NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2022 There is a risk that the Group may not cover the costs of acquisition and distribution if insufficient volumes of new business are sold. A mitigating factor is that a substantial portion of these costs are variable costs. Actual sales volumes are compared against budgeted and annual targeted sales on a monthly basis. This enables management to determine whether there are any factors that could impact the delivery of the targeted volumes. Where these are identified, an investigation occurs and the appropriate corrective action is taken. Data and model risk There is a risk that the Group may suffer a loss if the model used to calculate the insurance liabilities does not project the expected cash flows on the contracts accurately. This risk is mitigated by comparing the actual cash flows with the expected cash flows on a product basis at least annually. All new contract designs are also incorporated into the model. Detailed investigations are performed annually to ensure the integrity of the data used in the valuation process. Automated systems have been implemented to flag any anomalous transactions on an ongoing basis. Capital management 39. Management of risks (continued) 39.3 Financial risk management (continued) Long-Term Insurance The Group’s capital management objectives are: • To comply with the insurance regulatory capital requirements in the countries in which the Group operates. • To safeguard the entity’s ability to continue as a going concern. • To continue to provide acceptable returns for policyholders and members, and benefits for other stakeholders. The Board’s policy is to maintain a strong capital base to protect policyholders’ and creditors’ interests and satisfy regulators whilst still creating value for policyholders. The level of accumulated funds required by the Group is determined by the Insurance Act 18 of 2017 in South Africa and Namibian legislation (Act 5 of 1998) in Namibia, together with the Group’s licence requirements. The minimum capital requirements must be maintained at all times during the year. The table below summarises the minimum accumulated funds requirements across the Group and the actual accumulated funds held. 2022 2021 R'm South Africa Namibia South Africa Namibia Capital held 459* 6* 508* 6* Regulatory capital 144* 4* 194* 4* * Unaudited numbers The Board considers the capital of the Group to be the total of all accumulated funds held as well as the DPF Insurance Liabilities (refer to note 13) as the policy holders are also the members of the Group. A detailed Asset Liability Matching (ALM) investigation is conducted regularly to better understand the potential impact on the capital of the Group of different market conditions, such as interest rate fluctuations and volatility in equity prices. The impact of varying operational conditions (such as variations in deaths, withdrawals and 192 Notes to the Consolidated Financial Statements
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