-for-sale investments 2 4 354 932 19 217 177
Current assets 103 967 437 86 213 824
Available-for-sale investments 2 19 142 588 -
Trade and other receivables 3 5 166 300 6 540 589
Cash and cash equivalents 4 79 658 549 79 673 235
Total assets 108 322 369 105 431 001
FUNDS AND LIABILITIES
Members’ funds 92 764 154 88 605 253
Accumulated funds 63 933 099 59 077 138
Available-for-sale reserve 12 493 691 9 690 751
Stabilisation reserve 5 16 337 364 19 837 364
Non-current liabilities
Borrowings 6 1 000 000 1 000 000
Current liabilities 14 558 215 15 825 748
Outstanding claims provision 7 6 258 300 7 660 542
Trade and other payables 8 8 299 915 8 165 206
Total funds and liabilities 108 322 369 105 431 001
12
TIGER BRANDS MEDICAL SCHEME
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2009
Notes 2009 2008
R R
Net contribution income 9 155 517 162 137 211 541
Relevant healthcare expenditure (151 806 471) (143 856 551)
Net claims incurred 10 (151 806 471) (145 423 469)
Claims incurred (152 316 821) (145 647 642)
Third party claim recoveries 510 350 224 173
Net income on risk transfer arrangement 11 - 1 566 918
Risk transfer arrangement fees - -
Recovery from risk transfer arrangement - 1 566 918
Gross healthcare result 3 710 691 (6 645 010)
Managed care: management services 12 (3 462 185) (3 032 069)
Administration expenditure 13 (8 075 868) (7 313 236)
Net impairment losses on healthcare receivables 3 (84 137) (48 179)
Net healthcare result (7 911 499) (17 038 494)
Other income 9 310 169 10 937 077
Investment income 14 8 543 527 10 153 102
Sundry income 15 766 642 783 975
Other expenditure
Asset management fees (42 709) (20 953)
Net surplus / (deficit) for the year 1 355 961 (6 122 370)
Other comprehensive income
Unrealised gains / (losses) on revaluation of available-for-sale investments 2 802 940 (5 267 812)
Total comprehensive income for the year 4 158 901 (11 390 182)
13
TIGER BRANDS MEDICAL SCHEME
STATEMENT OF CHANGES IN FUNDS AND RESERVES FOR THE YEAR ENDED 31 DECEMBER 2009
Accumulated
Funds
Available-for-
sale reserve
Stabilisation
reserve
Total
R R R R
Balance at 1 January 2008 61 699 508 14 958 563 23 337 364 99 995 435
Total comprehensive income for the year (6 122 370) (5 267 812) - ( 11 390 182)
Net deficit for the year (6 122 370) - - (6 122 370)
Other comprehensive income - (5 267 812) - (5 267 812)
Transfer from stabilisation reserve 3 500 000 - (3 500 000) -
Balance at 31 December 2008 59 077 138 9 690 751 19 837 364 88 605 253
Total comprehensive income for the year 1 355 961 2 802 940 - 4 158 901
Net surplus for the year 1 355 961 - - 1 355 961
Other comprehensive income - 2 802 940 - 2 802 940
Transfer from stabilisation reserve 3 500 000 - (3 500 000) -
Balance at 31 December 2009 63 933 099 12 493 691 16 337 364 92 764 154
14
TIGER BRANDS MEDICAL SCHEME
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2009
Note 2009 2008
R R
Cash flows from operating activities
Cash flows from operations before working capital changes 16 (7 187 566) (16 275 472)
Working capital changes
- Decrease / (increase) in trade and other receivables 1 374 289 (163 471)
- Increase in trade and other payables 134 709 1 082 418
- (Decrease) in outstanding claims provision (1 402 242) (655 502)
(7 080 810) (16 012 027)
Cash flows from investing activities
Purchase of investments (1 477 403) (873 702)
Interest received 7 482 252 9 733 887
Dividends received 1 061 275
419 215
Net decrease in cash and cash equivalents (14 686) (6 732 627)
Cash and cash equivalents at beginning of year 79 673 235 86 405 862
Cash and cash equivalents at end of year 4 79 658 549 79 673 235
15
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 DECEMBER 2009
1. PRINCIPAL ACCOUNTING POLICIES
The following are the principal accounting policies used by the scheme, which are consistent with those of the previous year.
1.1 Basis of preparation
The annual financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”), and in
the manner required by the Medical Schemes Act of South Africa on the historical cost convention, except for available-for-
sale investments, which are carried at fair value.
Critical accounting judgements and areas of key sources of estimation uncertainty
The scheme makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,
rarely equal the related actual results.
Certain critical accounting judgements in applying the scheme’s accounting policies and key assumptions concerning the
future and other key sources of estimation uncertainty at the statement of financial position date, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities in the next financial year, are disclosed below.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
The ultimate liability arising from claims made under insurance contracts
There are some sources of uncertainty that need to be considered in the estimate of the liability that the scheme will
ultimately pay for such claims. Initial estimates are made by the administrator’s staff relating to the best calculations on
reported claims and derived as the claims process develops. All estimates are revised and adjusted at year-end by
management.
Valuation of financial instruments
The Scheme's accounting policy on fair value measurements is discussed in accounting policy 1.2.
The Scheme measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in
making the measurements:
• Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.
• Level 2: Valuation techniques based on observable inputs, either directly (i.e. prices) or indirectly (i.e. derived from
prices). This category includes instruments valued using quoted market prices in active markets for similar instruments;
quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation
techniques where all significant inputs are directly or indirectly observable from market data.
• Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the
valuation technique includes inputs based on observable data and the unobservable inputs have a significant effect on the
instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments
where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.
All the Scheme's financial instruments are categorised as level 1.
New standards, amendments and interpretations effective in 2009 and relevant to the scheme.
The following new standards, amendments and interpretations are mandatory for accounting periods ending on 31 December
2009 and relevant to the scheme’s operations:
Effective date –
Title Financial year commencing on or after
IAS 1 - Presentation of Financial Statements. This is a disclosure
standard which will not affect the recognition and
measurement of any items in the financial statements.
01 Jan 2009
IAS 36 - Impairment of Assets. This is a disclosure standard which
will not affect the recognition and measurement of any
items in the financial statements.
01 Jan 2009
16
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
1.1 Basis of preparation (continued)
New standards, amendments and interpretations effective in 2009, but not relevant to the scheme
The following new standards, amendments and interpretations are mandatory for accounting periods ending on 31 December 2009, but
not relevant to the schemes operations:
Effective date –
Title Financial year commencing on or after
IFRIC 9 - Reassessment of Embedded Derivatives and IAS 39 30 June 2009
IFRIC 15 - Agreements for the Construction of Real Estate 01 Jan 2009
IFRIC 16 - Hedging Instruments held by a Foreign Operation 01 Jul 2009
IFRIC 17 - Distribution of Non-cash Assets to Owners 01 Jul 2009
IFRIC 18 - Transfer of Assets from Customers 01 Jul 2009
IFRS 1 - First-Time Adoption of International Financial Reporting
Standards and IAS 27 - Consolidated and Separate Financial
Statements: Cost of an Investment in a Subsidiary, Jointly
Controlled Entity or Associate
01 Jan 2009
IFRS 2 - Share Based Payments 01 Jan 2009
IFRS 3 - Business Combinations (revised) 01 Jul 2009
IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations 01 Jul 2009
IFRS 7 - Financial Instruments: Disclosures 01 Jan 2009
IFRS 8 - Operating segments 01 Jan 2009
IAS 8 - Accounting Policies, Changes in Accounting Estimates and
Errors 01 Jan 2009
IAS 10 - Events after the Reporting Period 01 Jan 2009
IAS 16 - Property, Plant and Equipment 01 Jan 2009
IAS 18 - Revenue 01 Jan 2009
IAS 19 - Employee Benefits 01 Jan 2009
IAS 20 - Accounting for Government Grants and Disclosure of
Government Assistance 01 Jan 2009
IAS 23 - Borrowing Costs 01 Jan 2009
IAS 27 - Consolidated and Separate Financial Statements (revised) 01 Jan 2009
IAS 28 - Investments in Associates 01 Jan 2009
IAS 29 - Financial Reporting in Hyperinflationary Economies 01 Jan 2009
IAS 31 - Interests in Joint Ventures 01 Jan 2009
IAS 32 - Financial Instruments: Presentation and IAS 1 - Presentation of
Financial Statements - Puttable Financial Instruments and
Obligations Arising on Liquidation
01 Jan 2009
IAS 34 - Interim Financial Reporting 01 Jan 2009
IAS 38 - Intangible Assets 01 Jan 2009
IAS 39 - Financial Instruments: Recognition and Measurement 01 Jan 2009
IAS 40 - Investment Property 01 Jan 2009
IAS 41 - Agriculture 01 Jan 2009
17
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
1. PRINCIPAL ACCOUNTING POLICIES (continued)
1.1 Basis of preparation (continued)
New standards, amendments and interpretations not yet effective and not relevant to the scheme
The following new standards, amendments and interpretations are mandatory for accounting periods as indicated, but are not relevant to
the scheme’s operations:
Effective date –
Title Financial year commencing on or after
IFRS 5 - Non- current Assets Held for Sale and
Discontinued Operations 01 Jan 2010
IFRS 8 - Operating Segments 01 Jan 2010
IAS 1 - Presentation of Financial Statements 01 Jan 2010
IAS 17 - Leases 01 Jan 2010
1.2 Financial instruments
The scheme has the following financial instrument categories: loans and receivables, available-for-sale investments and
financial liabilities measured at amortised cost. The scheme has grouped its financial instruments into the following classes.
Trade and other receivables;
Cash and cash equivalents;
Available-for-sale investments; and
Trade and other payables
Recognition
Financial assets and liabilities are recognised on the scheme’s statement of financial position when it becomes a party to the
contractual provisions of the instrument. Such recognition presumes that the risks and rewards of ownership and the control
over these financial assets and liabilities are vested in the scheme.
Measurement
Financial instruments are initially measured at fair value plus, in the case of financial assets and liabilities not at fair value
through the statement of comprehensive income, transaction costs that are directly attributable to acquisition or issue of the
financial asset or liability. Subsequent to initial recognition, these instruments are measured as set out below.
Investments
All purchases and sales of investments are recognised on the trade date, which is the date that the scheme commits to
purchase or sell the asset. Cost of purchases includes transaction costs. Available-for-sale investments are subsequently
carried at fair value. The fair value of unit trusts is based on repurchase prices as at the statement of financial position date.
Unrealised gains and losses arising from changes in the fair value of the available-for-sale investments are included in the
available-for-sale reserve and are not taken to the statement of comprehensive income. Once the available-for-sale investment
is sold, the realised fair value gain or loss on the available-for-sale investments is included in the statement of comprehensive
income.
18
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
1. PRINCIPAL ACCOUNTING POLICIES (continued)
1.2 Financial instruments (continued)
Trade and other receivables
Trade and other receivables are measured on initial recognition at fair value. An appropriate allowance for estimated
irrecoverable amounts is recognised in the statement of comprehensive income when there is objective evidence that the asset
is impaired. This allowance is measured as the difference between the asset’s carrying amount and the present value of the
estimated future cash flows. Permanent impairments are written off to the statement of comprehensive income when
identified.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held on call with banks and other short-term liquid investments
that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value.
Financial liabilities
Financial liabilities are measured on initial recognition at fair value, and are subsequently measured at amortised cost using
the effective interest method. The fair value of financial liabilities with a demand feature (savings plan liability) is the
amount payable on demand.
Offset
Where a legally enforceable right of offset exists for recognised financial assets and financial liabilities, and there is an
intention to settle the liability and realise the asset simultaneously, or to settle on a net basis, all related financial effects are
offset.
Derecognition
Financial assets are derecognised when the rights to receive cash flows from them have expired or where they have been
transferred, and the scheme has also transferred substantially all risks and rewards of ownership.
A financial liability is derecognised when the contractual obligation (deposit component) is discharged or expires.
1.3 Provisions
Provisions are recognised when the scheme has a present legal or constructive obligation as a result of past events, for which
it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be
made of the amount of the obligation. Where the effect of discounting to present value is material, provisions are adjusted to
reflect the time value of money.
1.4 Outstanding claims
Claims outstanding comprise provisions for the scheme’s estimate of the ultimate cost of settling all claims incurred but not
yet reported at the statement of financial position date. Claims outstanding are determined as accurately as possible on the
basis of a number of factors, which include previous experience in claims patterns, claims settlement patterns, changes in the
nature and number of members according to gender and age, trends in claims frequency, changes in the claims processing
cycle, and variations in the nature and average cost incurred per claim.
Estimated co-payments are deducted in calculating the outstanding claims provision. The scheme does not discount its
provision for outstanding claims, since the effect of the time value of money is not considered material.
1.5 Insurance contracts
Contracts under which the scheme accepts significant insurance risk from another party (the member) by agreeing to
compensate the member or other beneficiary if a specified uncertain future event (the insured event) adversely affects the
member or other beneficiary are classified as insurance contracts. The contracts issued compensate the scheme’s members
for healthcare expenses incurred.
19
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
1. PRINCIPAL ACCOUNTING POLICIES (continued)
1.6 Contribution income
Contributions on member insurance contracts are accounted for monthly when their collection in terms of the insurance
contract is reasonably certain. The earned portion of contributions received is recognised as revenue. Contributions are
earned from date of attachment of risk, over the indemnity period on a straight-line basis.
1.7 Relevant healthcare expenditure
Relevant healthcare expenditure consists of net claims incurred and net income or expense from risk transfer arrangements.
1.8 Claims incurred
Claims incurred comprise the total estimated cost of all claims arising from healthcare events that have occurred in the year
and for which the scheme is responsible, whether or not reported by the end of the year. Net claims incurred represent
claims incurred net of recoveries from members for co-payments after taking into account recoveries from third parties.
1.9 Risk transfer arrangements
Only contracts that give rise to a significant transfer of insurance risk are accounted for as an insurance contract.
Amounts recoverable under such contracts are recognised in the same year as the related claim.
Claims recoveries relating to risk transfer arrangements are calculated on the basis of what it would have cost the scheme had
the arrangement not been in place.
If applicable, assets relating to risk transfer arrangements include balances due under risk transfer arrangements for
outstanding claims provisions and claims reported not yet paid. Amounts recoverable under risk transfer arrangements are
estimated in a manner consistent with the outstanding claims provisions, claims reported not yet paid, and settled claims
associated with the risk transfer arrangement.
If applicable, amounts recoverable under risk transfer arrangements are assessed for impairment at each statement of
financial position date. Such assets are deemed impaired if there is objective evidence, as a result of an event that occurred
after its initial recognition, that the scheme may not recover all amounts due and that the event has a reliably measurable
impact on the amounts that the scheme will receive under the risk transfer arrangement.
1.10 Liabilities and related assets under liability adequacy test
The liability for insurance contracts is tested for adequacy by discounting current estimates of all future contractual cash
flows and comparing this amount to the carrying value of the liability net of any related assets (i.e. the value of business
acquired). Where a shortfall is identified, an additional provision is made and the scheme recognises the deficiency in
income for the year.
1.11 Reimbursements from the Road Accident Fund (RAF)
The scheme grants assistance to its members in defraying expenditure incurred in connection with the rendering of any health
service. Such expenditure may be in connection with a claim that is also made to the RAF, administered in terms of the
Road Accident Fund Act No. 56 of 1996. If the member is reimbursed by the RAF, they are obliged contractually to cede
that payment to the scheme to the extent that they have already been compensated.
A reimbursement from the RAF is a possible asset that arises from claims submitted to the RAF and whose existence will be
confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of
the scheme. The contingent assets are assessed continually to ensure that developments are appropriately reflected in the
financial statements. If it has become virtually certain that an inflow of economic benefits will arise, the asset and the
related income are recognised in the financial statements of the period in which the change occurs. If an inflow of economic
benefits has become probable, the scheme discloses the contingent asset. Recoveries from the RAF are reflected as part of
third party claim recoveries in the statement of comprehensive income.
20
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
1. PRINCIPAL ACCOUNTING POLICIES (continued)
1.12 Investment income
Investment income comprises interest received, dividends and realised gains on available-for-sale investments. Interest
income is recognised on a yield to maturity basis, taking account of the principal outstanding and the effective rate over the
period to maturity, when it is determined that such income will accrue to the scheme.
Dividend income from investments is recognised when the right to receive payment is established.
Income from collective investment schemes and insurance policies is recognised when entitlement to revenue is established.
Realised gains arising on the sale of available-for-sale investments are recognised in the statement of comprehensive income.
1.13 Impairment losses
The carrying amounts of the scheme’s assets are reviewed at each statement of financial position date to determine whether
there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment
losses are recognised in the statement of comprehensive income. Provision for impairment losses is calculated in terms of
possible 2009 write-off relating to 2008 book and prior.
Calculation of recoverable amount
The scheme’s receivables are not discounted due to the short term of their recoverability.
Reversals of impairment
An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An
impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that
would have been determined if no impairment loss had been recognised.
1.14 Income tax
In terms of Section 10(1)(d) of the Income Tax Act 58 of 1962, as amended, receipts and accruals of a benefit fund are
exempt from normal tax. A medical scheme is included in the definition of a benefit fund and consequently the scheme is
exempt from income tax.
21
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
2009 2008
R R
2. AVAILABLE-FOR-SALE INVESTMENTS
Fair value at the beginning of the year 19 217 177 23 611 287
Additions 1 477 403 873 702
Unrealised gains / (loss) on revaluation of available-for-sale investments 2 802 940 (5 267 812)
Fair value at end of year 23 497 520 19 217 177
Current 19 142 588 -
Non-current 4 354 932 19 217 177
23 497 520 19 217 177
The investments included above consist of:
Investments in unit trusts 19 142 588 15 239 639
Money market – managed portfolio 4 354 932 3 977 538
23 497 520 19 217 177
Available-for-sale investments are classified as non-current assets, unless they are
expected to be realised within twelve months of the statement of financial position
date or unless they will need to be sold to raise operating capital.
The investments have no fixed maturity. The fair values of these investments are
based on quoted prices at the statement of financial position date.
A register of investments is available for inspection at the registered office of the
scheme.
3. TRADE AND OTHER RECEIVABLES
Insurance receivables
Contributions outstanding 4 807 098 4 177 857
Recoveries from members for co-payments 21 134 25 777
4 828 232 4 203 634
Less: Impairment losses (Refer note below)
- Provision for impairment losses at year end (117 132) (29 904)
4 711 100 4 173 730
Amounts owing by suppliers 457 955 805 787
- Provision for impairment losses at year end (2 755) (5 846)
455 200 799 941
Additional employer contribution (Note 11) - 1 566 918
5 166 300 6 540 589
The carrying amounts of trade and other receivables approximate their fair values
due to the short-term maturities of these assets.
22
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
2009 2008
R R
3. TRADE AND OTHER RECEIVABLES (continued)
The scheme makes use of an allowance account for impairment losses. Trade and
other receivables are considered to be impaired when a period of 120 days has
elapsed and the outstanding amounts have not been collected. The affordability
and personal circumstances of the members or healthcare professional are also
considered.
The movement in the allowance for impairment for each class of financial asset,
during the year was as follows:
Insurance receivables
Balance at beginning of year 35 750 11 294
Amount recognised in the statement of comprehensive income 84 137 24 456
Additional provisions made 84 137 24 468
Amounts utilised - (12)
Balance at end of year 119 887 35 750
The impairment loss recognised in the statement of comprehensive income is as
follows:
Movement in the allowance account for impairment losses 84 137 24 456
Impairment losses recognised directly in the statement of comprehensive income - 23 723
84 137 48 179
4. CASH AND CASH EQUIVALENTS
Call and term deposit accounts 65 549 372 64 580 842
Current accounts 14 109 177 15 092 393
79 658 549 79 673 235
Cash and cash equivalents per statement of financial position 79 658 549 79 673 235
Cash and cash equivalents per statement of cash flows 79 658 549 79 673 235
The weighted average effective interest rates are:
Term deposits 9,30% 11,75%
The average maturities are:
Term deposits 139 days 86 days
The carrying amounts of cash and cash equivalents approximate their fair values
due to the short-term maturities of these assets.
23
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
2009 2008
R R
5. STABILISATION RESERVE
The Tiger Brands group has contributed R33 837 364 to the scheme to fund expected
increased future claims of members due to the increased percentage of pensioner
members of the scheme. The fifth transfer from the stabilisation reserve amounting to
R3 500 000, was made during the current year (2008:R3 500 000). Should the
scheme’s claims experience necessitate, this basis of transfer will be reviewed by the
trustees, subject to the approval of the Council for Medical Schemes.
6. BORROWINGS
The fair value and the carrying amount of borrowings is as follows:
Non-interest bearing borrowings
Unsecured loan from Tiger Brands Limited bearing no interest 1 000 000 1 000 000
This loan has no fixed terms of repayment but requires the written approval of the
Registrar of Medical Schemes prior to repayment.
7. OUTSTANDING CLAIMS PROVISION
Outstanding claims provision 6 258 300 7 660 542
Analysis of movements in outstanding claims
Balance at beginning of year 7 660 542 8 316 044
Payments in respect of prior year (7 258 654) (8 500 205)
Over / (Under) provision in respect of prior year 401 888 (184 161)
Adjustment for current year 5 856 412 7 844 703
Balance at end of year 6 258 300 7 660 542
Analysis of outstanding claims provision
Estimated gross claims 6 258 300 7 660 542
Less: Estimated recoveries from co-payments - -
Balance at end of year 6 258 300 7 660 542
Process used to determine assumptions
In order to qualify for benefits any claim must, unless otherwise arranged, be
submitted to the scheme not later than the last day of the fourth month following the
month in which the healthcare service was rendered.
Each notified claim is assessed on a separate, case by case basis with due regard to
the claim circumstances, information available from managed care: management
services and historical evidence of the size of similar claims. The provisions are
based on information currently available. However, the ultimate liabilities may
vary as a result of subsequent developments.
24
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
7. OUTSTANDING CLAIMS PROVISION (continued)
The cost of outstanding claims is estimated as follows:
(i) actual claims notified and assessed during the three months succeeding the
financial year end of the scheme, and
(ii) an estimate of claims, using claims run off tables, for the fourth and
subsequent months succeeding the financial year end of the scheme.
Historical claims development information is used on the assumption that
this pattern will occur again in the future.
There are reasons why this may not be the case, which, insofar as they can be
identified, have been allowed for by modifying the method. Such reasons include:
changes in processes that effect the development / recording of claims paid
and incurred (such as changes in claims reversing procedures);
economic, legal, political and social trends (resulting in different than
expected levels of inflation and / or minimum medical benefits to be
provided);
changes in composition of members and their dependents; and
random fluctuations, including the impact of large losses.
The scheme believes that the liability for claims reported in the statement of
financial position is adequate and no additional provision is required in terms of a
liability adequacy test.
Changes in assumptions and sensitivities to changes in key variables
No sensitivity analysis has been presented as the process used to determine the
estimated cost of outstanding claims presents with a high degree of accuracy.
25
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
2009 2008
R R
8. TRADE AND OTHER PAYABLES
Insurance liabilities
Reported claims not yet paid 5 741 700 5 289 458
Amounts owing to suppliers 27 402 592 074
Stale cheques 380 113 412 510
Outstanding cheques for claims expenses 347 751 204 587
Total liabilities arising from insurance contracts 6 496 966 6 498 629
Other liabilities
Amounts owing to administrator 787 123 714 709
Amounts owing to managed care organisations 329 438 259 013
Amounts owing to auditors 150 000 133 336
Credit balances in receivables 226 422 412 303
Other payables 309 966 147 216
Total other liabilities 1 802 949 1 666 577
8 299 915 8 165 206
The carrying amounts of trade and other payables approximate their fair values due
to the short-term maturities of these liabilities. The scheme provides for audit fees
as a constructive legal obligation arising from the requirement by the Medical
Schemes Act to have an audit performed.
9. NET CONTRIBUTION INCOME
Contributions received 155 517 162 137 211 541
10. NET CLAIMS INCURRED
Current year claims 153 208 713 146 078 971
Movement in outstanding claims provision (1 402 242) (655 502)
(Over) / Under provision in prior year (401 888) 184 161
Adjustment for current year (1 000 354) (839 663)
151 806 471 145 423 469
Current year claims include:
Claims incurred covered by risk transfer arrangement (Note 11) - 6 561 681
26
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
2009 2008
R R
11. NET INCOME ON RISK TRANSFER ARRANGEMENT
Recovery from risk transfer arrangement - (1 566 918)
The scheme has entered into an agreement with Tiger Brands Ltd (“the company”)
to protect the scheme from any unusual exposure to high cost incidence claims. In
terms of this agreement, the company, on request, undertakes to pay to the scheme
the excess over R300 000 of any major medical expense per member per event
where the total claim exceeds R300 000. The company’s obligation is limited to an
accumulative amount of R4 000 000 in total. Investment growth on this sum may
also be used by the scheme to meet the cost of high cost incidence claims. No
premium or other consideration is payable by the scheme.
The net cost to the scheme of claims covered by this arrangement is as follows:
Claims incurred covered by risk transfer arrangement - 6 561 681
Less: claims recovery from risk transfer arrangement - (1 566 918)
Net cost of claims covered by risk transfer arrangement - 4 994 763
There are no further amounts available to meet future high cost claims at
31 December 2008.
12. MANAGED CARE: MANAGEMENT SERVICES
Hospital utilisation and case management 1 189 329 1 073 046
Medical advisor fee 66 381 61 350
Oncology utilisation management 78 403 65 835
Pharmacy benefit management 1 708 952 1 501 278
Prescribed minimum benefit management 300 740 299 249
Trauma cost recovery management 118 380 31 311
3 462 185 3 032 069
13. ADMINISTRATION EXPENSES
Administrator’s fees 7 372 741 6 778 075
Audit services 152 621 131 700
Auditor’s fees (current year) 150 000 130 064
Auditor’s fees under provision 2 621 1 636
Bank charges 200 096 217 328
Internal control review 65 136 69 084
Registrar’s levies 77 270 75 035
Association fees
Actuarial fees
Marketing
35 578
91 200
64 645
36 698
-
-
Other expenses 16 581 5 316
8 075 868 7 313 236
27
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
2009 2008
R R
14. INVESTMENT INCOME
Income from available-for-sale investments 1 503 064 894 655
Dividends received 1 061 275 419 215
Interest income 441 789 475 440
Income from cash and cash equivalents 7 040 463 9 258 447
Interest on current accounts 482 562 1 058 107
Interest on money market instruments 1 330 270 1 379 702
Interest on term deposits 5 227 631 6 820 638
8 543 527 10 153 102
15. SUNDRY INCOME
Bad debts recovered 2 691 3 714
Discount received 643 144 696 358
Stale cheques written back 91 748 83 903
Fidelity Insurance written back 29 059 -
766 642 783 975
16. CASH FLOWS FROM OPERATIONS BEFORE
WORKING CAPITAL CHANGES
Surplus / (Deficit) for the year 1 355 961 (6 122 370)
Adjustments for:
Interest received (7 482 252) (9 733 887)
Dividends received (1 061 275) (419 215)
Cash flows from operations before working capital changes (7 187 566) (16 275 472)
17. RELATED PARTY TRANSACTIONS
Transactions with key management personnel
Key management personnel are those persons having authority and responsibility
for planning, directing and controlling the activities of the scheme.
Key management personnel include the Board of Trustees and the Principal Officer.
Contributions and claims
Statement of comprehensive income
Gross contributions received 367 272 312 792
Claims incurred 316 391 317 020
Statement of financial position
Contribution debtor 1 548 7 516
Claims reported not yet paid - -
28
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
2009 2008
R R
17. RELATED PARTY TRANSACTIONS (continued)
The terms and conditions of the related party transactions were as follows:
Transaction Nature of transaction and terms and conditions
thereof
Contribution received This constitutes the contributions paid by the related party
as a member of the scheme, in their individual capacity.
All contributions were at the same terms as applicable to
third parties.
Claims incurred This constitutes amounts claimed by the related parties, in
their individual capacity as members of the scheme. All
claims were paid out in terms of the rules of the scheme,
as applicable to third parties.
Contribution debtor This constitutes outstanding contributions payable. The
amounts are due immediately. No provisions for doubtful
debts have been raised on these amounts.
Claims reported not
yet paid
These are claims that have been reported, but not yet paid
due to the fact that the scheme does a payment run twice a
month. All claims are settled within 30 days of being
received.
Transactions with parties that have significant influence over the scheme
Status Medical Aid Administrators (Pty) Ltd provides administration services to the
scheme and has significant influence over the scheme as it participates in the
scheme’s financial and operating policy decisions, but does not control the scheme.
Q.A. Care Plus (Pty) Ltd provides managed healthcare services to the scheme and
has significant influence over the scheme as it participates in the scheme’s financial
and operating policy decisions, but does not control the scheme.
Status Medical Aid Administrators (Pty) Ltd and Q.A. Care Plus (Pty) Ltd are
fellow subsidiary companies.
During the year the scheme entered into the following transactions with these
related parties under terms that were no less favourable than those available from
third parties.
Status Medical Aid Administrators (Pty) Ltd
- Administration fees paid 7 372 741 6 778 075
- Medical advisor fee
- Cash Management
66 381
17 049
61 350
-
7 456 171 6 839 425
Balance due to Status Medical Aid Administrators (Pty) Ltd at the end of the year 787 123 714 709
Q.A. Care Plus (Pty) Ltd
- Hospital utilisation and case management 1 189 329 1 073 046
- Prescribed minimum benefit management 300 740 299 249
- Trauma cost recovery management 118 380 31 311
1 608 449 1 403 606
Balance due to Q.A. Care Plus (Pty) Ltd at the end of the year 200 528 142 938
29
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
17. RELATED PARTY TRANSACTIONS (continued)
Terms and conditions of the administration agreement
The administration agreement is in terms of the rules of the scheme and in accordance with instructions given by the trustees
of the scheme. The agreement is automatically renewed each year unless notification of termination is received. The
scheme has the right to terminate the agreement on 90 days notice. Administration fees are payable monthly in arrears by
the seventh day of each month.
Terms and conditions of the managed care agreements
The managed care agreements are in accordance with instructions given by the trustees of the scheme. The agreements are
automatically renewed each year unless notification of termination is received. The scheme has the right to terminate the
agreement on 180 days notice. Managed care fees are payable monthly in arrears by the seventh day of each month.
18. INSURANCE RISK MANAGEMENT
Nature and extent of risks arising from insurance contracts
The scheme issues contracts that transfer insurance risk. This section summarises these risks and the way the scheme
manages them.
Insurance risk – description of benefit options
The types of benefits offered by the scheme in return for monthly contributions are indicated below:
In-hospital benefits cover all costs incurred by registered beneficiaries, whilst they are in hospital to receive pre-
authorised treatment for certain medical conditions.
Chronic benefits cover the cost of certain prescribed medicines consumed by members for chronic conditions/ diseases,
subject to pre-authorisation, protocols, formularies and designated service providers (DSP’s)
Day-to-day benefits cover the cost up to certain limits of all out of hospital medical attention, such as visits to general
practitioners and dentists as well as prescribed non-chronic medicines.
30
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
18. INSURANCE RISK MANAGEMENT (continued)
The above benefits are extended to the principal member and their contributing dependants as indicated below:
IN HOSPITAL Subject to pre-authorisation
PMB unlimited subject to DSP’s and PMB protocols
Non-PMB generally unlimited subject to specified sub-limits
Hospital account paid at NHRPL or at a rate negotiated with the hospital
Top-up cover at DSP paid up to a maximum of 300% of NHRPL
Top-up cover at non-DSP paid up to a maximum of 250% of NHRPL
CHRONIC Subject to registration
PMB unlimited subject to protocols, formularies and DSP’s
Non-PMB 100% of cost for life sustaining medication subject to annual limits
Non-PMB 80% of cost for non life sustaining medication subject to annual limits
Extended benefits are available according to a formula
OUT OF HOSPITAL Generally 100% of NHRPL
Members choose from three levels with varying annual limits determined according to family size
within each level
Extended benefits are available according to a formula and subject to restrictions in respect of
specialised dentistry and optical benefits
Risk management objectives and policies for mitigating insurance risk
The primary insurance activity carried out by the scheme assumes the risk of loss from members and their dependants that are
directly subject to the risk. These risks relate to the health of the scheme members. As such the scheme is exposed to the
uncertainty surrounding the timing and severity of claims under the contract.
The scheme manages its insurance risk through benefit limits and sub-limits, approval procedures for transactions that
involve pricing guidelines, pre-authorisation and case management, service provider profiling, centralised management of
risk transfer arrangements as well as the monitoring of emerging issues.
The scheme uses several methods to assess and monitor insurance risk exposures both for individual types of risks insured
and overall risks. The principal risk is that the frequency and severity of claims is greater than expected.
Insurance events are, by nature, random and the actual number and size of events during any one year may vary from those
estimated using established statistical techniques.
31
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
18. INSURANCE RISK MANAGEMENT (continued)
Risk management objectives and policies for mitigating insurance risk (continued)
The following table summarises the concentration of insurance risk, with reference to the carrying amount of the insurance
claims incurred, by age group and in relation to the type of risk covered/ benefits provided. Where appropriate prescribed
minimum benefits (PMB) and non-PMB claims have been split:
Age grouping
(in years)
In-hospital
Chronic
PMB
Chronic
Non-PMB
Day-to-day
Total
R R R R R
< 26 10 874 045 332 700 291 280 8 973 751 20 471 776
26 – 35 7 137 151 81 098 95 044 4 821 178 12 134 471
36 – 50 17 959 006 755 826 754 346 12 414 143 31 883 321
51 – 65 16 101 179 1 449 985 1 718 241 11 855 575 31 124 980
> 65 38 336 998 2 586 401 2 606 211 14 122 663 57 652 273
90 408 379 5 206 010 5 465 122 52 187 310 153 266 821
Movement in outstanding claims provision and reported claims not yet paid (950 000)
Less: Third party claims recoveries (510 350)
Relevant healthcare expenditure 151 806 471
In-hospital benefits cover all costs incurred by members, whilst they are in hospital to receive pre-authorised treatment for
certain medical conditions.
Chronic benefits cover the cost of certain prescribed medicines consumed by members for chronic conditions/ diseases, such
as high blood pressure, cholesterol and asthma.
Day-to-day benefits cover the cost (up to 100% of the National Health Reference Price List tariff) of all out of hospital
medical attention, such as visits to general practitioners and dentists as well as prescribed non-chronic medicines.
The scheme’s strategy seeks diversity to ensure a balanced portfolio and is based on a large portfolio of similar risks over a
number of years and, as such, it is believed that this reduces the variability of the outcome. The strategy is set out in the
annual business plan, which specifies the benefits to be provided, the preferred target market and demographic split thereof.
The scheme has the right to change the terms and conditions of all contracts. Management information including contribution
income and claims ratios by option, target market and demographic split, is reviewed monthly. There is also an underwriting
review program that reviews contracts on a continuous basis to ensure adherence to the scheme’s objectives.
Risk transfer arrangements
The scheme has entered into an agreement with Tiger Brands Ltd (“the company”) to protect the scheme from any unusual
exposure to high cost incidence claims. In terms of this agreement, the company, on request, undertakes to pay to the
scheme the excess over R300 000 of any major medical expense per member per event where the total claim exceeds
R300 000. The company’s obligation is limited to an accumulative amount of R4 000 000 in total. Investment growth on
this sum may also be used by the scheme to meet the cost of high cost incidence claims. No premium or other consideration
is payable by the scheme. There are no further amounts available to meet future high cost claims at 31 December 2008.
(Note 11)
32
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
18. INSURANCE RISK MANAGEMENT (continued)
Claims development
Claims development tables are not presented since the uncertainty regarding the amount and timing of claims payments is
typically resolved within one year.
Sensitivity to insurance risk
A sensitivity analysis is provided below reflecting the impact on the scheme’s reported results for the year assuming a 1%
increase / (decrease) in the cost of claims incurred with all other variables held constant.
1% 1%
Increase of Decrease of
1% 1%
2009
R R
In-hospital claims incurred (904 084) 904 084
Chronic PMB claims incurred (52 060) 52 060
Chronic non-PMB claims incurred (54 651) 54 651
Day-to-day claims incurred (521 873) 521 873
Total (1 532 668) 1 532 668
2008
In-hospital claims incurred (859 604) 859 604
Chronic PMB claims incurred (1 862) 1 862
Chronic non-PMB claims incurred (94 090) 94 090
Day-to-day claims incurred (501 930) 501 930
Total (1 457 486) 1 457 486
R R
19. FINANCIAL RISK MANAGEMENT
The scheme’s activities expose it to a variety of financial risks, including the effects of changes in equity market prices and
interest rates. The scheme’s overall risk management programme focuses on the unpredictability of financial markets and
seeks to minimise potentially adverse effects on the financial performances of the investments that the scheme holds to meet
its obligations to its members.
Risk management and investment decisions are made by the Board of Trustees.
Financial risk factors
Market risk
Currency risk
The scheme operates in South Africa and therefore its cash flows are denominated in South African Rand (ZAR).
No exposure exists to foreign currency risk.
Interest rate risk
The scheme’s investment policy is to hold the majority of all investments in interest bearing instruments. This constitutes a
significant portion of the scheme’s investments being exposed to change in the market interest rate.
The table below summarises the scheme’s exposure to interest rate risks. Included in the table are the scheme’s investments
at carrying amounts, categorised by the earlier of contractual repricing or maturity dates and disclosed in terms of the related
undiscounted contractual cash flow.
33
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
19. FINANCIAL RISK MANAGEMENT (continued)
Interest rate risk (continued)
As at
31 December 2009
Up to
1 month
1 – 3
months
4 – 12
months
Non-interest
bearing
(no stated
maturity)
Carrying
amount
R R R R R
Available-for-sale
investments - - 4 354 932 19 142 588 23 497 520
Trade and other
receivables
4 900 022 12 291 253 987 - 5 166 300
Cash and cash
equivalents 14 109 178 23 502 286 42 047 085 - 79 658 549
19 009 200 23 514 577 46 656 004 19 142 588 108 322 369
As at
31 December 2008
Up to
1 month
1 – 3
months
4 – 12
months
Non-interest
bearing
(no stated
maturity)
Carrying
amount
R R R R R
Available-for-sale
investments - - 3 977 538 15 239 639 19 217 177
Trade and other
receivables
6 062 738 286 795 191 056 - 6 540 589
Cash and cash
equivalents 17 896 970 16 523 245 45 253 020 - 79 673 235
23 959 708 16 810 040 49 421 614 15 239 639 105 431 001
A sensitivity analysis is provided below assuming a 1% increase/ (decrease) in interest rates with all other variables held
constant. Only cash and cash equivalents are directly exposed to fluctuations in the market interest rate.
Increase of Decrease of
1% 1%
2009 R R
Change in deficit 796 659 (796 659)
Change in assets 796 659 (796 659)
Change in members’ funds 796 659 (796 659)
2008
Change in surplus 972 227 (972 227)
Change in assets 972 227 (972 227)
Change in members’ funds 972 227 (972 227)
34
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
19. FINANCIAL RISK MANAGEMENT (continued)
Equity risk
Sensitivity analysis for equity risk illustrates how changes in the fair value of equity securities will fluctuate due to changes in
market prices, whether these changes are caused by factors specific to the individual equity issuer or factors affecting all similar
equity securities traded in the market.
The equity securities described in the notes are classified as available-for-sale and are invested in unit trusts. An increase/
(decrease) of 10% in share price would impact as follows:
Increase of Decrease of
10% 10%
R R
2009
Change in assets 1 914 259 (1914 259)
Change in members’ funds 1 914 259 (1914 259)
2008
Change in assets 1 523 964 (1 523 964)
Change in members’ funds 1 523 964 (1 523 964)
Credit risk
The scheme’s financial assets comprise available-for-sale investments, trade and other receivables and cash and cash
equivalents.
With respect to available-for-sale investments and cash and cash equivalents the scheme limits its counterparty exposure by
only dealing with financial institutions that have high external credit ratings. The scheme has a policy of limiting the amount
of credit exposure to any one financial institution in accordance with the limitation on asset requirements specified in the
Regulations to the Medical Schemes Act.
Credit risk in respect of trade and other receivables is controlled through the application of credit monitoring procedures.
Section 26(7) of the Medical Schemes Act requires all contributions to be paid to the scheme within 3 days of becoming due.
Whilst every effort is made to enforce this requirement the onus is on the member / employer group to ensure compliance.
The rules of the scheme provide for suspension and ultimately termination of membership after specified periods of arrears.
The amounts presented in the statement of financial position are net of impairment allowances.
35
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
19. FINANCIAL RISK MANAGEMENT (continued)
Neither past
due nor
impaired
Current
2009
Past due but not impaired
Total 30 days 60 days 90 days >90 days Impaired
R R R R R R R
Available-for-sale
investments
23 497 520 23 497 520 - - - - -
Insurance receivables 5 286 187 4 840 802 56 351 3 857 11 303 253 987 119 887
Cash and cash equivalents 79 658 549 79 658 549 - - - - -
108 442 256 107 996 871 56 351 3 857 11 303 253 987 119 887
Neither past
due nor
impaired
Current
2008
Past due but not impaired
Total 30 days 60 days 90 days >90 days Impaired
R R R R R R R
Available-for-sale
investments
19 217 177 19 217 177 - - - - -
Insurance receivables 6 576 339 6 062 738 232 017 73 174 (18 396) 191 056 35 750
Cash and cash equivalents 79 673 235 79 673 235 - - - - -
105 466 751 104 953 150 232 017 73 174 (18 396) 191 056 35 750
The trustees are of the opinion that insurance receivables past due are still recoverable where no impairment has been raised.
36
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
19. FINANCIAL RISK MANAGEMENT (continued)
Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities. The availability of funding
through liquid holding cash positions with various financial institutions ensures that the scheme has the ability to fund its day-
to-day operations.
The table below summarises the scheme’s financial liabilities categorised by the earlier of contractual maturity or expected
maturity dates.
Up to 1 – 3 4 – 12
1 month months months Total
As at 31 December 2009 R R R R
Outstanding claims provision 2 703 755 2 965 925 588 620 6 258 300
Trade and other payables 7 219 377 108 420 972 118 8 299 915
9 923 132 3 074 345 1 560 738 14 558 215
As at 31 December 2008
Outstanding claims provision 3 563 102 3 282 556 814 884 7 660 542
Trade and other payables 7 050 828 82 502 1 031 876 8 165 206
10 613 930 3 365 058 1 846 760 15 825 748
Fair value estimation
The fair value of the publicly traded financial instruments held as available-for-sale securities is based on quoted market prices
at the statement of financial position date.
In assessing the fair value of other financial instruments, the scheme uses a variety of methods and makes assumptions that are
based on market conditions existing at each statement of financial position date. Other techniques, such as estimated
discounted value of future cash flows, are used to determine fair value for the remaining financial instruments.
The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are
assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by
discounting the future contractual cash flows at the current market interest rate available to the scheme for similar financial
instruments.
Insurance
receivables and
payables
Other financial
liabilities
Loans and
receivables
Total carrying
amount
R R R R
For the year ended
31 December 2009
Cash and cash equivalents - 79 658 549 - 79 658 549
Available-for-sale investments - 23 497 520 - 23 497 520
Trade and other receivables - - 5 166 300 5 166 300
Trade and other payables 1 802 949 - 6 496 966 8 299 915
1 802 949 103 156 069 11 663 266 116 622 284
37
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
19. FINANCIAL RISK MANAGEMENT (continued)
Fair value estimation (continued)
Other financial
liabilities
Loans and
receivables
Insurance
receivables and
payables
Total carrying
amount
R R R R
For the year ended
31 December 2008
Cash and cash equivalents - 79 673 235 - 79 673 235
Available-for-sale investments - 19 217 177 - 19 217 177
Trade and other receivables - - 6 540 589 6 540 589
Trade and other payables 1 666 577 - 6 498 629 8 165 206
1 666 577 98 890 412 13 039 218 113 596 207
Capital adequacy risk
The scheme’s objective when managing capital is to safeguard its ability to continue as a going concern in order to provide
benefits for its stakeholders.
The principal risk is that the frequency and severity of claims is greater than expected and that there are insufficient reserves to
provide for their settlement.
The Medical Schemes Act, 131 of 1998 requires a minimum solvency ratio, calculated as accumulated funds expressed as a
percentage of gross contributions, of 25%. The schemes solvency ratio was 51,6% at 31 December 2009 (2008:57,5%)
20. NON-COMPLIANCE WITH THE MEDICAL SCHEMES ACT (“THE ACT”)
In accordance with the Council for Medical Schemes circular 11/2006 the scheme is required to report all non-compliance with
the Act noted during the course of the audit irrespective of whether the auditor considers the non-compliance as material or
immaterial.
Payment of contributions
Section 26(7) of the Act requires contributions to be paid to a scheme not later than three days after payment thereof becoming
due. Whilst every effort is made to enforce this requirement the onus is on the member/ employer group to ensure compliance.
During the financial year certain contributions were identified that were not paid to the scheme within three days of becoming
due.
The non-compliance increases the liquidity risk to the scheme and could result in amounts due to the scheme being
irrecoverable. Credit control procedures are followed to collect outstanding amounts.
38
TIGER BRANDS MEDICAL SCHEME
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 31 DECEMBER 2009
20. NON-COMPLIANCE WITH THE MEDICAL SCHEMES ACT (“THE ACT”) (continued)
Foreign component of unit trusts
Regulation 30 under the Act, read with Annexure B, which governs the limitations on the assets, prohibits the investment of the
scheme’s assets in territories outside the Republic of South Africa. At 31 December 2009 the foreign component of unit trusts
held by the scheme amounted to R784 917.
This occurred as a result of the scheme inadvertently acquiring shares in British American Tobacco Plc as a result of the
unbundling of Remgro Ltd.
The Board of Trustees have requested exemption until 31 December 2010 from the Council for Medical Schemes to dispose of
the unit trusts in order to consider alternative investment options during the 2010 financial year.
21. FIDELITY COVER
Adequate Fidelity Guarantee and Professional Indemnity insurance cover was in place throughout the year. Tiger Brands Ltd
has borne the cost incurred.
22. CONTINGENT ASSET
The scheme has lodged claims against the Road Accident Fund to the value of R2 151 420 (2008: R1 411 528). Due to the
uncertain outcomes of these claims the scheme has not accounted for the economic benefit thereof.
23. EVENTS AFTER STATEMENT OF FINANCIAL POSITION DATE
There have been no events that have occurred subsequent to the end of the accounting period that affect the annual financial
report and that the trustees consider should be brought to the attention of the members of the scheme.