NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2022 prices will affect the value of the Group’s financial assets and the amount of the Group’s liabilities as well as the Group’s insurance contract assets and liabilities. Market risk arises in the Group due to fluctuation in the value of liabilities and the value of investments held. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on assets. The nature of the Group’s exposure to market risk and its objectives, policies and procedures for managing market risks have not changed significantly from the prior period although rigour has been applied to these in light of current market conditions and volatility. Refer below for more detail. Management of market risk The management of each of these major components of market risk and the exposure of the Group at the reporting date to each major risk is addressed below. a. Interest rate risk Interest rate risk arises primarily from the Group’s investments in debt securities, cash and cash equivalents and its long-term debt obligations. However, changes in investment values attributable to interest rate changes are mitigated by corresponding and partially offsetting changes in the economic value of insurance and investment contract liabilities. As a result of this, the exposure to interest rate risk is managed by the asset managers through the limit in the investment mandates with regard to investing in debt securities, as well as the internal benchmark performance that the asset managers are measured against. The nature of the Group’s exposure to interest rate risk and its objectives, policies and procedures for managing interest rate risk have not changed significantly from the prior period. The cash and cash equivalents and debt securities interest rate sensitivity on profit before movement in insurance liabilities is shown below: 2022 2021 Group R'm R'm Cash and cash equivalents Interest rate decrease: 1% (61) (39) Interest rate increase: 1% 61 39 Debt Securities Interest rate decrease: 1% (224) (181) Interest rate increase: 1% 224 181 Total interest rate risk Interest rate decrease: 1% (285) (220) Interest rate increase: 1% 285 220 Fluctuations in the value of assets held to back the DPF and investment components of the policy liabilities will affect the allocations to DPF benefits and investment policyholder liabilities each year. The choice of assets to back the DPF components of the policy liabilities reflects the Group’s interpretation of the investment risk appetite of the policyholders. The assets held in this regard are as follows: 39. Management of risks (continued) 39.3 Financial risk management (continued) 186 Notes to the Consolidated Financial Statements
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