2022 PPS NAMIBIA INTEGRATED REPORT Our structure is our strength.
Success does not happen in a vacuum. Behind all great achievements, all that you do, are the things and people and structures that support you – the individuals and foundations that enable your growth. The same applies to PPS*. PPS is built on a foundation of support and mutual success. Embracing the principle of mutuality, PPS enables members to contribute to the greater whole, and share in the rewards. Ensuring that when the company enjoys long-term growth, so do they. This structure is what sets us apart. It is our strength. Our structure is our strength. *All references to “PPS” refer to “PPS Group”.
TABLE OF CONTENTS 2 4 7 12 14 28 49 51 52 79 CHAPTER ONE CHAPTER TWO CHAPTER THREE About our Integrated Report Who we are and what makes us different Strategy Highlights Leadership commentary Chairman’s statement CEO’s message to members PPS Group performance at a glance PPS Insurance Company PPS Advisory Services and Enablement PPS Investments PPS Short-Term Insurance PPS Healthcare Administrators PPS Insurance (Namibia) Material matters and risk management Abridged financial statements Key performance indicators Corporate governance report Annual financial statements 1 Table of contents
The report deals with the Group’s strategy, operations and performance and touches on issues such as our approach to sustainability, value creation, innovation and service delivery. We aim to give a comprehensive and balanced view of both our financial and non-financial performance in South Africa and Namibia. Disclosure and assurance In this report, the PPS Holdings Trust Board of Trustees (the Board), strove to provide meaningful, accurate, complete, transparent and balanced information. The Board, with its committees and management, was closely involved in finalising all disclosures in this report and assumes responsibility for the information they contain. The annual financial statements were prepared in accordance with international financial standards and independently assured by Ernst & Young. The nonfinancial information contained in the report has not been independently assured. Scope and boundary The PPS Integrated Report 2022 is a report that details the performance of the PPS Holdings Trust (the Group) for the 12 months ended 31 December 2022. It is intended for the information of our members and includes reporting on relevant events that have occurred between year-end and publication. Board responsibility The Board approved the PPS Integrated Report 2022 on 29 March 2023. The Board acknowledges its responsibility for ensuring the accuracy of all information supplied and has applied its collective expertise in its preparation. In the opinion of the Board, this report addresses all issues material to members and presents a holistic view of the Group’s performance in 2022. Forward-looking statements Some of the remarks contained in this report are forwardlooking statements and should not be considered as guarantees or predictions of future performance. Like all businesses, we face risks and other factors beyond our control, which may impact on our performance in 2023. ABOUT OUR INTEGRATED REPORT 2 About our integrated report
Individual. Or maybe not? You see, you are many. Built on the shoulders of others. Of the ones who encouraged and nurtured. And held you up with strength throughout your life. Like you, PPS is built on the foundation of many working as one. The company, intermediaries and members, all adding to the bigger picture. With a shared interest in long-term success, we build and grow together. Contributing to the foundation of mutuality, trust, support and shared value. Because by pooling our resources, we can unleash the power of shared success. YOU. About our integrated report 3
WHO WE ARE AND WHAT MAKES US DIFFERENT The PPS story Throughout the years, PPS has unfailingly demonstrated remarkable resilience, recorded steady growth and provided reliable services to our members without disruption. The fact that we continue to do so today, despite the many challenges we have faced as a business and a society over the past three years, is testimony to the vision and objectives of our founders. PPS was established in 1941 by a group of eight hardworking dentists who wanted to protect their ability to earn an income. Even then, a financial model that enabled a group of people to benefit from pooled resources was rare in financial circles. The values inherent in mutuality still inform every aspect of our business, from how it is structured to how innovations are designed and implemented. At PPS, we have members rather than shareholders; highly educated professionals who are eligible for PPS membership because they hold suitable postgraduate qualifications. Members, who enjoy our wide range of products including life and short-term insurance, investments, healthcare and various advisory services also share in the operating profits generated by PPS. Profit-Share is allocated annually to members’ notional PPS Profit-Share Accounts™, which grow with investment returns and further profit allocations. The PPS ProfitShare Account of a member vests on retirement from age 60 subject to contractual requirements. The PPS Profit-Share Account accumulates profits simply as a result of a member having a qualifying product. Over the years, we have steadily expanded our product range, moving beyond our initial focus of income protection to include a comprehensive selection of financial products and solutions. Today, the Professional Provident Society Insurance Company Limited is a registered financial services provider. Our members include leading academics, captains of industry and prominent members of the various professional sectors. Our mission and values express what we aim to deliver to our members. Our mission It is our mission to enhance the financial security of our members and we aim to ensure that, from a financial perspective, they can live the lives they want to live. We deliver on this mission having evolved into a diversified financial services group that not only provides exceptional insurance benefits – both long and shortterm– but also investments, fiduciary services and various wealth and advisory services especially designed for graduate professionals. We help our members to secure their current and future financial positions by providing peace of mind throughout their professional careers and during their retirement years. Izak Smit Group Chief Executive Officer At PPS, we do not have shareholders, we have members: graduate professionals who qualify for membership and the benefits of that membership.” “ 4 Who we are and what makes us different
Our values At PPS, we believe that what we value drives our behaviour. We live by three core values: • We take extreme ownership. Our people are empowered to deliver service excellence to our members and we encourage leadership in all areas of the business. • We are eternally curious. We are not satisfied with the status quo and are driven by the goal of constantly improving the solutions we offer to our members. We are committed to innovation, giving staff the licence to experiment while recognising and responding to our members’ unique, complex and changing needs. • We do the right thing. We conduct our business with empathy, authenticity and also with the highest standards of ethics, fairness, governance and respect for all. The ethos of mutuality Although this model is very popular in the developed world, it is a rarely used model in financial services in South Africa today. Mutuality is what defines us at PPS. It refers to our origins where graduate professionals worked together to protect every member’s financial future. PPS is not listed on any stock exchange and has no external shareholders who demand returns on the capital they invest. Members with qualifying products ultimately benefit directly from our profits through their dedicated PPS Profit-Share Accounts. The ethos of mutuality is at the heart of PPS; it is in our DNA. It permeates every aspect of our business and is fundamental to our success. Our highly skilled asset managers invest profits and investment returns on behalf of our members, taking a long-term view of wealth creation. Irrespective of claims our members may submit, a share of the Group’s profit accumulates to their individual PPS Profit-Share Accounts annually. PPS Profit-Share Accounts vest on retirement or death. This is a unique benefit in the South African insurance sector and there is no other benefit to rival it. Once our members retire from their professional careers at the age of 60 or after, the profits they have accumulated in their PPS Profit-Share Accounts throughout their membership period become available to them through a Vested PPS Profit-Share Account. Although this may be withdrawn in full without any deductions, many members choose to keep these assets invested as part of their post-retirement savings to generate further returns and supplement their retirement incomes. Members who have products from PPS subsidiaries and affiliates in addition to qualifying life insurance products, qualify for additional Profit-Share allocations. The PPS Profit-Share Cross-Holdings Booster is awarded over and above the existing allocation and is based on holding qualifying products across PPS subsidiaries and affiliates. The more diverse a member’s portfolio is across PPS subsidiaries and affiliates, the more their Profit-Share allocation will be. In fact, many long-standing members have received more in Profit-Share allocations in a particular year – irrespective of any claims under their policies – than what they have paid in premiums in that year. In a way, it is a counterintuitive scenario with members being paid to enjoy product benefits. A business that essentially pays its members to enjoy its products? That is what the mutual model at PPS delivers for our members. Professional focus Professional focus is another defining PPS characteristic. We are very discerning about granting membership. Only graduate professionals with a qualifying postgraduate degree are eligible to become members. This applies across all industries and professions, making PPS a leader in the professional segment. Not only are our products, services and solutions specifically tailored to meet our members’ needs, financial advisers also undergo a strict selection and accreditation process to ensure that they are suitably qualified to market and sell our products. PPS-accredited financial advisers have industry-specific knowledge that enables them to offer informed advice on the specific issues and challenges our members face. Last, but not least, PPS’s membership profile significantly reduces our business risk, ultimately enhancing returns to members. 5 Who we are and what makes us different
WHO WE ARE AND WHAT MAKES US DIFFERENT How Profit-Share works PPS members’ premiums Expenses Reserves Total members’ PPS Profit-Share Accounts Profits Cumulative investment returns on past operating profits and investments returns Members’ benefits Cost of running a business Guarantee future claims 100% allocation to PPS Profit-Share Accounts Operating profit Claims 6 Who we are and what makes us different
STRATEGY Focus PPS is – and always has been – committed in the pursuit of helping graduate professionals to secure their financial well-being. Mutuality is the key to our success. Throughout our long history, this model has enabled us to weather many storms. Our mutual business model ensures that members not only benefit from the protection that the products they hold offers, but it also ensures they share in PPS’s profits. We understand that professionals want more than just innovative financial products and efficient services. This is a unique added value that we constantly strive to provide and improve on. Vision Our strategic vision is to continue building PPS as an aspirational brand that meets the financial services needs of graduate professionals and to be an undisputed brand leader in the markets we serve. This vision is supported by the following seven strategic themes: Strategic themes 1. 2. Exclusive member value proposition Diversified revenue streams 3. 4. 5. 6. 7. Holistic solutions Adviser value proposition Brand leadership Digitalisation Culture Strategy 7
STRATEGY We maintain a strong business culture and focus to realise this vision, featuring actionable workstreams that consistently support efficient and effective implementation. In this way, we aim to: • offer integrated and holistic financial services solutions for our members that help them to protect their financial well-being and to create wealth; • ensure that our member value proposition (MVP) and our adviser value proposition (AVP) are unique across all our delivery channels; • create, lead and sustain remarkable member and adviser services by consistently improving our processes, systems and people capabilities; • enrich our unique PPS Profit-Share Account through continuous innovation; • Continue to be relevant to all our members across all life-stages, with an emphasis on our mature members; • Ensure that we are digitally advanced and secure so that we can deliver innovative services to our members and protect their data • Maintain and enhance our marketing and communication capabilities, which are used to promote our unique PPS value proposition to both existing and potential members • Focus on our people because talent is a competitive advantage in the always-on, digitally enabled environment • Create sustainable value and growth by making a difference through environmental, social and governance (ESG) outcomes. Strategic focus areas Exclusive Member Value Proposition Objectives To enrich professional lives. To be acknowledged for best-in-class products and solutions. To create a compelling community experience for members and their families. To introduce exclusive community benefits over and above products and services. Focus To continue to provide an exceptional MPV and make membership even more meaningful. Action • Make our MVP unique through PPS Specialist Support Services (S3), a team of experts working with intermediaries to deliver an exceptional PPS member experience. • Create, lead and sustain remarkable member and adviser experiences. • Develop digitalised omnichannel experiences for members and intermediaries. • Develop a boundaryless global strategy for professionals. • Build our loyalty and incentives initiatives. Why is it important? Our business revolves around membership. We create meaning for our members by developing and implementing customised financial and lifestyle solutions to enrich their lives. We also strive to build and maintain an active and engaged community that enables members to interact and network with one another. 8 Strategy
Holistic solutions Why is it important? PPS products are created for graduate professionals and offer distinct advantages over similar offerings in the market. The more PPS products members hold, the more they can benefit from aggregated Profit-Share. Objectives To responsibly build PPS into a mutual financial services organisation that provides graduate professionals with a holistic range of products and services. To leverage PPS’s S3 for specialised member and channel support. Focus To continue to create awareness that PPS provides holistic financial solutions. Action • Develop a boundaryless global strategy for professionals. • Grow the new revenue streams, which will support Profit-Share. • Grow established subsidiaries, especially PPS Investments and PPS Healthcare Administrators, so that they have a serious impact on their sectors. • Generate leads through our data science capability. Action • Unlock cross-solutioning through S3. • Build our PPS Wealth business. • Build our student strategy to support the journey from graduation to retirement and beyond. • Generate leads through our data science capability. Diversified revenue streams Why is it important? Diversified revenue streams boost members’ Profit-Share and offer some protection against factors outside of our direct control, including political uncertainty, recession and foreign exchange volatility. Objectives To broaden the MVP through increased access to income streams and opportunities. To support member uptake of new products by demonstrating value to graduate professionals at different stages of their lives. To grow PPS Mutual (Australia), an affiliate business of the Group which, over time, will make meaningful contributions to local members’ Profit-Share. To actively explore opportunities in other geographic jurisdictions. Focus To create wealth for our members by growing and diversifying our revenue streams. 9 Strategy
Adviser Value Proposition Why is it important? Advisers are integral to our relationships with our members, which is why we are continuously developing tools and solutions that enable PPS advisers to engage with their clients more seamlessly and effectively. Brand leadership Why is it important? Effective brand positioning is crucial in attracting new members, especially younger professionals who need PPS products and services more than they may realise. Objectives To establish PPS as the financial services provider of choice for financial advisers. To empower and add value for our advisers so that they can provide a consistently excellent and valuable service to our members. Focus To entrench PPS as the no-brainer for advisers who provide financial advice to graduate professionals. Objectives Position PPS as a thought leader in the professional market. Focus To entrench PPS as the undisputed brand leader in the professional market. Action • Unlock cross-solutioning through S3. • Create, lead and sustain remarkable member and adviser service. • Assisting the growth of external intermediaries, our valued business partners. • To proactively assist our members to identify needs using our data science capability which our solutions can address. • Develop digital experiences and interfaces for members and advisers. • Provide learning and development opportunities for advisers through the PPS Academy. Action • Make it easy for student members to join our community of graduate professionals. • Use the PPS Academy as our “secret sauce” to drive member education as a differentiator. • Build on our Group marketing and communications strategy. STRATEGY 10 Strategy
Action • Make it easy for student members to join our community of graduate professionals. • Develop and build our data science capability. • Develop digital omnichannel interfaces for members and advisers. • Create efficient processes for innovation, employee balance and service efficiency. Action • Develop digitalised omnichannel service experiences for members and advisers. • Create efficient processes for innovation, employee balance and service efficiency. • Make the PPS Academy our “secret sauce”. • Embed our values. • Support a flexible culture, empowering and inspiring. Digitalisation Why is it important? Most professionals are technology-savvy but time-starved. That is why they demand efficient and intuitive digital services that they can access at their convenience. Culture Why is it important? An internal culture that drives results, learning and caring, is central to the PPS employee value proposition and ultimately drives the PPS MVP. Objectives To develop and deploy an omnichannel sales and service experience for PPS members. Focus To expand and enrich our digitalised omnichannel experience for members and advisers. Objectives To create a high-trust culture in which people feel empowered and are engaged. To inculcate a learning mindset that drives results while always caring about the member experience. Focus To sustain a rich and rewarding organisational culture. Strategic performance The key performance indicators (KPIs) for each strategic focus area are allocated to specific individuals. Scorecards for each area are submitted to the PPS Executive Committee (Exco) and the Board for review. 11 Strategy
2018 R4.54bn 2018 R0.63bn 2019 R4.97bn 2019 R4.25bn 2020 R5.34bn 2020 R2.16bn 2021 R5.59bn 2021 R5.46bn 2022 R6.01bn 2022 R0.62bn Total annual Profit-Share allocation in 2022 Group gross premium revenue in 2022 Total annual Profit-Share allocations PPS Group gross premium revenue R0.62bn R6.01bn 2022 R5.04bn Total gross benefits paid 2018 R3.80bn 2019 R8.00bn 2020 R7.00bn 2021 R11.61bn 2022 R5.66bn Annual gross benefits paid to members and Profit-Share allocations HIGHLIGHTS* 2018 R3.17bn 2018 R1.12bn 2019 R3.75bn 2019 R1.11bn 2020 R4.84bn 2020 R0.49bn 2021 R6.15bn 2021 R0.12bn 2022 R5.04bn 2022 R0.93bn Annual gross benefits paid in 2022 Operating profit allocations in 2022 Annual gross benefits paid to members Annual operating profit allocations R5.04bn R0.93bn 2018 -R0.48bn 2018 R228.5m 2019 R3.14bn 2019 R250.9m 2020 R1.67bn 2020 R222.6m 2021 R5.34bn 2021 R273.7m 2022 -R0.31bn 2022 R297.3m Annual investment allocation in 2022 Life risk annual premium income in 2022 Annual investment profit/(loss) allocations New life risk annual premium income -R0.31bn R297.3m * All numbers are for PPS Insurance Company (South Africa) and PPS Insurance Company (Namibia) unless stated differently. 12 Highlights
It can be volatile. Growing one moment on market confidence and strength. Shrinking the next. Stalling. You cannot avoid the global storms but you can leverage them a lot better with the principle of mutuality and shared success. A structure based on mutuality lets us make the most of good times while balancing out the tough through long-term support and shared success. It connects our business, our intermediaries and our members in a way that allows all to thrive. Through pooled resources and shared success, we enjoy resilience and sustainable growth. PERFORMANCE. 13 Highlights
LEADERSHIP COMMENTARY Group Executive Committee Front (from left to right) Mr J A Thomas, Group Executive: Actuarial Services, B Com (Hons) (Actuarial Science), FASSA | Ms A N Seboni, Group Executive: Marketing and Stakeholder Relations, B Com, MAP | Ms K Govender, Group Executive: Life Operations, GIBS Executive Leadership Programme | Ms M D Molefe, Group Executive: Human Resources, B Com, MBA, MSc (HR Management and Development) | Mr I J Smit, Group Chief Executive Officer, B Com (Hons), FASSA | Mr M M Mtshali, Group Executive: Advisory Services and Enablement, B Com, MBA | Ms S Bassudev, Chief Executive Officer: PPS Healthcare Administrators, B Pharm 14 Leadership commentary
Back (from left to right) Mr J P Loubser, Group Chief Information Officer, N Dip Electrical Engineering, B Tech Electrical Engineering | Mr W Bosman, Chief Executive Officer: PPS Short-Term Insurance, B Compt (Hons), CA(SA) | Mr V E Barnard, Group Company Secretary, B Com | Mr Q J Augustine, Group Executive: Member Value Proposition, BSc, PG Dip (Actuarial Science), FIA | Mr W J Mouton, Group Executive: Life Broker Services, B Proc | Mr N J Battersby, Group Chief Operating Officer, B Sc Mech Eng, B Com (Hons), MBA, CFP, AMP | Ms A Gounden, Group Chief Financial Officer, B Com (Hons), CA(SA), Higher Diploma in Auditing | Mr L du Plessis, Group Executive: Legal and Compliance, B Juris, LLB, M Com (Business Management) 15 Leadership commentary
CHAIRMAN’S STATEMENT Overview Contrary to expectations, 2022 proved to be as challenging as the previous two years. While global sentiment was relatively upbeat at the start of the year, reflected in very strong investment market performance in 2021, 2022 provided new and somewhat unexpected challenges. Global growth slowed due to new supply-chain challenges and an energy crisis. Increases in the cost of living affected countries worldwide, pushing inflation up almost universally. According to the Organisation of Economic Cooperation and Development (OECD), 18 of 38 OECD countries experienced double-digit inflation in 2022, while global growth halved to just above 3%. This was exacerbated by the sharp rise in food prices following Russia’s invasion of Ukraine in February 2022. The fact that this conflict remains active is creating a heightened level of uncertainty in the world. The sharp rises in short-term interest rates across the globe – in response to increasing inflation – impacted household budgets and investor sentiment across the globe. At home, inflation climbed throughout the year and ended on an average of 6.9% for the period. Unemployment also remained high, although it eased slightly off the unprecedented high of 34.9% in 2021 to an average of 32.9% for 2022. The most significant concern, nevertheless, remains that the unemployment rate for people in their early 20s stayed at a high of 66.5% throughout the year, materially impacting growth predictions and, in the short to medium term, creating fertile ground for civil unrest. Compounded by the impact of the chronic and worsening local power supply situation, growth will continue to be marginal at best. When offset against inflation, South Africa effectively finds itself in a period of constrained growth that seems unlikely to reverse soon, unless government can exercise strong leadership and implement the necessary growth policies. Yet, within this sobering context, PPS’s mutual model continued to provide a high level of stability in an otherwise unstable and unpredictable environment. In fact, it is as if the Group thrives when times are tough. From an operational point of view, all valid claims In challenging times, like 2022, we are constantly reminded of the strength and value of our mutual model as well as our founders’ powerful goals: to secure the lives and livelihoods of graduate professionals and their families. ” Dr Sybil Seoka Chairman: PPS Holdings Trust Board “ 16 Leadership commentary
continued to be paid timeously, and we devoted much attention to improving efficiencies and total member experience. Members continue to benefit from the value of the products they hold and from additional contributions to their PPS Profit-Share Accounts. This is testament to our business model’s robust nature and stable and strong leadership, equally solid values and a performance-driven organisational culture. PPS remains unique in the South African financial services industry, differentiated by its ethos of mutuality. This gives the business a deep purpose – to secure the livelihoods and lives of our members – often even beyond the numbers. As a company with solid capital reserves and diversified business interests, we consistently react to changing circumstances by focusing on longer-term investment performance, business growth and member outcomes. To amplify the benefits of this model, in 2022, we delivered a ground-breaking marketing and communications campaign relevant to us as a business, our members and South Africans as a whole. Our “Finding the Forgotten Graduate” campaign reminds us of past graduates who broke barriers and recorded remarkable achievements regardless of the social, economic and political challenges they had to face. We find much inspiration in this, to excel despite the circumstances. Their stories emphasise the proud history of academic excellence in South Africa and the support that PPS has offered graduate professionals since the company was established 81 years ago. While it is naturally difficult to predict what 2023 will bring, I feel confident that PPS will continue to steer a steady course and successfully navigate a world that has changed so rapidly in recent years. Business performance This year’s results again demonstrate the effectiveness of mutuality in providing financial security and unrivalled longterm benefits for our members. Despite the cost-of-living pressures, we continue to be grateful to our members for their loyalty, which is confirmed by low membership attrition rates, low policy cancellations and low early Profit-Share withdrawals. There can be no doubt that our shared resilience is what keeps us going. Although it was a year in which we slowly exited the pandemic era, COVID-19 sickness claims remained high. We are grateful that COVID-19-related death claims reduced significantly – almost disappeared – enabling us to return to underwriting profitability on the life insurance side. New business, the lifeblood of an insurance provider, has had another successful year despite the challenging environment. Where most other life insurers in the industry reflected flat growth, PPS celebrated another record year of new business flows. Expenses also remained within the set parameters. We continued to see a sound operational performance in all our subsidiaries. PPS Investments, in particular, reached several key milestones in 2022. The business had set itself a five-year goal in 2017 to double in size, internally referred to as its 60/60 target. And indeed, the business increased assets under management (AUM) from R30 billion in 2017 to more than R60 billion in 2022. The number of investors increased from 30 000 to more than 61 000 over the last five years. The increase in AUM was supported by good fund performance relative to benchmarks and peers. Our investment managers hold diversified multi-manager investment portfolios, enabling them to effectively counteract high levels of risk and sudden reversals in market trends. There was a sizable migration of the portfolio from external fund managers to our internal team. Our investment strategies continue to provide a reliable financial safety net for our members and a great proposition available to our advisers when they advise their clients. Our healthcare administration business continued to grow, as did our short-term insurance business. We have especially seen significant growth in our health professions indemnity business, now at scale to start delivering profits. This business was started four years ago in response to the increasingly high indemnity insurance costs in an ever-more litigious environment. Many members are still unaware of all the solutions available to them – beyond life insurance and income protection. To encourage more cross-solutioning, two years ago, we rolled out the PPS Profit-Share Cross-Holdings Booster. This boosts members’ share of profits if they use more qualifying products across the business areas. The PPS Investments Family Network, launched in 2019, encourages the aggregation of individual and family assets, enabling members to enjoy lower fees because of a more extensive, combined asset base. These are examples of many innovations developed and launched over the past years. We believe in consistently innovating according to the evolving needs of graduate professionals. For example, our PRO-FiT digital member engagement platform is constantly being enriched. This enables members to control their PPS portfolios directly, engage with the larger professional community and explore ways to optimise their Profit-Share. 17 Leadership commentary
Our response to environmental challenges While the pandemic began to stabilise towards the end of 2021 and early 2022, South Africa was still in various stages of lockdown until April 2022. It was only at the end of June that all COVID-19-related restrictions were lifted. As we continue to deal with the daily realities of working in such an uncertain environment, I am again humbled and proud of how PPS operates and is guided by the sole purpose of providing value to our members. Within a broader context, extreme weather events will likely become more frequent and intense in future. We, therefore, take our responsibility to reduce the carbon emissions produced while doing business very seriously. Focused on this goal, we have engaged an environmental consultant to start measuring our emissions so that we can begin a planned process of reducing them over time. We are conversing with our material suppliers about their sustainability journeys. We have also installed solar panels on the roof of our head office in Johannesburg, reducing our impact on the environment and our dependency on Eskom. The solar installation will produce close to 300 MWh per year. This means that at least a third of the electricity used at the head office will now be from a renewable energy source. We are in the process of rolling out similar solar solutions at some of our offices. Our members can expect PPS’s response to sustainability challenges to feature prominently in our annual reporting in future, as our strategy, in tandem with organisations and corporates worldwide, takes shape. I am sure that many of the answers and solutions to these global challenges will emanate from professionals, the market segment we proudly serve. Regulatory changes and compliance There were a few regulatory changes in 2022; these details are available on our website. The National Health Insurance Bill, which, if passed, is likely to have the most significant impact on PPS and its members, is due to go before Parliament this year, although the government has yet to confirm a date for this. We will closely track developments regarding this legislation. While we support government’s endeavour to make healthcare accessible to all, we remain committed to representing and protecting the voice of graduate professionals in all legislative and regulatory processes. Corporate social responsibility PPS Foundation The PPS Foundation uses the shared value of our community of professionals to work towards finding solutions to the key challenges we face as a developing economy, particularly as those relate to our large youth population. Since the Foundation was established six years ago, it has gone from strength to strength. In 2022, it continued to run its core Bursary Programme and University Support Programme without interruption, and all funds were allocated and distributed. For the first time since 2019, representatives could also visit all the universities where bursary holders are studying and reconnect with them and various faculty members in person. The PPS Graduate Internship Programme continues to be oversubscribed every year. The programme is becoming a rich talent pool for the business in various disciplines, including financial advice. Young aspirant financial planners are taken through an internship and are equipped with skills to be successful planners. And, as always, we are grateful to our professional members who offer their time and expertise to develop new generations of graduate professionals through the PPS Foundation Mentorship Programme. We are equally grateful to the many staff members who contribute financially and in kind to the work of the Foundation, which was again well-received in 2022. For example, humanitarian organisations responded quickly to provide relief when torrential rains wreaked havoc in parts of KwaZulu-Natal shortly before Easter, resulting in the deaths of 440 people and the destruction of property and infrastructure. We worked with Gift of the Givers, one of the larger of these organisations. Our staff responded swiftly, donating goods and volunteering their time to assist with the distribution of aid. Another example is Cultivating Tomorrow’s Professionals, a programme where we take Grade 11 pupils from eight schools in lessprivileged areas across the country through a year-long intervention to prepare them for their matric exams and plant a dream for a professional career. Our staff give up their free time over weekends to give extra classqes to these youngsters. This demonstrates how deeply embedded our values-driven culture is and how it serves our members and communities. CHAIRMAN’S STATEMENT 18 Leadership commentary
PPS Training Academy The PPS Training Academy is internationally recognised for excellence and continues to be a learning institution we are immensely proud of. As you will see in our Human Capital Report on our website, the uptake of the online courses the Academy offers for staff and advisers remains exceptionally positive. Since these were introduced in 2020, our staff have shown exceptional interest in skills and career development, taking advantage of courses in their own skills areas and also more general business disciplines. The digital literacy programme introduced in the same year has also been immensely popular, and in 2022, 32 courses were offered. The programme, made available to advisers as well, is designed to help develop the skills needed to interact effectively in a digitised world. The tremendous value the Academy can provide does not have to stop with staff and advisers. Our next ambition is to also make this value available to members, and we will start focusing on this from 2023 onwards. Ethics and corporate governance PPS has a critical role to play in defending the interests of our members and the broader professional community in South Africa and Namibia. In line with this, we consistently comply with all relevant legislation and regulations, and our corporate governance practices are based on the King IV™ Report of Corporate Governance principles. In terms of King IV™ and the Companies Act, PPS is governed through a unitary structure that includes a main board, subsidiary boards and their subcommittees. All boards and their committees operate within the parameters of approved charters and terms of reference, which are reviewed periodically. A well-resourced company secretariat supports all boards and committees. I am also pleased that PPS and its subsidiaries have achieved a Level 3 Broad-Based Black Economic Empowerment (B-BBEE) company status, which affirms our commitment to the country’s transformation agenda. The improvement in our score results from the management team’s relentless focus on improving key areas of the scorecard, particularly management control, skills development and enterprise and supplier development components. Changes to the Board On the PPS Holdings Trust Board, we bid farewell to Prof Leon Snyman, who stepped down in June. I want to thank him for his valuable contribution. In August, we were excited to welcome Dr Edward Ngwenya, the nominated representative of the South African Medical Association (SAMA), on our Board. Dr Angelique Coetzee, formerly a representative of SAMA, and Dr Boitshoko Ntshabele joined the Board as Independent Trustees. Thank you In closing, I would like to extend the gratitude of my fellow Trustees to our Group CEO, Izak Smit, who, together with our Group executive team, has guided the company through unchartered territory over the past three years, always ensuring that we stay true to our purpose and values as we serve our members. He, the executive and the bigger management teams have shown great insight and exceptional empathy for our members. They also implemented innovative solutions to help them with the unprecedented challenges they have had to face. A sincere word of thanks also goes to our members, who trust us with their financial goals and contribute in such a committed way to our robust community of professionals. Finally, I would like to express my gratitude for the advice and support of my deputy, Dr Mannie Kruger, my fellow PPS Trustees and the Chairman of PPS Insurance Company, Mr Charles Erasmus, who continue to ensure that the Board is such an enduring example of cooperation, innovation and good governance, and who remain unfailingly committed to the financial security and well-being of the PPS community. I must also thank my family, whose support for me and my work is unfailing. Dr Sybil Seoka Chairman 29 March 2023 19 Leadership commentary
LEADERSHIP COMMENTARY The PPS Holdings Trust Board Front (from left to right) Ms D L T Dondur, B Acc (Hons), B Compt, CA(SA), MBA, CD(SA) | Dr F Mansoor, BDS, MBA | Dr S N E Seoka, Chairman, B Pharm, PhD, FPS | Mr P Ranchod, B Compt (Hons), CA(SA), MBL, H Dip Business Data Processing | Dr C M Krüger, Deputy Chairman, MB ChB, M Prax Med, M Pharm Med | Ms J K Myburgh, B Proc, Admitted Attorney 20 Leadership commentary
Back (from left to right) Mr S Trikamjee, B Com (Hons), CA(SA) | Mr A H de Vries, B Acc, CA(SA) | Dr R Putter, B ChD, M Sc (Dental Public Health), CFO(SA) | Dr D P du Plessis, B Sc, MBA, DBA, CD(SA) | Mr I Kotzé, B Pharm | Dr N H P Khosa, MB ChB, MBA | Prof H E Wainer, B Acc, CA (SA), Registered Auditor | Dr B R Ntshabele, BVMCh, Certificate in Entrepreneurship, Diploma in Management Studies, MBA | Mr V P Rimbault, B Sc Eng (Mech) | Mr C Erasmus, BSc, FIA, FASSA | Dr R E Ngwenya, B Sc, MBBCH, FCS (SA), Master of Medicine (Surgery), FC (Plast Surg (SA), Master of Medicine (Plastic and Reconstructive Surgery) | Dr A Coetzee, B Med Sc, MB ChB, CAHM, ABCD | Mr J A B Downie, B Sc, MBA, CFP 21 Leadership commentary
CEO’S MESSAGE TO MEMBERS Overview It is my privilege to report that the PPS Group again experienced a very positive year in 2022, supporting our members and returning value to them. PPS continued to support its members and return value to them. Our unique mutual model ensures that all the premiums that our members pay into our insurance businesses are ultimately returned to them – with investment growth – either through claims paid or through allocations to their PPS Profit-Share Accounts™ when they hold qualifying life-risk products. Members who hold additional products with one or more of our subsidiaries and/or affiliates, benefit even further through the PPS Profit-Share Cross-Holdings Booster. The only element that is not returned is the cost of running the business, for which our Board has strict metrics in place. Members who hold additional products with one or more of our subsidiaries and/or affiliates, benefit even further through the PPS Profit-Share Cross-Holdings Booster. As the effect of the COVID-19 pandemic started to ebb in 2022, our life insurance business returned to profitability. Members will remember that our strategy in 2021 was to support our members to the maximum extent possible through altered claims protocols, resulting in zero life underwriting profit in that year. Especially COVID-19 death claims almost disappeared in 2022, for which we are grateful. We still experienced significant levels of sickness claims, and it was only towards the latter part of 2022 that COVID-19 sickness claims began to reduce meaningfully. On the short-term insurance side, claims ratios also started to return to pre-pandemic levels as vehicles returned to the roads. The severe flooding in KwaZulu-Natal in April 2022 caused an increase in short-term insurance claims, with the homes and businesses of many of our members in that region affected. From an investment perspective, the markets were volatile throughout the year. This can be ascribed to inflation rising sharply worldwide and the economic impact of the war in Ukraine. These two effects are, of course, strongly correlated due to global supply chain specifics and energy market impacts. At home, this was exacerbated by South Africa’s precarious power supply position, especially during the second half of the year when the number of hours lost to loadshedding was at its highest ever. As we shape our strategic agenda towards 2027, we shall challenge ourselves continuously on living our purpose, protecting the lives and livelihoods of our professional members and assisting them to live the lives they aspire to.” Izak Smit Group Chief Executive Officer “ 22 Leadership commentary
As I reported in the previous period, 2021 was a very strong year in the investment markets and our funds performed exceptionally well. It is these years that assist longer term average returns to beat targets, and we do not want to miss out on these years. But, like a good personal financial adviser, I had to caution last year against exuberant future expectations. I noted that financial reporting cut-offs are somewhat artificial snapshots in a continuous cycle. From an investment return perspective, we could not have asked for a better cut-off in terms of reporting, than end-2021 for that period. I wrote that we expected returns to be much lower and perhaps even negative over the next year or two. Unfortunately, these comments proved somewhat prophetic! As most of our members will know, investment markets were under significant pressure in 2022. Especially overseas equities and bonds had a torrid time in many months. For good diversification and growth reasons, we hold significant portions of the assets we invest for our members in such overseas assets. As a result, our core balanced portfolio, in which most of our members’ Profit-Share assets are invested, ended the year slightly negative. July, October and November were good investment return months, resulting in a more-orless flat performance for 2022. Our investment managers did well to navigate the challenges presented in 2022 due to their diversification strategy, designed to mitigate risk. But they maintained a bias to growth assets, which generate maximum benefit for our members in the long term. This bias is due to the nature of our members’ policies, many of which stay on our books for a generation or more. This enables us to take a long-term approach to investing and gives us a unique competitive advantage, helping us to ride out short-term market volatility and corrections. It is no exaggeration to say that 2022 was as challenging as the two preceding periods, with our channels having had to work exceptionally hard to recruit new members and provide cross-solutioning to our existing members. Operational staff also continued to be stretched, with claim volumes still far exceeding average pre-COVID-19 volumes. Our IT and operational staff had to deal with ever-greater information security risks. This is not unique to PPS; all organisations face these risks. It is part of doing business in these times where our lives have become ever-more digitally connected. Yet, it is in our DNA at PPS to come through for our members when times are challenging. New business flows are a barometer of the health of a financial services business. These flows will be weak if your value proposition does not stack up, your service is poor or there is no trust in the organisation to deliver. And this is especially true if most new business is from independent intermediaries, as is the case at PPS. Hence, we took immense pleasure from the 2022 market statistics, which showed exceptional new business growth for PPS in a basically flat market. In fact, new business growth at many other organisations was negative. Across our businesses, we had another record year for new business inflows. The independent adviser channel for life new business grew by 10.8% from 2021 to 2022. Gross flows to PPS Investments grew by 9%. In terms of new life members, the membership in South Africa and Namibia grew from around 128 600 at the start of the year to over 131 000 at the end of 2022. The Group is indeed thriving despite the negativity around us. Strategy and opportunities The end of 2022 brought us to the close of a fiveyear strategic period and the start of a new five-year plan towards 2027. As we look towards the future, the strength of our balance sheet enables us to identify and take advantage of many opportunities. And it is usually in challenging times that there are many opportunities! Our strategic agenda continues to be framed around seven pillars that are the foundation of our strategy: • Our exclusive member value proposition that we continue to develop and expand. • Increasing awareness and cross-solutioning of this member value proposition across different business areas. • New and diversified revenue streams supporting profit generation for our members and diversifying it away from an over-dependence on life underwriting profits. • The value proposition to advisers, as the face-to-face channel is so important in our market segment. • The digitalisation journey. • Our brand leadership position. • Our unique culture that supports innovation and the other pillars. 23 Leadership commentary
In the times that we find ourselves in, it is more apparent than ever that organisations need to develop sustainable solutions. Hence, we have added an eighth pillar (sustainability) to our strategic agenda. PPS is a member of the global organisation for mutual insurance businesses, the International Cooperative and Mutual Insurance Federation (ICMIF). ICMIF celebrated its centenary last year in Rome, having been founded in Rome in 1922. A few PPS executives were privileged to attend this conference and gain deeper insights from mutuals worldwide. Mutuality is not such a common model in Africa anymore. This is somewhat surprising, given the African spirit and culture of Ubuntu (I am because you are). The essence of insurance is the sharing of risks and outcomes. In other parts of the world, the mutual model is much more common still, with almost a third of global insurance premiums going to mutual organisations. Indeed, most organisations we engaged with in Rome are among the biggest and oldest in their industries. Our big learning and takeaway from these engagements was that purpose runs very deep in mutual organisations across the globe. This resonated with us. Mutuals everywhere are serious about the sustainability agenda and their roles in climate change. We can learn from them. But more so, they are serious about purpose. As we shape our strategic agenda towards 2027, we shall challenge ourselves continuously on living our purpose, protecting the lives and livelihoods of our professional members and assisting them to live the lives they aspire to. We believe it can go further than great product solutions and Profit-Share numbers. It can and should be about financial roadmaps for the future, continuous professional development and providing a haven of context and certainty in a challenging world. Performance snapshots PPS Insurance PPS Insurance, which offers the Group’s core life insurance solutions, had a successful year in 2022, recording the highest inflows ever. This can be attributed to several factors, including the business strategy of developing and managing unique solutions for our professional members, offering a high level of personalised client service, supporting a strong network of both internal and external (independent) financial advisers and continuing to create awareness of PPS’s unique mutual model among existing and potential members. The annual premium income of new life insurance business written in 2022 in South Africa and Namibia was R297.3 million, up 8.6% on the R273.7 million written in 2021, the previous record. The nature of our income-protection and life products in the professional market that we serve is such that advice is an important ingredient in the new business process. Therefore, our (only) distribution channel is face-to-face advisers, both internal and external to PPS. About 75% of new business flows to PPS in 2022 was again due to external (independent) financial advisers. They remain essential business partners to us. The other 25% of new business was from our internally employed advisers. Gross life premium revenue in South Africa reached R5.52 billion in 2022, up 7.1% on 2021, and is supported by a low lapse rate that came in at just over 4% at the end of the year. This is industry-leading by world standards. Total gross risk claims reduced by 21% from R4.13 billion in 2021 to R3.25 billion in 2022. Sickness (health) claims still saw a 6% increase. COVID-19 sickness claims CEO’S MESSAGE TO MEMBERS 24 Leadership commentary
RkJQdWJsaXNoZXIy MTY2ODY3Ng==