2006 - Investing In Africa

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2006 - Investing In Africa

BIHL | Group highlightsThe foundation is laid for sustainability2006 WAS AN EVENTFUL YEAR FOR BIHL, WITH MUCHACHIEVED THAT WILL ENSURE THE GROUP’S SUSTAINABILITYINTO THE FUTURE, AS WELL AS ENHANCE ITS CAPACITY TOCONTINUE TO CONTRIBUTE TOWARDS THE STRENGTHENING ANDSUSTAINABILITY OF BOTSWANA ECONOMY. HERE ARE SOME OFTHE HIGHLIGHTS.● Bifm acquires a significant shareholding in Turnstar, the BSE-listed loan stock company.This allows for the reversal of several Bifm properties into the Turnstar property portfolio resulting in thecreation of Botswana’s largest property portfolio.● BLIL launches three new products – Mmoloki, Motlhokomedi, and a Mortgage Protector Plan. Their success exceeds expectations.● The Group’s commitment to the development of Botswana arts and culture reaches unprecedented heights when the world renownedBallet of the Stars Moscow performed at the GICC, and the sponsoring of another major musical production, Annie.● Photon – Bifm’s private equity subsidiary – assembles a powerful investment team poised to take the private equity fund Cassiopeia togreat heights.● BLIL decentralises its operations, empowering its branches to deliver improved customer service.● The BLIL Corporate Business division wins the Barclays credit life scheme mandate, a move hailed as a possible ‘first step’ in thebroadening of BLIL’s offerings as well as its channels of distribution.AND POST-YEAR END● A consortia in which Bifm is a participant is named as a preferred bidders for each of the three Public Private Partnership infrastructuredevelopment tenders. The work program emcompasses the financing, design, construction and maintenance of buildings to house theOffice of the Ombudsman and Land Tribunal, the Ministry of Environment, Wildlife and Tourism, the Ministry of Lands and Housingand the SADC headquarters.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006● Bifm joins forces with Sanlam Multi Manager International (SMMI), replacing an agreement Bifm previously had with an independentasset consultant for identifying offshore managers. The new partnership is set to improve Bifm’s offshore manager and stylediversification. The SMMI relationship also creates a joint operation in which SMMI’s existing multi-management skills and expertisewill be utilised to develop multi-management skills locally.4


BIHL | Financial highlightsPREMIUM INCOMEP millionCLAIMS AND BENEFITSP millionSURPLUS AFTER TAXATIONP millionSHAREHOLDERS’ EQUITYP million70030035090060050040030020010025020015010050300250200150100500800700600500400300200100098 99 00 01 02 03 04 05 05 06098 99 00 01 02 03 04 05 05 06-5098 99 00 01 02 03 04 05 05 06098 99 00 01 02 03 04 05 05 0631 Mar31 Mar31 Mar31 Mar31 Mar31 Mar31 Mar31 Mar9 Months to Dec31 Dec31 Mar31 Mar31 Mar31 Mar31 Mar31 Mar31 Mar31 Mar9 Months to Dec31 Dec31 Mar31 Mar31 Mar31 Mar31 Mar31 Mar31 Mar31 Mar9 Months to Dec31 Dec31 Mar31 Mar31 Mar31 Mar31 Mar31 Mar31 Mar31 Mar9 Months to Dec31 DecINVESTMENTSP billionDIVIDENDS PER SHAREthebeSHARE PERFORMANCEthebe10457 000987654321098 99 00 01 02 03 04 05 05 06403530252015105098 99 00 01 02 03 04 05 05 066 0005 0004 0003 0002 0001 000005 06 06 06 06 06 06 06 06 0631 Mar31 Mar31 Mar31 Mar31 Mar31 Mar31 Mar31 Mar9 Months to Dec31 Dec31 Mar31 Mar31 Mar31 Mar31 Mar31 Mar31 Mar31 Mar9 Months to Dec31 DecDecJanFebMarAprJunJulAugSepOcr●●●BIHLDCIDCI RebasedNovDec7


BIHL | Ten-year reviewTo 31 December 2006BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006Year to 9 months to Year to31 Dec 31Dec 31Mar2006 2005 2005P’000 P’000 P’000Group income statementPremium income 678,984 450,647 527,492– Recurring 371,751 255,517 297,406– Single 307,233 195,130 230,086Pension and investment contributionInvestment revenue 2,418,434 1,666,697 697,659Total income 3,097,418 2,117,344 1,225,151Selling expenses (73,241) (51,124) (67,837)Administrative expenses (117,363) (81,275) (77,364)Goodwill impaired and amortised – – –Net insurance claims and benefits (257,557) (149,194) (158,008)Change in liabilities under investment contracts (1,700,829) (1,299,982) (438,329)Change in liabilities under insurance contracts (557,652) (328,113) (289,338)(2,706,642) (1,909,688) (1,030,876)Surplus from operations 390,776 207,656 194,275Share of results of associates 2,304 3,083 (3,853)Surplus before tax 393,080 210,739 190,422Tax (77,021) (38,150) (33,664)Surplus after tax 316,059 172,589 156,758Earnings per share (thebe)– Basic 119.2 64.9 62.1Gross dividends per share (thebe) 42.0 27.5 27.5Weighted average shares in issue (‘000) 259,833 259,291 252,616Group balance sheetProperty, plant and equipment 20,666 43,873 47,527Intangible assets 14,649 15,610 16,632Investments 9,112,637 6,767,586 5,390,907Trade and other payables 81,042 98,568 86,096Total assets 9,228,994 6,925,637 5,541,162Ordinary shareholders’ equity 849,136 644,588 506,506Minority interest 21,172 17,723 13,051Policyholder liabilities 8,140,007 6,114,114 4,882,945– Insurance contracts 2,157,459 1,599,913 1,287,454– Investment contracts 5,982,548 4,514,201 3,595,491Deferred tax 50,664 17,494 13,785Trade and other payables 168,015 131,718 124,875Total equity and liabilities 9,228,994 6,925,637 5,541,162Group cash flowCash generated from operating activities 149,527 73,619 15,157Interest received 148,523 85,280 164,903Tax paid (50,958) (10,850) (21,838)Cash flow from operations 247,092 148,049 158,222Dividends paid (88,610) (48,438) (68,922)Net cash retained 158,482 99,611 89,300Net cash invested (1,113,202) 319,082 (89,455)Net financing raised (954,720) 418,693 (155)Increase in shareholder funding – – 1,124Net cash flow from financing activities – – 1,124Increase/(decrease) in cash and cash equivalents (954,720) 418,693 9698


BIHL | Ten-year reviewTo 31 December 2006Year to Year to Year to Year to Year to Year to Year to31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar2004 2003 2002 2001 2000 1999 1998P’000 P’000 P’000 P’000 P’000 P’000 P’000488,892 354,299 249,558 244,935 171,746 112,675 82,073289,468 261,063 217,828 162,685 148,786 101,638 78,081199,424 93,236 31,730 82,250 22,960 11,037 3,99269,304 63,884 57,656 26,7361,100,923 (484,819) 292,371 146,372 268,115 87,941 64,8641,589,815 (130,520) 541,929 391,307 439,861 200,616 146,937(54,015) (45,374) (39,504) (43,122) (28,301) (21,551) (14,380)(71,733) (67,620) (59,437) (35,737) (28,518) (23,773) (20,122)(3,705) (3,705) (2,482) – (812) (812) (812)(151,555) (81,947) (66,538) (107,088) (90,442) (59,744) (53,226)(830,867) 482,416(358,943) (32,261) (240,126) (200,778) (327,060) (125,421) (73,878)(1,470,818) 251,509 (408,087) (386,725) (475,133) (231,301) (162,418)118,997 120,989 133,842 4,582 (35,272) (30,685) (15,481)(1,537) 2,427 9,709 8,544 4,552 – –117,460 123,416 143,551 13,126 (30,720) (30,685) (15,481)(13,620) (21,576) (54,266) (22,685) (44) (7,317) (2,895)103,840 101,840 89,285 (9,559) (30,764) (38,002) (18,376)38.3 37.0 52.6 22.7 132.4 82.2 37.423.5 20.0 15.0 10.0 40.0 24.0 17.2269,369 267,257 275,684 261,481 24,844 23,920 21,41916,497 18,091 17,296 7,582 7,903 7,375 3,83516,121 18,649 22,020 24,648 11,137 11,849 12,6626,007,611 4,423,241 2,970,647 1,727,043 1,491,613 1,114,366 823,874214,203 189,301 158,881 99,138 70,738 64,469 38,4546,254,432 4,649,282 3,168,844 1,858,411 1,581,391 1,198,059 878,825549,852 483,167 450,864 171,001 107,530 73,468 51,89717,207 7,396 7,441 5,642 314 – –5,567,539 3,989,152 2,497,034 1,564,096 1,386,281 1,059,221 785,9331,020,160 661,002 628,7414,547,379 3,328,150 1,868,2937,434 305 1,152 – – – –112,400 169,262 212,353 117,672 87,266 65,370 40,9956,254,432 4,649,282 3,168,844 1,858,411 1,581,391 1,198,059 878,825611,092 2,270,601 1,279,560 223,882 157,553 126,148 51,40357,550 60,932 19,419 33,456 25,639 18,850 14,024(74,871) (54,750) (32,056) (7,124) (1,088) (296) (47)593,771 2,276,783 1,266,923 250,214 182,104 144,702 65,380(60,650) (45,761) (12,766) (449) (27) (7) (111)533,121 2,231,022 1,254,157 249,765 182,077 144,695 65,269(534,013) (2,232,460) (1,254,937) (248,427) (183,498) (145,504) (77,331)(892) (1,438) (780) 1,338 (1,421) (809) (12,062)1,489 – 2,585 2,543 1,983 – –1,489 – 2,585 2,543 1,983 – –597 (1,438) 1,805 3,881 562 (809) (12,062)BOTSWANA INSURANCE HOLDINGS LIMITED annual report 20069


BIHL | Value added statementFor the year ended 31 December 2006Year to 9 months31 Dec to 31 Dec2006 2005P’000 P’000Value addedIncome from operations 841,698 493,714Operating expenditure (186,369) (125,775)Policyholder benefits paid (257,557) (149,194)397,772 218,745Value distributedTo employeesSalaries, wages and other benefits 41,769 37,540To shareholdersDividends 88,610 48,438To minority shareholders 6,450 4,214To governmentTaxation 50,958 39,532To expansion and growthReinvested in the business for future growth 126,820 81,680Amortisation 1,425 2,823Depreciation 2,810 3,801Deferred taxation 32,450 3,709163,505 92,013351,292 221,737BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006SummaryEmployees 12% 17%Shareholders 25% 22%Government 15% 18%Retained for future growth 47% 41%VALUE ADDED DISTRIBUTION 2006P’000●●●●Retained for future growthGovernmentEmployeesShareholdersVALUE ADDED DISTRIBUTION 2005P’000●●●●Retained for future growthGovernmentEmployeesShareholders100% 100%10


BIHL | Shareholder informationFor the year ended 31 December 2006ShareholdersShares heldNumber of % of Shares % of issuedholders holders held sharesAnalysis of shareholdingRange of shareholding1 – 1,000 916 40.00 321,679 0.121,001 – 10,000 908 39.65 3,507,383 1.2710,001 – 100,000 387 16.90 10,964,670 3.98100,001 – 1,000,000 62 2.71 16,975,144 6.161,000,001 shares an over 17 0.74 243,915,526 88.47Total 2,290 100.00 275,684,402 100.00Major shareholders holding more than 3%African Life Assurance Company Limited 149,581,699 54.26Botswana Public Officers Pension Fund 42,913,455 15.57Various Botswana Pension Funds – fund managed by Bifm 14,588,180 5.29Motor Vehicle Accident Fund 10,735,164 3.89Barclays Bank of Botswana Nominees 9,913,907 3.60227,732,405 82.61Other 47,951,997 17.39275,684,402 100.00ShareholdersShares heldNumber % Number %CategoryCorporate bodies 86 4 166,145,089 60Nominee companies 54 2 89,496,289 32Trust accounts 3 0 1,489,087 1Private individuals 2,147 94 18,553,937 72,290 100 275,684,402 100BREAKDOWN OF SHAREHOLDERS 2006P’000●●●Corporatee bodiesNominee companiesPrivate individualsT rust accounts at 0%BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200611


BIHL | Sustaining growth into the futureBOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006Both BLIL and Bifm have undergone significant restructuringover the past few years. Today, the Group has in place thefundamentals that will enable it to continuously reinvent itselfto take advantage of opportunities as they arise.The Group’s strategy going forward is aimed not only at its own future Group, but also at enabling it to play a significant role in thesustainable social and economic development of the country.In this regard, the Group is exploring several opportunities and partnerships that will enable it to broaden its focus and meet itsstrategic objectives.12


BIHL | Board of directors14FROM LEFT TO RIGHT: Keith R Jefferis, Victor Senye, Heinie Werth, Maclean C Letshwiti (Chairman),Regina D Sikalesele-Vaka (Joint MD BIHL), Happy N Fidzani, Sanjeev Gupta, Margaret Dawes, Johann van derMerwe and John A Burbidge


BIHL | Board of directorsMaclean C LetshwitiHappy N FidzaniMEMBERS OF THE BIHL AUDITBA (UB), PMD (UCT)BA (Econ) (UB) Dip Population StudiesCOMMITTEEChairman of the board(University of Ghana); MEcon (WilliamsMA Dawes (Chairman)Independent non-executive directorCollege, USA), M. Political EconomyJA BurbidgeAppointed to the board in August 2001 and(Boston); PhD (Boston)S Guptaappointed chairman in November 2003Other directorships: Avis (Pty) Limited;Fedics Food Services (Pty) Limited;Botswana Housing Corporation and MicroProvident Botswana LimitedExecutive director – Botswana Institutefor Development Policy Analysis (BIDPA)Independent non-executive directorOther directorships: International FinancialService Centre (IFSC) and Botswana MeatCommissionMC LetshwitiRD Sikalesele-VakaV SenyeMEMBERS OF THE BIFM INVESTMENTCOMMITTEERegina D Sikalesele–VakaLLB (UB)Joint MD BIHL, CEO Botswana LifeInsurance LimitedExecutive directorOther directorships: FNBB FoundationTrustee; BOCCIM; University ofBotswana CouncilAppointed to the board in July 2003Appointed to the board in November 2004Sanjeev GuptaBCom Hons FCA (India); FCPA (Bots)Chief executive – SIM Emerging Markets.Non-executive directorOther directorships: Healthcare HoldingsLimited; KYS Investments; and directorof all SIM fund management operationsin AfricaK Jefferis (Chairman)H FidzaniS GuptaV SenyeMEMBERS OF THE BLIL INVESTMENTCOMMITTEEMA Dawes (Chairperson)JA BurbidgeRD Sikalesele-VakaVictor SenyeAppointed to the board in July 2003MC LetshwitiBCom (Accounting) (UB); MSc(Management); (Arthur D Little School ofManagement, Boston, USA)Joint MD BIHL, CEO Bifm Holdings LimitedExecutive directorOther directorships: African Life FinancialServices (Zambia) Limited; Khumo PropertyAsset Managers; Healthcare HoldingsLimited; Healthcare Management Services;KYS Investments and Turnstar HoldingsAppointed to the board in January 2005Keith R JefferisBSc (Economics) (University of Bristol),MSc (Economics) (University of London)and PhD (Economics) (Open University UK)Managing director – Econsult Botswana(Pty) LimitedIndependent non-executive directorMember: Committee of BotswanaStock Exchange; Accredited toTechnical Assistance Experts Registerof IMF Monetary and Financial SystemsMEMBERS OF THE HUMAN RESOURCESCOMMITTEEH Fidzani (Chairman)JA BurbidgeS GuptaMEMBERS OF THE NOMINATIONCOMMITTEEMC Letshwiti (Chairman)JA BurbidgeS GuptaJohn A BurbidgeFCA,CA(SA)Executive director – internationaloperations, African Life AssuranceNon-executive directorOther directorships: Director of all majorAfrican Life International companiesAppointed to the board in November 1995Margaret DawesBSc (Hons) (London), ACA (UK), CA(SA),HDip Tax LawExecutive Director Finance – African LifeAssurance Co LimitedNon-executive directorAppointed to the board in February 2005DepartmentAppointed to the board in April 2005Johann van der MerweMCom, MPhil, CA(SA), AMP (Harvard)Chief executive – Sanlam InvestmentManagementNon-executive directorAppointed to the board in August 2006Heinie WerthBCom Hons (Accountancy), CA(SA), MBA(Stellenbosch), EDP (Manchester)Chief executive – Sanlam DevelopingMarketsNon-executive directorAppointed to the board in February 2006H WerthBOTSWANA INSURANCE HOLDINGS LIMITED annual report 200615


BIHL | Chairman’s letterBOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006The Group recognises that in the changing world in which it operates, theconcept of “business as usual” is no longer an option.16Maclean C LetshwitiChairman of Botswana Insurance Holdings Limited.


BIHL | Chairman’s letterDEAR STAKEHOLDERMOGAETSHOBotswana Insurance Holdings Limited (BIHL) produced outstandingresults for the year ended 31 December 2006.FINANCIAL RESULTSAttributable after-tax profit for the year rose an impressive 38%on an annualised basis to P310 million while operating profitincreased by 14% from P118 million to P179 million on strongoperational performances from both the asset management(Bifm) and life (BLIL) businesses.Assets under management increased by 26% to P11.75 billion.This can be attributed to Bifm’s successful retention of clients andexcellent investment performance that saw returns consistentlyexceed benchmarks.BLIL’s business results were also impressive, partly because ofprudent underwriting of the mortality experience, as well asgrowth in the annuity business. Very good returns frominvestments also contributed to the Company’s fine performance.As a result of all this, the Group declared a total dividend for theyear of 42 thebe per share that includes a special dividend of5 thebe per share.OUTLOOKThe Group’s excellent results were achieved against thebackdrop of an economy which started to show tangible signsof revitalisation midway through the review period. After therelative stagnation experienced during the past few years, thiswas most welcome. However, it is likely that the full impact of themacroeconomic turnaround has yet to be felt.Indeed, as noted in the detailed Economic Outlook section ofthis report, continued above-trend global economic growth,combined with strong economic performance in South Africa,should provide a supportive environment for a continuedimprovement in Botswana’s economic growth performance.Nevertheless, some of the fundamentals that contributed toBIHL’s sterling 2006 results, such as the strong performance ofthe equity market, the acquisition of new matching assets for theannuity business and the positive mortality experience, may bemuted in 2007.This may affect future levels of profitability to some extent.SUSTAINABILITY STRATEGYThe 2006 results were not mere chance, but the positive outcomeof a strategy that was embarked on some years prior. ThisBotswana Insurance Holdings Limited (BIHL) e ntse le maduo a akgatlhisang mo ngwageng o one o fela ka Morule a le masomemararo le bongwe ka 2006.MADUO A MADIRe bone dipoelo tse di oketsegileng ka 38% mo ngwageng wa2006 morago ga lekgetho. Dipoelo tse, di dirile madi a a kanangka dimmilone di le makgolo a mararo le lesome (P310m). Kakakaretso, dipoelo di oketsegile ka 14%. Se se raya gore di ne tsatswa mo go P118 million jaanong ke P179 million di ungwa mokgwebong e ntle ya lekala la tlhokomelo ya maroto (Bifm) le mo goya dipeeletso tsa botshelo (BLIL).Maroto le meamuso ya beng e re e tlhokometseng e oketsegileka 26% go dira tlhotlhwa ya P11.75 billion. Se, se dirilwe ke goreBifm e tsweletse ka go fa badirelwa ba yone tshepho le tlamelo e ekgotsofatsang, gape e tsweletse ka go tokafatsa seemo sa bodiredile go dira dipoloko le dipeeletso tse di gaisang ebile di feta dielo tsamafatshe tsa botswerere mo kgwebong ya rona.BLIL le yone e dirile mo go itumedisang. Dingwe tsa tse di dirilenggore BLIL e dire sentle ke tsela e e neng ya tsaya boikarabelo jwatiragalo ya dintsho ka teng le go kopana le go gola ga dipalo lemadi a ba beeletsi ba Botshelo. Dipeeletso tsa BLIL mo mmarakengwa madi, le tsone di okeditse seemo sa dipoelo.Seemo se sa kgwebo, ke sone se tsetseng gore re bolele fa maduoa bana-le-diabe ba BIHL, e tla nna 42 thebe mo seabeng sengwele sengwe mo ngwageng, go balelwa le 5 thebe wa mooketsa moseabeng sengwe le sengwe.TSHEKATSHEKOMaduo a mantle a, re a bone mo ngwageng o one o supa fa onna monamagadi, bogolo jang mo dikgweding tse thataro tsabofelo. Se, se ne se nametsa, bogolo jang ka gore dingwaga tsedi sa tswang go feta di ne di kwakwaletse ebile di le thata. Resolofetse gore seemo se sentle se sa itsholelo, se tla tswelela ka gotokafala gore re tswelele ka tsholofelo ya gore, molelo wa marigare tla o ora.Tshekatsheko ya itsholelo e e kwadilweng ka botlalo mo pegonge, e bolela gore tokafalo ya seemo sa itsholelo sa mafatshefatshe,le seemo se se kgatlhisang sa itsholelo ya lefatshe la Afrika Borwa,di tla thusa thata go kgotletsa itsholelo ya Botswana go gola le gononofa.Go a tshwanela go bolela gore, dingwe tsa dilo tse di re beileng moseemong se se itumedisang se, di ka nna tsa seka tsa boelela mongwageng wa 2007. Dingwe tsa tsone ke madi a mafisa, maroto aa tsamaelanang le madi a peeletso ya Botshelo, le boikarabelo jo reneng ra bo tsaya jo bo amang tiragalo ya dintsho mo babeeletsingba Botshelo.17


BIHL | Chairman’s letterBOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006strategy is aimed at sustaining the Group into the future, andenabling it to play a significant role in the sustainable growth ofthe Botswana economy.Both BLIL and Bifm have undergone significant restructuringover the past few years enabling the Group to put in place thefundamentals required for ongoing success: capital; technicalback-up by way of Sanlam and BlackRock; and excellent humanresources. Plans are in place to attract additional high calibrepeople as well as to continuously upskill current employees.Importantly, the Group recognises that in the changing world inwhich it operates, the concept of “business as usual” is no longeran option.BLIL customers increasingly demand different and moresophisticated solutions to meet their changing needs. Innovationand the ability to offer the market superior investment solutionswill be critical factors in the Group’s ongoing success.Bifm too is operating in a changing environment. While apaucity of local investment opportunities has compelled the bulkof its investments to be placed offshore, there has long beenrecognition that this does not stimulate growth in Botswana. Thechallenge, therefore, has been to find investment opportunitiesthat benefit both the Group and the country. These could becreated in partnership with either the government or otherprivate sector entities.While the Group has adopted the principle of playing a moreproactive role in the economy as part of its strategy goingforward, the support of government in creating an environmentin which this can occur is also required. Much is being done, butmore focus is required on the building of working relationshipswith institutions that are 100 percent committed to Botswana inevery respect.There is no question that BIHL is one such organisation.The Groupunderstands the dynamics of the local market not only becauseit is based in Botswana but because it is also controlled andmanaged from Botswana by Batswana. In addition, the Groupis committed to utilising its capital in Botswana to developBotswana and to stimulate the economy of the country.For that reason, BIHL welcomes the introduction of thecountry’s first Public Private Partnership (PPP) infrastructuretenders, believing that these offer considerable benefits to thecountry as well as to the Group and all its stakeholders. BIHL istherefore delighted that the consortia in which it is involved havebeen named as the preferred bidders for each tender, effectivelyenabling the Group to serve as a true financial services pioneerin Botswana.Seemo se, le fa re sa tlhomamise, se ka nna sa ama dipoelo kanngwe tsela.RE TSWELELA JANGDipoelo le maduo a 2006 ga di a re tshoganetsa, di ungwa mothulaganyong ya togamaano e re neng ra e dira mo pakeng e efetileng. Thulaganyo e ya togamaano ya bokamoso e ne e ikaegileka go tlamela botshelo jwa losika la dikhamphane tsa rona kalobaka lo lo leele mo isagong, le go dira gore seabe sa rona mo gogoleng ga itsholelo ya Botswana e seka ya nna se se bonegwang.BLIL le Bifm di ntse di ikaga sesha mo dingwageng tse di ntseng difeta ka maikaelelo a go nonotsha seemo sa losika la dikhamphanetsa rona go oketsa dipoelo tsa madi, tiriso ya boranyane go godisamaduo a tiro ka thuso ya Sanlam le Black Rock ga mmogo bodiredijo bo bonatla le botswerere. Ke maikaelelo a rona go tswelelare thapa batho ba ba nonofileng le go thusa ba ba leng teng kadithuto tse di ka oketsang seemo sa bodiredi ja bone.Wetsho, re a lemoga gore, mo seemong sa diphetogo tse dintsimo dikgwebong tsa mafatshefatshe, ga re kake ra dira dilo felajaaka maloba le maabane.Batho ba ba thusiwang ke BLIL ba tswelela ka go batla ditirelo tsedi botoka, tse di itebagantseng le dikgwetlho tsa bone. Ditsela tsedi sha tsa go direla batho, e tla tswelela e le kgwetlho e kgolo mogo rona, mme ebile, seemo se, se tshwanetse go betla mmila warona wa katlego.Bifm le yone e direla kgwebo ya yone mo loagong le le fetogang.Re tswa kgakala re lemoga gore dipeeletso tsa mo gae di sa ntsedi le dipotlana, mo go pateletsa bontsi ja babeeletsi go godisetsadipeeletso tsa bone kwa ntle ga lefatshe. Seemo se ga se thuselefatshe go gola. Jaanong re patelesega go batla ditsela tsa peeletsotse di ka re ungwelang tsa ba tsa ungwela le lefatshe la Botswana.Ditsela tse di ka bonala fa re ka tshwaragana le goromente kanabangwe ba ba tlhwaafetseng ba re mo kgwebong nabo.Ka jaana tota re tsere tshwetso ya gore boikarabelo ja rona jobogolo ke gore seabe sa rona mo itsholelong ya lefatshe se bonalethata, gongwe nako e gorogile ya gore goromente le ene a diretsotlhe tse di ka tlhagolelang maitlamo a a rona. Tse dintsi di setsedi diragala, se se botlhokwa jaanong ke go tsalana le bao ba gosa belaetseng gore maikaelelo a bone ke go godisa Botswana kaditsela tsotlhe.Re a itse gore, BIHL ke ngwe ya dikhamphane tse di direlangBotswana. Re tlhaloganya mmaraka wa rona mono, eseng fela kagore re mo Botswana, e leng gape ka gore ba ba dirang mo goone ba rona ke Batswana. Rona ebile re itlamile go dirisa madi arona mo Botswana go tlhabolola lefatshe le go thusa go godisaitsholelo ya lone.Ke sone se BIHL e amogelang thulaganyo ya ditiro tse dikopanetsweng ke sechaba le baemanosi (Public Private Partnership– PPP) ka kakanyo ya gore ditiro tse di ka nonotsha seemo sakhamphane, seemo sa sechaba le botlhe ba ba robang mo ditirong18


BIHL | Chairman’s letterSANLAM PARTNERSHIPBIHL has long been a leader in Botswana’s financial servicesindustry. Now, in partnership with Sanlam – one of the largestfinancial services groups in Africa – the Group has attained thecritical mass, capital availability and the technical assistanceneeded to compete with the new entrants in the Botswanamarkets. Initial trepidation following Sanlam’s acquisition ofAfrican Life shareholder has proved unfounded. The reviewperiod has seen BIHL’s relationship with Sanlam settle down intoone that is proving to be mutually beneficial.From Sanlam’s perspective, BIHL can be regarded as the flagshipAfrican operation within its Developing Markets division, havingmade a significant contribution to the division’s results.THE BOARD AND APPRECIATIONTwo Sanlam representatives, Mr HC Werth and Mr J van der Merwe,joined the BIHL board of directors in February and August ofthe review period respectively, immediately embracing thehands-on ethos that has long been a hallmark of the board.A successful organisation is one in which the management andthe board work in tandem, with the board providing guidancethat is relevant and support where and when it is required. BIHLis fortunate to have board members who are not only leadersin their respective fields, but who are able and willing to workwith the executive management team for the good of the Group.I compliment them for their dedication and commitment whichoften goes beyond the call of duty.At this point, I would like to pay tribute to former board members,Mr P Rowse and Mr CT Harding, who resigned during the reviewperiod. I thank them for their contributions over the years to thegrowth and success of the Group.Thanks must also go to all BIHL staff for their loyalty and effortsin making 2006 so successful. The future is in our hands. Ourinnovation will sustain us as we leverage our expertise and ourexperience to grow our organisation and partner with governmentin building an even better Botswana.tse di tla bong di dirwa. BIHL e ikopantse le bangwe bagwebigo tsena mo thulaganyong e mme ba setse ba bone ditiro tse ditla letlang gore re nnne baitaamonyo ba thulaganyo ya PPP moBotswana ebile re atolose seabe sa rona mo mererong ya bodiredija madi mono.RONA LE SANLAMEe! BIHL e tswa kgakala e le moeteledi mo mererong ya madi.Gompieno re kopane le Sanlam, baeteledipele ba merero yamadi le bone kwa Afrika Borwa, re itshetletse le go gaisa ebilerena le kitso le boitsaanape jo bo re letlang go emelana le bora-dikgwebo ba ba setseng ba gorogile mo mmarakeng wa rona.Go setse go lemotshegile gore dipelaelo le ditlhobaelo tse di nengdi le teng fa Sanlam e metsa African Life di ne di sa itshesela kasepe. Ditshekatsheko di supile gore BIHL le Sanlam di tsalana sentlethata ebile maduo a lenyalo le, a tlhotlhwa kgolo.Sanlam eipelafatsa ka BIHL go nna sekgantshwane mo Africa kajaana ke yone e dirileng dipoelo tse di gaisang mo di mmarakengtse di fatlhogang tsa yone.BOOKAMEDI LE MALEBOGOBaemedi ba Sanlam ba babedi ebong, Rre HC Werth le Rre J vander Merwe ba tlhomilwe baokamedi ba BIHL mo ngwageng o ofetileng. Werth o tsene ka Motsheganong fa van der Merwe atsene ka Phatwe. Ga e ise ere ba tsena ba ipona boeng, ba neba tsena mo tirong ka makatanamane. Rona mo BIHL, re dumelagore phenyo e tlisiwa ke go dirammogo, go thusanya le go emananokeng ga bookamedi le botsamaise ja dikhamphane tsa rona.BIHL e lesego go nna le bookamedi jo bonang le batho ba eleng baeteledipele ba ba nonofileng ebile ba itlamile go dira lebatsamaise ka tsela e e godisang maduo. Ke ba lebogela boineeloja bone jo bo senang selekanyo.Mma ke tseye sebaka se go leboga maloko a pele a Lekgotla laBaokamedi ebong Rre J P Rowse le Rre C T Harding, ba ba nengba tlogela bookamedi mo ngwageng e e fetileng. Ke ba lebogelaseabe sa bone sa dingwaga tsa katlego le go gola ga losika lotlhela dikhamphane tsa rona.Ke tswanelwa ke go leboga gape badiredi botlhe ba BIHL kaboikabo ja bone le maiteko otlhe a bone a a dirileng ngwaga wa2006 wa katlego. Bokamoso bo mo diatleng tsa rona mmogo.Go dira ka botswerere le matsetseleko, ke gone go tla re bayangmo seemong sa kitso le bokgoni jo bo ka re godisang le go tiisatshwaragano ya rona le goromente go aga Botswana yoo botoka.Maclean C LetshwitiChairman of Botswana Insurance Holdings Limited14 February 2007Maclean C LetshwitiModula Setilo wa Botswana Insurance Holdings Limited14 Tlhakole 200719


BIHL | Financial reviewBOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006CHANGE IN FINANCIAL REPORTING PERIODMembers are reminded that BIHL changed its financialreporting period from 31 March to 31 December. Forpresentation purposes, the 12 months results for the year to31 December 2006 have been compared with the results for thenine months to 31 December 2005.ECONOMIC ENVIRONMENTInflation in Botswana continued to fall from 10.5% in September2006 to 8.5% in December 2006 and is expected to furtherreduce towards the 7% mark during 2007. It was a very good yearfor the domestic companies Index; closing the year 74% up fromlast year. There are also positive signs of an upturn in economicgrowth, which is expected to gather pace through 2007.Global equity markets ended the year with a seamlesscontinuation of the rally which began in the third quarter. TheMSCI World index added a strong 14% during the fourth quartereven after investors lowered their earnings expectations for2007. Although markets saw further evidence of weakness inthe US housing market and the auto sector, there were no majornegative spillover effects to other sectors. Corporate profits havebeen exceptionally strong since early 2003 and the scope foradditional widening in profit margins is diminishing, suggestinglower performance levels into the future.PRIOR YEAR ADJUSTMENTSPrior year results have been restated for– the release of actuarial reserves on certain business portfoliosconsidered by the statutory actuary to be no longer required;– investment management fees on policyholder funds whichwere undercharged in 2005; and– the impact of change in the accounting classification forthe Group’s share scheme from “equity settled” to “equitysettled with a cash alternative” in terms of IFRS 2 Share-basedpayment.REVIEW OF RESULTSYear to 9 months to31 Dec 31 Dec2006 2005P’000 P’000Extract of the Income StatementSurplus before tax 393,080 210,739Taxation (77,021) (38,150)Company tax (93,178) (45,693)Withholding tax on dividends 16,157 7,543Surplus after tax 316,059 172,589Attributable to:– ordinary shareholders 309,609 168,375– minority interest holders 6,450 4,214Analysis of the surplusattributable to ordinaryshareholders 309,609 168,375Operating surplus 179,263 118,154Investment income onshareholder assets 48,365 35,165Investment surpluses onshareholder assets 159,916 55,969Tax (77,021) (38,150)Surplus after tax attributable to ordinary shareholders forthe year amounted to P310 million, an impressive 38% increaseon an annualised basis from P168 million.Operating surplus increased by 14% on an annualised basis fromP118 million to P179 million on strong operational performancefrom both the asset management and life businesses.20


BIHL | Financial reviewLife businessPremium income on an annualised basis increased by animpressive 13% to P678.9 million. This was mainly from thegrowth in the annuity business. The life business results wereimpressive as a result of positive mortality experience due toprudent underwriting; growth in the annuity business; and verygood investment returns from strong equity markets. This washowever offset by deteriorating persistency arising from thedifficult economic environment. Operating expenses have beenwell contained.As a result of customer focus and response to client demands,three new individual life products were launched in July 2006:These are Level Term Assurance; Decreasing Term Assurance andMmoloki (Family Wealth Protector). These producs performedvery well. In addition, there is more focus on targeting prospectivecorporate sector clients. The business is reviewing synergies andbusiness opportunities with the new shareholder, Sanlam.Asset management businessBIFM has successfully continued to maintain its dominance inthe asset management market in Botswana with assets undermanagement of P11.75 billion as at the end of the year. In spiteof pressure placed on our clients to split mandates, Bifm hassucceeded in retaining most of its major mandates. Bifm confrontedthe rising competition amidst a static client base, with aggressivefocus on superior performance and product development.Embedded value of new business12 months 9 monthsto 31 Dec to 31 Dec2006 2005P’000 P’000Value of new business atcalculation date 63,969 35,228Value before cost of capital 61,821 37,301Recurring premium 28,125 22,107Single premium 33,696 15,194Cost of capital (2,563) (4,451)Expected return to end of period 4,711 2,378Embedded value of new business The value of new businessfor the period increased by 82%, on an annualised basis, fromP35.2 million to P63.9 million. This was mainly from the growthin the annuity business and better margins on the new productslaunched during the year.Embedded valueDec 2006 Dec 2005PmPmNet asset value 937.3 682Value of in force 386.8 313.2Embedded value 1324.2 995.2Bifm has ventured into Public Private Partnerships adding valuenot only to its clients but also a direct impetus to the economy.During the period, BIFM’s performance was enhanced by itsstrategic ventures into Private Equity Funds, Property Funds, BifmCapital and the Zambian operations. The technical relationshipwith BlackRock (formerly Merrill Lynch Investment manager)and the support from Sanlam has continued to provide BIFMwith a powerful regional and global presence. BIFM `s focus onlocalisation, skills transfer and locally based systems continues toremain its key strength setting it apart in the local market.Investment returns, particularly on local and offshore equities,have continued to be strong.Embedded value increased by an impressive 33% over the yearreaching P1.3 billion.Embedded value earningsDec 2006 Dec 2005PmPmInvestment return on free assets 215.60 75.20Expected from existing business 41.20 36.80Value of new business 64.00 35.20Experience variations 156.60 86.70Assumptions and methodology (41.60) (43.40)Embedded value earnings 435.80 190.60Return on embedded value(annualised) 46% 30%BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200621


BIHL | Financial reviewBOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006Experience variations and assumptions and methodology wereaffected by:Positives• Prudent underwriting– continued good profits;– the December 2005 results included profit sharecorrection of P8 million that has not repeated; and– assumptions have been changed to reflect the ARVrollout, have capitalised some mortality profits.• Investment returns– the returns significantly exceeded long-termassumptions; resulting in profits from highermanagement fees during the year and in future as thestarting asset base is higher. In addition it allows releaseof greater negative reserves.• Economic– inflation for the period stabilised and there are signs ofcontinued downward trend.Negatives• Persistency (lapses and surrenders)– worsened from December 2005;– levels appear to be stabilising; and– assumptions have been strengthened in light of adverseexperience. Negative lapse experience allowed in full.• Expenses– December 2006 includes a share option charge dueto the change in accounting policy of P10 million(December 2005 P3 million);– there has been a reallocation of expenses from EmployeeBenefit business to Individual Life. The expenses havebeen capitalised.Capital adequacy and solvencyDec 2006 Dec 2005PmPmNet asset value (NAV) 937 682Value of in force (VIF)(excluding fair value adjustments) 403 325Capital adequacy requirement (CAR) 125 91CAR cover 7.5 7.5The solvency position of the Group continues to strengthen withsignificant distributable reserves having been built up in thebusiness. The directors are currently reviewing the Group’s capitalrequirements.The capital adequacy requirement is the minimum level of capitalthat is necessary to provide for more extreme adverse deviationsin future experience than those assumed in the calculation ofpolicy liabilities. There are no regulations in Botswana coveringminimum required levels of capital so for the sake of prudencethe capital adequacy requirement has been determined accordingto PGN104 of the Actuarial Society of South Africa. This is thegreater of the amount on the following two bases:• Termination (TCAR). This is the additional amount thatwould be required if all policies were to surrender or lapseimmediately.• Ordinary (OCAR). This represents the compounded effect ofa variety of adverse circumstances (in investment experience,expenses, mortality, lapses etc).In periods prior to 31 December 2005 the TCAR was significantlyhigher than OCAR. For the period to 31 December 2005, TCARhad diminished because of the zeroisation of negative liabilitiesresulting in an OCAR significantly higher than the TCAR. Due tothe significant investment returns, TCAR is higher than OCAR at31 December 2006.Ordinary shareholder assetsDec 2006 Dec 2005P’000 P’000Property and equipment 20,666 43,873Goodwill 12,579 13,200Investments 1,033,748 674,466Investment properties 75,123 56,112Equity-accounted investments 21,731 20,425Equities and similar securities listed 640,429 317,193Equities and similar securities unlisted 9,230 6,790Public sector stocks and loans 49,335 23,137Debentures, insurance policies,preference shares and other loans 53,942 58,492Cash, deposits and similar securities 183,958 248,429Consolidation reserve (129,116) (53,801)Working capital assets (88,740) (33,150)Net trade and other payables (97,803) (40,437)Cash, deposits and similar securities 9,062 7,287Total 849,136 644,588The consolidation reserve represents the market value of holdingin BIHL by BIfm on behalf of policyholders.22


BIHL | Financial reviewCOMPOSITION OF ORDINARYSHAREHOLDER ASSETS 2006%COMPOSITION OF ORDINARYSHAREHOLDER ASSETS 2005%●●●●●Property and equipmentGoodwillInvestmentsConsolidation reserveWorking capital assets●●●●●Property and equipmentGoodwillInvestmentsConsolidation reserveWorking capital assetsDividendDec 2006 Dec 2005Thebe per Thebe perNet of 15% withholding tax share shareInterim dividend paid 10.625 8.925Final dividend payable 20.825 14.450Normal dividend for the year 31.450 23.375Special dividend payable 4.250 0.000Total 35.700 23.375Gross of 15% withholding tax 42.000 27.500The sound earnings performance in 2006 enabled the boardto increase the total dividend distribution by 15% on 2005.The dividend is covered 1.9 times by core operating earnings(operating surplus and investment income). The board uses coreoperating cover as a guide in setting the dividend, subject to theGroup’s liquidity and solvency requirements. The important datespertaining to the dividends are:Declaration date 14 February 2007Last day to register for dividend 16 March 2007Distribution of dividend cheques 30 March 2007BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200623


Botswana Life | Executive managementChange in Botswana Life is being driven by the Company’s desire to be atruly 21st century, service-driven organisation.Regina D Sikalesele-VakaChief Executive Officer of Botswana Life24FROM LEFT TO RIGHT: Gaffar Hassam (Finance), Frederick Augustyn (High Value), Catherine Lesetedi-Letegele(Corporate Business), Regina D Sikalesele-Vaka (Chief Executive Officer), Kathiresan Subburaj (Information Systems),Linah Sekwababe (Business Support) and Jaco van Loggerenberg (Individual Life)


Botswana Life in brief2006 was an excellent, albeit difficult year for BLIL. A solid foundationhas been laid which will enable the Company to grow and diversify aswe move into the future.Macro economic circumstances such as the high inflation rate, regularoil price increases and widespread retrenchments increased pressureon the disposable income of our customers. This was reflected in thedeteriorating policy lapse rate particularly during the first half of theyear, although this stabilised in the second half.Nevertheless, the Company turned in a solid financial performance.This is the result of excellent returns on investments and lower thananticipated mortality experiences.BLIL also finished 2006 on a high note in terms of business activity, staffmorale and energy levels – all of which have carried through into theearly part of 2007 and show no signs of abating. Indeed, there is a risinglevel of confidence within BLIL and about the Company.Botswana Life has come through a two-year re-engineering processwhich has prepared it well for the future. The Company now has strongerteams and is able to launch products quickly as evidenced by the threenew products introduced to the market during the review period. Thesehave been carefully designed to meet market needs and improve BLIL’sability to penetrate the middle and upper market segments.BLIL is also focusing more attention on Group Risk activities with incomefrom that arena increasing by almost 50 percent, albeit off a low baseduring the review period.Other aspects of Group Risk which are receiving more attention are thefuneral policy business and credit insurance.In addition, the Company has adopted a new approach to reach thesemarkets through the development of new sales channels.The Business Support and IT departments made tremendous stridesduring the review period in putting in place the infrastructure andsystems required to deliver improved customer service on a sustainablebasis into the future.This has enabled the empowering of BLIL branches to deliver a completeservice to customers rather than just serve as remote sales offices.And while service levels to customers have generally improved, theCompany is actively pursuing a policy of implementing new systems andprocesses that will ensure service levels continue to rise.Looking ahead, BLIL is starting to leverage the relationship with Sanlamto move into the bancassurance arena. The Corporate Business divisionhas taken on the Barclays credit life scheme and this could be a first stepin the proposed bancassurance direction.In the shorter term, the strengthening economy and developments in themining sector particularly will result in significant job creation, which isgood for BLIL. Plans to extend the Company’s distribution channels willenable it to move into new markets sooner rather than later.


Botswana Life | Highlights and key dataGROSS RECURRINGPREMIUM INCOMEP millionRECURRING PREMIUMPOLICIESTOTAL ASSETSP millionCLAIMS PAIDP million700250 0003 500300600200 0003 0002505002 500200400150 0002 000150300100 0001 5002001 00010010050 00050050001 02 03 04 05 05 06001 02 03 04 05 05 06001 02 03 04 05 05 06001 02 03 04 05 05 0631 Mar31 Mar31 Mar31 Mar31 Mar9 Months to Dec31 Dec31 Mar31 Mar31 Mar31 Mar31 Mar9 Months to Dec31 Dec31 Mar31 Mar31 Mar31 Mar31 Mar9 Months to Dec31 Dec31 Mar31 Mar31 Mar31 Mar31 Mar9 Months to Dec31 DecBotswana Life missionWe offer quality client centric financial solutions and servicesto grow and protect the wealth of all our stakeholdersVisionTo be the personalised financial service provider of choiceValues● Integrity● Botho● Teamwork● CreativityKey dataYear to9 months to31 Dec 2006 31 Dec 2005P millionP millionPremium income(net of reinsurance) 679 451Value of new business 54 31Operating profit 160 82Surplus after tax 266 127Embedded value 906 671BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200625


Botswana Life | CEO’s reportBOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006While Botswana Life’s excellent financial results might suggestotherwise, the review period was a difficult 12 months forthe Company. The economic turnaround and rise in businessconfidence that was such a feature of the latter part of 2006 andearly 2007 did not have a direct impact on operations.However, 2006 was also an excellent year which has laid a solidfoundation for the Company to grow and diversify as it movesinto the future.Macroeconomic circumstances such as the high inflationrate, regular oil price increases and widespread retrenchmentsincreased pressure on the disposable income of BLIL customers.This was reflected in the deteriorating policy lapse rate particularlyduring the first half of the year, although this stabilised in thesecond half.Nevertheless, the Company was able to produce a solid financialperformance. Some of this can be attributed to extraneousevents – such as the excellent returns achieved on investmentsthanks to booming equity markets here and abroad, and lowerthan anticipated mortality experiences as the death rate fromAids slowed significantly.In addition, much of BLIL’s success can be attributed to theconsiderable effort made by management to better understandour business and its core drivers. This has enabled managementto make the right decisions and assumptions about the businessand translate these into a sustainable strategy.All this is reflected not only in the results posted but also thefact that the Company finished 2006 on a high note in terms ofbusiness activity, staff morale and energy levels – all of which havecarried through into the early part of 2007 and show no signs ofabating. Indeed, there is a rising level of confidence within BLILand about BLIL.It’s important to remember that BLIL has just come through atwo-year re-engineering process. This was a sustained andstructured exercise, designed to move the Company in a particulardirection in an orderly manner. 2005 was spent developing newteams and placing new people within the new structure. In 2006the focus was on consolidating the new structure and embeddingthe strategy and vision within the organisation.We now have dynamic and cohesive teams which are moreresponsible to the business requirements as evidenced by thetimeous launch of three new products during the review period.These have been carefully designed to meet market needs.The success of these products has exceeded expectations andis testament to the fact that the re-engineering is starting toproduce tangible results.One of the most exciting aspects of these products (seepage 28) is that part of BLIL’s challenge has always been to breakinto the middle and upper market. These products are provingmost attractive to this sector.In order to better reach this market, the Company has adopteda new sales approach. A new team of agents has been created(see page 28) and this, supported by the introduction of the newproducts, is expected to produce extremely positive results.While BLIL has traditionally been focused on individual life, theCompany is devoting increasing attention to Group Risk activities.This focus was successful during the review period with incomefrom that arena increasing by almost 50 percent, albeit off a lowbase. The Company’s pricing policy was revamped to make it morecompetitive, and although this is an extremely difficult market,several good schemes have been signed. Other aspects of GroupRisk are the funeral policy business as well as credit insurance.Then there’s the process re-engineering, Tsoseletso (revival) projectwhich has been a major focus of the Company over the past fewyears. This was set in motion to provide the infrastructure andsystems that would enable BLIL to move away from its productdrivenbusiness model to one that was far more customerfocusedas well as to enable the decentralisation of a numberof services from head office to the branches. The process, whichwas initiated at head office and is currently being rolled out tothe branches, is scheduled for completion within the first half ofthe current financial year.The feedback from the public relating to these changes has beenoverwhelmingly positive, although as part of the Company’squest for continuous improvement, it is proactively soliciting allinput, positive and negative, that could drive the change processforward. There has, however, been a noticeable reduction innegative feedback over the past few months.We believe customer complaints will reduce even more as severalother new systems designed to improve customer service levelscome on stream. One, for example, will enable the tracking andmonitoring of customer complaints from start to finish – with“finish” being the successful resolution of the complaint. Anotherwill be directed at improving communication with customers.(see page 29).All this is being driven by BLIL’s desire to be a truly 21st century,service-driven organisation. However, being customer-focused26


Botswana Life | CEO’s reportrequires more than implementing new systems. The Companyhas also devoted considerable time and effort in training and upskillingstaff and BLIL representatives, as well as refocusing themto deal with these changes – and to understand what it meansto be customer focused. The cascading of the Company BalanceScore Card to individuals throughout the various divisions willcontribute towards further entrenching a client-centric cultureacross the entire organisation.LOOKING AHEADDespite having gone through a restructure, ongoing changes areenvisaged. African Life’s acquisition by Sanlam has opened anarray of new opportunities for BLIL. It is clear that the Company’ssustainability as a life company is somewhat hampered bythe constraints imposed by the size of the Botswana market.Sustainable growth is possible only if the Company broadens itsrange of financial products and services, enabling it to service thesame customer in many different ways.In other words, consideration must be given to being in a positionto be able to offer customers products that are suitable for everystage of their life, requiring us to therefore to be in regularcontact with our clients and to offer flexible products that reflecttheir ever changing needs.A specific focus will be to grow the Group Risk and corporateside of the business as well as entering partnerships with banks.BLIL is also starting to leverage its relationship with Sanlam tomove into the bancassurance arena. Bancassurance caters forthe individual’s banking needs as well as for his insurance needs.This will help BLIL to distribute its products by providing accessto potential customers through a variety of different channels.During the review period, our Corporate Business division tookon the Barclays credit life scheme. This could be a first steptowards the broadening of BLIL’s offerings as well as its channelsof distribution. This will be one of the Company’s focus areasgoing forward.Another way in which the Sanlam acquisition has been, and willbe, good for BLIL is Sanlam’s diverse range of offerings withinthe broad life assurance industry. BLIL can access this range andestablish what can be brought to Botswana and tailored for localneeds.None of this will happen overnight but there is no doubt that byend-2010, BLIL will be a very different company to what it was atend-2006. It will have a wider range of services and solutions tooffer the public. It will also have a significantly broader customerbase having infiltrated market segments in which it has notpreviously been active. It will also have a much larger focus onthe corporate business and the bancassurance business – bothareas in which the Company has barely scratched the surface ofits potential.In the shorter term, the prospects for BLIL are encouraging. Thestrengthening economy and developments in the mining sectorparticularly will result in significant job creation, which is good forBLIL. The plans being putting in place to extend the Company’sdistribution channels will enable it to move into new marketssooner rather than later.However, BLIL remains acutely aware of the threat of increasingcompetition, not only from new entrants to the life assuranceindustry but also from other sectors, for a growing share ofconsumer spend.The Company is keeping a close watch on the legislative changesthat are taking place in South Africa insofar as the financialservices sector, and the life assurance industry in particular,are concerned. It is likely that there will be a knock-on effectin Botswana at some point in the future. Once again, BLIL’srelationship with Sanlam should prove immeasurably beneficialin helping the Company to deal with similar legislative demandsshould they be implemented in Botswana.Generally, however, prospects for 2007 are excellent. The Companyis optimistic about the ongoing success of the new products, butwill not rest on its laurels. There are tentative plans to introduceadditional products in the medium term. The management teamis confident that the proactive steps taken to deal with the highlapse rate will transform the stabilisation experienced in the latterhalf of the review period into a positive decline.The economic upturn currently being experienced should have apositive influence on Company activities – and results – in 2007.APPRECIATIONFinally, thanks go to the BIHL board for their ongoing support;my management team for their dedication, and every member ofBLIL staff for their hard work and the enthusiasm in embracing theBLIL vision and finally, not least by any means, our policyholdersand supporting brokers and independent agencies.Regina D Sikalesele-VakaChief Executive OfficerBOTSWANA INSURANCE HOLDINGS LIMITED annual report 200627


Botswana Life | Operational reviewBOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006BLIL – NEW PRODUCTSThe three Ms – a huge successBLIL has recognised the importance of continually bringing newand relevant products to market, to continue to be innovative.The appointment of a resident actuary is making it easier for theCompany to achieve this as this function no longer has to beoutsourced.As a Botswana company, run by Batswana, BLIL is uniquelypositioned to understand the requirements of the local market.The challenge, to date, has been to translate this understandinginto marketable products. Now, thanks to the restructuring andchanges that have characterised BLIL’s operations over the pastfew years, the Company has done just that.During the review period, BLIL developed and introduced threenew products to the market. They have been hugely successful,exceeding all expectations and delivering a clear message: theBotswana public is hungry for solutions that will enable them tosecure their own and their family’s futures in a way that takesaccount of their specific needs.The undoubted star of the three was Mmoloki, which quicklyestablished itself as the Botswana Life flagship product. It is aninnovative new product designed and crafted to meet the specificneeds of the Botswana market at this point in time.A family wealth protector solution, Mmoloki caters for theextended family situation of the majority of Batswana. Importantly,it provides life cover without medical underwriting or testing, andit is transferable. In the event of the death of the policyholder, itnot only pays out immediately, but it also continues to cover allother family members (up to 27 of them) until the policyholderwould have reached the age of 65.And should any one of the 27 family members covered by thepolicy pass on during the life of the policy, it will pay out for eachindividual, thereby reducing the financial burden such a deathoften results in for the surviving extended family.The Motlhokomedi level term life insurance product is a wholelife offering that provides both life and, importantly, superiordisability cover. As a level term policy, it enables the policyholderto pay the same amount each month and, in the event of a claim,the amount chosen when the policy was taken out is paid tothe policyholder’s beneficiaries. This amount remains the sameregardless of the length of time the policy has been in effect.Until Motlhokomedi, most individuals seeking this type ofinsurance tended to go offshore to achieve the levels of cover theyrequire. A problem, however, is that few offshore policies allowfor disability cover for Botswana citizens. Now, Motlhokomedinot only makes level term whole life cover more affordable, it alsooffers cover against permanent disability.Finally, there’s the new Mortgage Protector Plan. This is adecreasing term assurance policy that provides affordable life anddisability cover to the growing market of homeowners who havemortgages on their properties.It ensures that families are able to pay off their mortgage– and so keep their home – should the bond holder, or mainbreadwinner, pass on or become disabled. Without this type ofinsurance, families risk the bank or building society foreclosingon their mortgage and the family being evicted from their home.A particularly innovative feature of this new Mortgage ProtectorPlan is that premiums can be paid monthly, making it moreaffordable and cost-effective for the average homeowner.TRANSFORMING DISTRIBUTION CHANNELSExpanding BLIL’s markets – particularly as the Company preparesto move into the middle and upper individual life sectors, as wellas to expand its activities in the Group Life and Corporate arenas– demands the transformation of the distribution channels.In effect, BLIL sales representatives need to be better equipped,better trained, more professional, and – in the age of technology– computer literate and connected.Training will play a critical role in ensuring this. There are plansto employ a dedicated training resource and conduct tailoredtraining sessions for select agents and, where appropriate, certainbrokers. They will be upskilled and trained to sell specific productsinto certain markets rather than trying to have every agent try tobe all things to all market segments.In addition, a new team of agents is being recruited to targetmiddle to high net worth individuals. This undertaking is relativelynew, but it appears to be working well.The focus on training within our channel expansion drive is notaimed only at selling more products, but also at reducing lapses andcancellations. A common problem throughout the life insuranceindustry is that individuals are persuaded to purchase policies whichdo not meet their expectations. Part of the BLIL training drive willbe to inform and educate the public about life insurance. At thesame time, BLIL’s sales representatives will be better equipped toprovide individuals with the most appropriate product.28


Botswana Life | Operational reviewThis also dovetails with the Company’s determination to maintainthe highest ethical and professional standards. Early in the reviewperiod, management took a very tough stance about not allowinganyone who was not correctly employed or coded to conductBLIL business. While some business was lost as a result, this issueis now resolved and the Company can now focus on building adistribution channel that reflects the BLIL values and mission.SUPPORTING CUSTOMER SERVICEThe Business Support and IT departments made tremendousstrides during the review period in putting in place theinfrastructure and systems required to deliver improved customerservice on a sustainable basis into the future.These efforts include enhancements to the IT infrastructure,including the implementation of an advanced Storage AreaNetwork (SAN), an upgraded Wide Area Network (WAN) and asophisticated disaster recovery system. The aim of all this is toensure the Company’s computer systems operate more efficientlyand remain operational and accessible at all times.In addition, the upgrades to the IT system have allowed forsignificantly enhanced branch autonomy, ensuring that all aspectsof the customer’s relationship with BLIL can be dealt with at branchlevel. This process is expected to be complete by mid-2007.The enhancements have also enabled all BLIL’s major brokers,initially in Gaborone and soon in Francistown as well, to haveaccess to the Company’s systems, empowering them to capturenew client business directly from their own offices.All IT developments are underpinning many of the customerservice-enhancingprojects being implemented by the BusinessSupport division.Much of the focus of this department during the review periodwas on improving premium collection, including the automationof paypoints. This enabled the collection rate during the reviewperiod to be maintained at 98%, despite the increase in policylapses. In the past, the manual reconciliation of premiumcollections often resulted in errors on customer records. Now,with these eliminated through automation, it will be easierfor BLIL to identify arrears and communicate this informationtimeously to customers.Improved customer communication is one of the key focus areasof the Business Support division. Its “a re bueng” (Let’s Talk)project which is to be rolled out during 2007 is aimed at furtherreducing customer churn and policy lapses.The IT division further spent a considerable amount of time andeffort in drawing up system specification for group risk productsand the maintenance of corporate client records. The system,which is expected to be fully functional by mid 2007, supportsthe drive of the Corporate Business unit towards growing marketshare and offering much improved service turnaround times.FOCUS ON STAFFThe performance of any organisation is strongly driven by itsemployees. The results that have been posted this past year reflectthe commitment and focus of BLIL employees during the reviewperiod. The challenge now is to build on this strong foundation.A strategic thrust of the Company is to build a multi-skilled teamand high-performance organisational culture that promotesmanagerial excellence and continuous improvement withsubstantive technical skills required to meet the changing needsof the Company.In line with this, the Company engaged a local consultingcompany, EOH Botswana, to design and implement a PerformanceManagement System (PMS) and a Change ManagementProgramme.The PMS programme is at implementation stage, and refinementswill be made as required. The aim of the PMS is primarily to ensurethat BLIL effectively executes strategy, manages performance,and links rewards to performance. The key to the achievementof these objectives will be the alignment of people energies,behaviours and performance to business strategy. The processdemands the effective communication of the BLIL strategy to allstakeholders.An effective management process is required to ensure continuityof the changes that have and will continue to occur in BLIL,their integration with other initiatives, and the commitmentand ownership of these by the entire organisation. A changemanagement framework anchored on a robust communicationplan that is sensitive and alive to the very changes being pursuedis being implemented.Retention of high performers is another key ingredient of thecreation and sustenance of a high performance culture. BLIL isexpanding its succession plans and talent management strategiesto cover most levels of the Company. This is underpinned by anemployee development plan that not only emanates from theCompany strategy but also helps to address career management.BLIL will continue to invest significantly in human capitaldevelopment.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200629


BIHL | A sustainable companyBOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006The sustainability of Botswana is dependent on the sustainability ofcompanies like BIHL. Together, our job is to create an environment thatwill ensure our children inherit the best possible future.30


Bifm | Executive managementBifm’s challenge will be to identify opportunities that are being generatedby the Botswana economy, and to position itself to influence that growthas well as to benefit from it.Victor SenyeChief Executive Officer of Bifm32FROM LEFT TO RIGHT: Simon Ipe (Chief Operations Officer), Victor Senye (Chief Executive Officer), andThomas Labuschagne (Chief Investment Officer)


Bifm in briefBifm had an excellent 2006, performing well above budget. Totalprofits rose by around 10% as assets under management grew to overP12 billion from P9.35 billion.These excellent results were largely thanks to excellent returns oninvestments as well as the Company’s ability to maintain its mandatesand even acquire new ones. As the dominant player in a small market,that is a remarkable feat.Investments did well on the offshore markets and at home where Bifmachieved excellent returns on its BSE investments.Bifm remains acutely conscious of the need to build capacity in Botswanaand believes that newer and smaller players in the asset managementarena should be encouraged. The Company is therefore willing to workwith the smaller players, possibly in the form of strategic alliances, toenable them to build capacity.The business strategy over the years – to diversify into other areas interms of corporate finance, private equity and property and to playa role in enabling Botswana savings to start working for the country– continues to pay dividends.The subsidiary companies did very well in the review period and arestarting to improve their contribution to the overall profits of Bifm.The Zambian operation in particular produced excellent results whichwere enhanced by the appreciation of the Kwacha.Bifm’s relationships with Sanlam and BlackRock (formerly Merrill LynchInvestment Managers) are proving beneficial to the Company.Looking ahead, Bifm’s challenge will be to identify opportunitiesthat are being generated by the growing Botswana economy, and tocontinuously reinvent its positions and identify new strategic areas inwhich it can become involved.The Company will continue to grow and unlock value as it focuses onother areas that will be beneficial to all stakeholders. For example, Bifmis the only asset manager that identified the Public Private Partnership(PPP) infrastructure tender as an opportunity for growth.Bifm’s consortia have been named as preferred bidders for each ofthe three PPP tenders that were announced during the review period.The tenders involve the financing, design, construction and maintenanceto house the Office of the Ombudsman and Land Tribunal, the Ministryof Environment, Wildlife and Tourism, the Ministry of Lands and Housingand the SADC headquarters.


Bifm | Highlights and key dataASSETS UNDER MANAGEMENTP million14 00012 00010 0008 0006 0004 000Bifm missionTo provide best industry practices to the independentmanagement and administration of savings originating from lifeassurance, pension and provident funds, large corporates andindividual savers, through:● Service excellence at all levels● Sound and professional advice● Superior investment performance● Cost-efficient delivery● Generations of diversified investment portfolios2 000001 02 03 04 05 05 0631 Mar31 Mar31 Mar31 Mar31 Mar9 Months to Dec31 Dec●●●TotalBifmZambiaVisionTo be recognised as a vibrant, Pan African financial servicesprovider offering proactive solutions to rejuvenate the faith inlong-term savings and investmentsValues● Entrepreneurial● Client-centric● TrustworthyKey dataYear to9 months to31 Dec 2006 31 Dec 2005P millionP millionAssets under management 1 175 935Asset management fees 81 51Operating profit 41 26Administration expenses ratioto fee income 56% 63%


Bifm | Bifm Market Linked FundFor the year ended 31 December 2006The Market Linked Fund (MLF) is a Bifm flagship product offeringpension funds an immediate and easy investment solution whichrecognises the uniqueness of a Botswana pension fund profile ina cost efficient manner.MLF INVESTMENT RETURNS(SINCE 31 DECEMBER 1997)VS. INFLATION%500180160PERFORMANCE TREND(SINCE 31 DECEMBER 1997)500StructureIt invests in the core/sub-funds as shown in the Allocation ofInvestments Chart.Unit price historyDate MLF CPI Index31 Dec 97 8.60 49.6031 Dec 98 11.11 52.8031 Dec 99 14.56 56.4031 Dec 00 15.95 62.2031 Dec 01 21.05 65.6031 Dec 02 17.89 72.6031 Dec 03 18.61 77.2031 Dec 04 20.86 83.2031 Dec 05 32.86 92.7031 Dec 06 44.03 100.60400300200100098 99 00 01 02 03 04 05 0631 Dec31 Dec31 Dec31 Dec31 Dec31 Dec31 Dec31 Dec31 Dec31 Dec●●ReturnsInflationCOMPOSITION OF ORDINARYSHAREHOLDER ASSETS 2005%14012010080604020DecJanFebMarAprJunJulAugSepOcr●●●Logarithmic returnsLogarithmic inflationCumulative returns4003002001000005 06 06 06 06 06 06 06 06 06Primary axis is for Logarithmic returnsand inflation.Secondary axis is to beused only for Cumulative Returns.Features of themanaged funds• Well diversified local and international investment spread.• Easy withdrawal terms and fees based on asset category/characteristic.• Registered as life fund and subject to regulatory review/controls.• Easy switching between asset categories since each assetcategory separate and unitised.• Custodial and transaction costs included as one package.BenchmarkActualEquities 50 – 75% 74%Property 5 – 20% 3%Bonds and cash 10 – 40% 23%PerformanceQ4 2006 Year to 1 year 3 years 5 years 3 years 5 yearsdate Annual- AnnualisedisedReturns 5.85% 34.00% 34.00% 136.60% 109.15% 33.25% 15.90%Inflation – – 8.49% 30.29% 53.28% 9.22% 8.92%Bifm financial year is from the 1st of January to the 31st of December each year.●●●●●●●●●Local propertyLocal equityPrivate equityLocal fixed interestLocal bondOffshore hedge fundOffshore equityOffshore bondsOffshore private equityMarket – too small forrepresentationBOTSWANA INSURANCE HOLDINGS LIMITED annual report 200633


Bifm | CEO’s reportBOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006Bifm had an excellent 2006, performing well above budget. Totalprofits rose by around 10% as assets under management grewto P11.95 billion from P9.35 billion.These excellent results were largely thanks to excellent returnson our investments as well as our ability to maintain mandatesand even acquire new ones. We did well on the offshore markets– especially as equities continued to outweigh the bond marketand we had taken a strategic position that favoured a weightingtowards equities.On the local front, the Botswana Stock Exchange performedphenomenally well. We achieved excellent returns on ourinvestments there, which included some of the established stocksas well as a number of the new entrants to the market.What has been particularly pleasing for us is that while assetmanagers generally do well in a strong market, some do betterthan others. In-house asset allocation strategy and tacticalswitches between asset classes based on a clear understandingof the market dynamics drive this process. Thanks to our intimateknowledge of the local market, and our insights into ouroffshore positions, Bifm comfortably outperformed the marketbenchmarks in 2006. In some areas, we stuck to our positionsin terms of our portfolio structure in the face of some marketturbulence. We had the view that some of the turbulence wasdriven by short-term factors and that these would be eroded. Sowe stuck to our strategy and reaped the benefits.Another pleasing aspect of our results is the fact that ourmandate retention strategy is working well. We participated inseveral tenders in competition with other players and not onlydid we retain virtually all our mandates in the face of the trendtowards mandate splitting, for the first time in many years, weactually gained new mandates. As the dominant player in a smallmarket, that is a remarkable feat.However, Bifm remains acutely conscious of the need to buildcapacity in Botswana and believes that newer and smaller playersin the asset management arena should be encouraged. Indeed,Bifm is more than willing to work with the smaller players,possibly in the form of strategic alliances, in order to enable themto build the capacity they require to take on large mandates.DIVERSIFICATIONOur business strategy over the years – to diversify into otherareas in terms of corporate finance, private equity and propertyand to play a role in enabling Botswana savings to start workingfor the country – continues to pay dividends.A major event during the year was the agreement betweenBifm and BSE-listed Turnstar which saw Bifm’s property portfolioreversed into Turnstar. This created one of the largest and mostbalanced property portfolios in the country, offering geographic,sectoral and investor diversification. While Bifm remains themajority shareholder in Turnstar, our goal is to reduce our stakesubstantially in the medium term.Our other subsidiary companies did very well in the reviewperiod. They are starting to improve their contribution to theoverall profits of Bifm. And over time, we would like to see theircontribution increasing so that they become well-recognisedplayers in their respective fields. We will continue to give oursupport to these entities because their success is our success.The performance of our Zambian operation was particularlypleasing with its excellent results enhanced by the appreciationof the Kwacha. This then translated into an improved figure interms of Pula.Internally, our systems continue to improve. We conducteda review exercise during the period to ascertain what, if any,synergies existed between our system and the Sanlam systemthat could be leveraged to our benefit. However, we concludedthat from an independence perspective, as well as the factthat our systems are largely incompatible, it would be moreappropriate to focus on improving our own systems to meet ourclients’ reporting requirements.However, while investing in fully automated systems remains along-term objective, it is an extremely expensive process which,in terms of our current size and assets under management,simply cannot be justified.Botswana has a P30 billion asset management industry whichis shared by some nine major players in the asset managementindustry, of which Bifm is one. In South Africa, for example,individual companies are dealing with assets of between R300 toR500 billion. We cannot match their investments in systems – butwe cannot simply ignore our own system requirements with theexcuse that we are “too small” to improve. Our challenge nowis to find and maintain the right balance between new systemdevelopment and service delivery.Going forward, our strategy of retaining and growing businessand continuously looking at efficiencies and cost to incomeparameters will continue to be our focus.34


Bifm | CEO’s reportThis brings me to our relationships with Sanlam and BlackRock(formerly Merrill Lynch Investment Managers. The BlackRocktechnical alliance continues unchanged, and we continue toderive considerable benefits from this arrangement in terms ofaccess to information and skills development.We have also reached a solid business understanding withSanlam, our majority shareholder. Sanlam recognises Bifm’sindependence and allows us to get on with running our business.However, Sanlam has not stinted in making its resources availablein terms of providing assistance and support when requested todo so – and we are highly appreciative of that. All this has addedgreatly to the morale of our people who recognise the manyopportunities of being part of the Sanlam Group.LOOKING AHEADWhile Botswana’s growth has slowed, it remains a dynamic,thriving economy.Our challenge will be to identify opportunities that are beinggenerated by this economy and to position ourselves to influencethat growth as well as to benefit from it. That will require us tocontinuously reinvent our positions and to identify new strategicareas in which we can become involved.We will continue to grow and unlock value as we focus on otherareas that we feel will be beneficial to us. For example, we arethe only asset manager so far that has identified the PublicPrivate Partnership (PPP) infrastructure tender as an opportunityfor growth – both for Bifm and for the economy as a whole.We are therefore delighted that Bifm’s consortia have beennamed as preferred bidders for each of the three PPP tenders thatwere announced during the review period. The tenders involvethe financing, design, construction and maintenance to housethe Office of the Ombudsman and Land Tribunal, the Ministry ofWorks and SADC. We expect further developments in this regardduring the 2007 financial year.STAFFI would like to pay tribute to my staff. The results that we haveachieved in terms of portfolio performance have been a trueteam effort. People have put substantial considerable time andcommitment to doing their work. We have reached a situationwhere we would like to continue to demonstrate to our staffthat as the Company’s prospects brighten, so will their personalprospects – both in terms of human development as well asfinancially.Because of our growth and ongoing diversification, we cananticipate a restructuring of some of our operations in orderto bring new people on board, develop new key performanceareas for our existing people and create new focus areas for theCompany. One of the first such moves is the appointment of anew deputy CEO, Mrs Nthisana Philips, who will be responsiblefor the day-to-day running of the organisation, while my focuswill shift largely to new business development.Another reason we are making this move is that as part of alisted company, we need to be serious about successionplanning, particularly succession involving citizens. We are proudof our localisation track record and will do everything in ourpower to avoid having to delocalise positions because of a lackof succession planning.I would also like to pay tribute to the BIHL board and chairmanwho have been providing us with invaluable support in our currentendeavours, as well as in our efforts to move the Company intonew directions.However, in looking for and moving in new directions, a companylike Bifm is heavily reliant on the goodwill of shareholders tocommit to a strategy that management develops. We are indeedfortunate that our shareholders have not hesitated in givingus every encouragement to proceed and in expressing theirconfidence in management’s ability to create and unlock. I thankthem for that.Finally, it is common cause that the BIHL Group can be, and hasbeen, a formidable player in this economy. At this point in time,the Group has focused on asset management and the life businessas its two core pillars. Under the asset management pillar, wehave diversified into other areas in terms of corporate finance,private equity and property. The opportunity now exists for theBIHL Group itself to add additional lines of business. Now is notthe time for complacency. When a mature company becomescomplacent, decline becomes inevitable. Rather, maturity bringsan opportunity to change thinking, reinvent and re-energisethe business by actively seeking out new areas for growth. Thatis what the Group is working on. All I can say is “just watchthis space”.Victor SenyeChief Executive OfficerBOTSWANA INSURANCE HOLDINGS LIMITED annual report 200635


Bifm | Operational reviewASSET MANAGEMENTBifm’s portfolios performed well during the review period. Equitiesas an asset class did particularly well with local equities turningout to be the star performer for the year. Offshore equities, thelargest component in the Company’s balanced portfolios, alsoperformed strongly, assisted to some extent by depreciation ofthe pula.While the underlying assets performed well, a pleasing aspect ofthe results was that Bifm managed to outperform the benchmarks.The competitiveness of Bifm relative to its peers was also pleasingto note: the performances of client funds under managementcompare well in independent asset management surveys.Economic Advisory Council (BEAC) to propose and assist in theimplementation of a number of fundamental economic changes.These changes are intended to modernise and widen the scopeof economic activities, thereby reducing Botswana’s dependencyon diamonds.Bifm Capital is embracing the changes and is well-positionedto benefit from the opportunities that will flow therefrom. TheCompany’s specialised debt and structuring capabilities mean thatit will be able to participate in a number of initiatives, includingthe funding of new and soon to be privatised assets. Additionallyits advisory capacity will allow Bifm Capital to assist a variety ofstakeholders in realising their local as well as regional ambitions.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006Bifm’s relationship with BlackRock Investment Management(previously Merrill Lynch Investment Managers) has expandedfrom the technical agreement to one in which BlackRock wasappointed to the Bifm international panel of fund managers, inaddition to providing asset allocation advice to the Company’sInvestment Committee.Bifm’s access to offshore hedge funds, through funds-of-hedgefundsmanaged by Octane, has increased its ability to utiliseadvanced investment strategies as an alternative to the moretraditional asset classes of equities and bonds.The Company has also entered into a relationship with SanlamMulti Manager International (SMMI) with the aim of improvingits ability to optimise the portfolios that it constructed. Therelationship replaces the agreement Bifm previously had with anindependent asset consultant and is set to improve its selectionof complementary offshore asset managers to its panel. TheSMMI relationship creates a joint operation in which SMMI’sexisting multi-management skills and expertise will be utilised tomaximise returns and minimise risks and to ensure that multimanagementskills are developed locally.Bifm’s relationship with Sanlam Investment Management (SIM)has grown in importance over the past year, deriving synergiesfrom back-office, risk, compliance and investment processes. Bifmis regarded as an established and flagship asset managementcompany within the broader SIM Emerging Markets cluster. Itsexperience and business model assists in the cluster’s objective toset up asset management companies in potentially less developedmarkets on the continent.BIFM CAPITALThe economy of Botswana is undergoing a fundamentalchange. The government has mandated its Business andSince Bifm Capital’s establishment in 2005, it has entered into anumber of key transactions, including the disposal of a substantialindirect stake in Mascom Wireless to MTN International; theconclusion of a significant investment in the Botswana BuildingSociety; and the finalisation of a material capital injection intoAfrican Banking Corporation Holdings. This trend is expected tocontinue and the deal flow for 2007 and 2008 is promising.The 2007 year will also see the development of a number ofother key initiatives such as the launch of the Botswana AfricaMining Fund. This will be the first fund of its type to be domiciledin Botswana and the fund will look to make investments intoAfrican mining stocks and companies.There will also be significant growth opportunities in the comingyears, not only in Botswana but also using Botswana as a basefor regional expansion. Botswana’s international stature as a lowrisk country will be a significant competitive advantage that BifmCapital will look to leverage.CASSIOPEIA PRIVATE EQUITY FUND AND PHOTON PRIVATEEQUITY MANAGEMENT COMPANYBifm’s private equity initiative consists of a private equity fund andan associated specialised management company: the CassiopeiaPrivate Equity Fund and Photon Private Equity ManagementCompany respectively.Cassiopeia’s investors include the Botswana Public Officer’sPension Fund (BPOPF) and Bifm’s Market Linked Fund (MLF)which have injected a combined amount of more thanP115 million into the Fund.Photon is a joint venture between Bifm and Lancoox, withBifm holding 70% of Photon’s stock. Lancoox is owned bylocal shareholders who are also responsible for the professionalmanagement of Photon and of the Cassiopeia Fund.36


Bifm | Operational reviewDuring the review period, Cassiopeia assembled a credibleinvestment team that includes Mr D Nganunu, MD of BotswanaInsurance Company; Mr T Lippe, former MD of Orange Cellular;Mr S Boitumelo (BIHL Company Secretary), Mr R Carr (Director,Bifm Capital) and Mr V Senye (CEO, Bifm).Members of the Cassiopeia board include M Masire-Mwaamba,outgoing CEO of Botswana Export Promotion Agency (BEDIA);Mr Nganunu; Mr Senye; Mr Sanjeev Gupta (Bifm board member)and Mr S Ipe (Chief Operations Officer, Bifm).Although Cassiopeia’s focus is private equity – investing incompanies with a discernible track record – the fund alsoreserves about 20% of its resources for venture projects. Mostof the projects that have been presented to Cassiopeia to dateare venture-type initiatives from across a wide array of sectorsincluding telecommunications, transport, FMCG, food processing,manufacturing and banking. By year end, the Photon InvestmentCommittee had not approved any for investment.The goal is also to position Khumo as the first choice propertyasset management company in Botswana.Some progress was made on this latter front during the reviewperiod with Khumo winning the Debswana tender for the assetmanagement of the Debswana Pension Fund property portfolio.Another focus area for Khumo is property development. Thecompany has already identified three developments of whichtwo could proceed within the 2007 financial year subject toBifm Investment Committee approval. One is a retail centre – thefirst of its kind in Botswana – and the second is a triple A-gradecommercial development.With its structures well in place, the Fund management nowfaces the challenges of identifying suitable projects in whichto invest.KHUMO PROPERTY ASSET MANAGEMENTThe joint venture between Bifm and South Africa’s RMB Properties,Khumo Property Asset Management had an eventful 2006.This included the logistically and legally challenging task ofbedding down the enlarged Turnstar Property portfolio; anddealing with the interest rate hike which negatively impacted theFund’s distribution.The property management business, however, outperformed itsbudget: arrears were down; maintenance costs were kept wellwithin budget; and vacancies were down.While there is an oversupply of A-grade office space and miniindustrial units, this is not uniform across all grades of property.Demand for triple A office premises, such as Fairgrounds OfficePark, continues to outstrip supply while B, C and D grade officesin the right location are still in demand. On the industrial front,there is a shortage of larger units.These trends are being kept in mind as Khumo looks to grow theTurnstar portfolio. Khumo’s mission for the next 12 to 18 months isto grow the Turnstar portfolio to a P1 billion fund, through eitheracquisitions or developments.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200637


BIHL | Corporate governanceBOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006In recognition of its obligation to contribute to socioeconomic goals andgeneral social upliftment, the BIHL Group is committed to developingoperating polices that address the broader societal impacts of its businessactivities.38


BIHL | Corporate governanceBIHL REMAINS COMMITTED TO THE HIGHEST STANDARDS OF INTEGRITY AND ETHICAL CONDUCT IN ITS DEALINGSWITH ALL STAKEHOLDERS AS WELL AS TO THE HIGHEST LEVEL OF CORPORATE GOVERNANCE AND BESTPRACTICE.STATEMENT OF COMMITMENTThe BIHL board of directors is committed to the highest levelof corporate governance and best practice. We see value insubscribing to a system whereby ethics, personal and corporateintegrity and governance practices set the standards forcompliance. The board is of the opinion that BIHL complies withthe prevailing standards in all material respects.The board recognises the responsibility of the Group to conduct itsaffairs with prudence and integrity, transparency, accountability,fairness and social responsibility, and in accordance with generallyaccepted accounting practices, to safeguard the interests ofall its stakeholders. The board also appreciates that corporategovernance is a component of equity risk and acknowledges therelationship between governance risk, equity performance andcorporate profitability.The business structures in the Group: Life and Asset Managementare supported by clear approval frameworks and agreeduponbusiness principles, ensuring a coherent and consistentgovernance approach throughout the Group.SUSTAINABLE PERFORMANCEIn as much as the inherent value of a company can be determinedby its marketability, there is also a value proposition that equateslong-term viability to measurable investment in human andother intellectual capital. In recognition of its obligation tocontribute to socioeconomic goals and general social upliftment,the BIHL Group strives to conduct its business with due regardfor environmental concerns, and is committed to developingoperating policies that address the potential environmentalimpacts of its business activities.BOARD’S GOVERNANCE AND STRUCTUREThe Group is governed by a unitary board of directors, assisted bythe following sub-committees:• Audit and risk committee• Human resources committee• Investment committee – Bifm• Investment committee – Botswana Life• Nominations committeeCorporate governance in the Group is managed and monitoredby the board, in conjunction with the above sub-committees.The board is chaired by Mr Maclean Letshwiti, an independentnon-executive director, and comprises:• two executive directors;• two independent non-executive directors; and• five non-executive directors.The roles of the Chairman and the Group Chief Executives areseparate, with clear division of the responsibilities to ensurebalance of power and authority between them. The Chairmanhas no executive function; he regularly meets with seniorexecutive management to monitor progress and discuss relevantbusiness issues, and is available to respond to shareholder queriesor issues relating to the Group. Non-executive directors havethe opportunity to meet separately without the Group ChiefExecutives as and when circumstances warrant.APPOINTMENT OF DIRECTORSThe directors have been chosen for their business acumen andwide range of skills and experience. The board gives strategicdirection to the Company, appoints the Chief Executive Officersand ensures that succession is planned. In appointing directors,emphasis is placed on achieving the balance of skills, experienceand professional and industry knowledge necessary to meet theGroup’s strategic objectives. The selection and appointment ofdirectors is formal and transparent, and a matter for the boardas a whole, assisted by the nominations committee. The issue ofappropriate training of new and existing directors is consistentlyreviewed. All directors are subject to an annual performanceevaluation. Succession planning is also reviewed regularly.On appointment, a new director has:• discussions with the Chairman regarding the Group’sexpectations of the director, the potential contribution ofthe director to the Group and the areas of such director’sexpertise; andBOTSWANA INSURANCE HOLDINGS LIMITED annual report 200639


BIHL | Corporate governance• the benefit of an induction programme aimed at broadeningthe director’s understanding of the Group as well as the businessenvironment and markets in which the Group operates.In accordance with the Company’s Articles of Association, the termof office for non-executive directors is three years. One third ofthe directors retires by rotation annually, with each retiring directoreligible for re-election, if available, at the annual general meeting.The non-executive directors do not hold service contracts with theGroup and their remuneration is not tied to its performance.BOARD MEETINGSThe board meets at least four times a year to consider businessphilosophy and strategic issues, to set risk parameters, approvefinancial results and budgets and monitor the implementation ofdelegated responsibilities. Feedback from its committees, as wellas a number of key performance indicators, variance reports andindustry trends are considered. A summary of meetings held andattended is indicated below:Board Audit Investment Human resourcesA B A B A B A BBurbidge JA 4 4 4 2 4 2 3 3Dawes M 4 4 4 4 4 4Fidzani H 4 4 12 11 3 2Gupta S 4 4 4 1 12 12 3 2Harding C 1 1 1 1 1 1 1 1Jefferis K 4 4 12 12Letshwiti MC 4 4 4 4 4 4Rowse JP 1 1Senye V 4 4 4 4 12 12Sikalesele-Vaka RD 4 4 4 4 4 4Van der Merwe J 2 1Werth H 3 2Column A: indicates the number of meetings held during the review period while the director was a member of the board or committeeColumn B: indicates the number of meetings attended by the director during the year while the director was a member of the board orcommitteeBOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006REMUNERATION PHILOSOPHYResponsibility for the remuneration strategy of the Group resideswith the human resources committee, which also approvesmandates for incentive schemes within the Group and determinesthe remuneration of executive committee members, relativeto local and international industry benchmarks. It also makesrecommendations to the board regarding the remuneration of thedirectors. The board is convinced that appropriate remunerationfor executive directors is inextricably linked to the developmentand retention of top-level talent and intellectual capital withinthe Group.Employee remunerationThe following principles are used to determine appropriateremuneration levels:• All remuneration principles are structured to provideclear differentiation between individuals with regard toperformance;• A clear and meaningful distinction is made between highperformers, average performers and underperformers, withremuneration reflecting these gradients;• Strong incentives are created for superior performance byindividuals and teams;40


BIHL | Corporate governance• Top contributors are rewarded significantly higher performancebonuses; and• Underperformers are not rewarded and active steps are takento encourage the individual either to improve performance orto leave the Group, in line with accepted practices.Executive directorsThe package for executive directors includes a base salary, avariable performance-linked payment and an allocation of shareoptions. All of these are established in terms of the remunerationprinciples outlined. In line with the Group’s remunerationphilosophy, remuneration is reviewed annually by the humanresources committee after evaluating each executive director’sperformance.Non-executive directorsFee structures are recommended to the board by the humanresources committee and reviewed annually with the assistanceof external service providers. The committee takes cognisanceof market norms and practices, as well as the additionalresponsibilities placed on board members by new acts, regulationsand corporate governance guidelines. The board recommendsthe fee structure for the next year to the Company’s shareholdersat the AGM for approval.Non-executive directors receive an annual fee for their input. Inaddition, a fee is paid for attending and contributing to boardmeetings. The Group pays for all travelling and accommodationexpenses in respect of board meetings. Disclosure of individualdirectors’ emoluments is detailed below:AnnualHumanfees Board Audit Investment resources TotalDirector Pula Pula Pula Pula Pula PulaBurbidge JA** 35,000 27,500 14,000 14,000 27,500 118,000Dawes M** 35,000 27,500 27,500 27,500 – 117,500Fidzani H 35,000 27,500 – 75,000 20,500 158,000Gupta S** 35,000 27,500 7,000 82,000 27,500 179,000Harding C** 10,000 6,500 6,500 6,500 6,500 36,000Jefferis K 35,000 27,500 – 82,000 – 144,500Letshwiti MC 38,750 27,500 27,500 21,000 – 114,750Rowse JP** 10,000 6,500 – – – 16,500Werth H** 30,000 21,000 – – – 51,000Van der Merwe J** 18,750 7,000 – – – 25,750Total fees 282,500 206,000 82,500 308,000 82,000 961,000** The directors representing African Life Assurance Limited and Sanlam do not receive fees in their personal capacity as these fees arepaid directly to the respective companies.EVALUATION OF PERFORMANCEThe directors complete questionnaires on an annual basisto evaluate the effectiveness of the board and its members.This mechanism is used to ensure that the board charteredresponsibilities comply with, but also that adequate attentionis paid to matters of both performance and conformance. Theresults of the exercise are collated by the Company Secretary,considered by the Chairman and discussed with the board forpurposes of performance improvement. The performance of theindividual directors is also reviewed by individual discussions ofeach director with the Chairman; the Chairman’s performanceis in turn reviewed by the other directors. The recent evaluationsindicate that the directors are satisfied with the effectiveness ofthe board’s performance and that of its individual members.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200641


BIHL | Corporate governanceBOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006CONFLICT OF INTERESTDirectors are required to inform the board timeously of conflictsor potential conflicts of interest they may have in relation toparticular items of business. Directors are obliged to recusethemselves from discussions of decisions on matters in whichthey have a conflicting interest, unless resolved otherwise by theremaining members of the board. Directors are required to disclosetheir shareholding in the Company, their other directorships, andtheir interests in contracts that the Group may conclude or mayhave already concluded, at least annually and as and whenchanges occur.DEALINGS IN SECURITIESThe Group has a practice prohibiting dealing in its shares bydirectors, officers and employees for a designated (closedseason) period preceding the announcement of its financialresults or in any other period considered sensitive, and complieswith the listings requirements of the Botswana Stock Exchange.A summary of directors’ dealings is listed on page 106 of theannual report.INSURANCEAdequate directors’ and officers’ insurance cover has beenpurchased by the Group. No claims under the relevant policywere made during the year under review.ADVICEAll directors have access to the advice and services of theCompany Secretary and are entitled to obtain independent andprofessional advice at the Group’s expense. To assist the boardin discharging its responsibilities, a number of board committeeshave been established.BOARD SUB-COMMITTEESCertain functions of the board are facilitated through the mainsub-committees, including audit, investment, human resourcesand nominations committees. The sub-committees are chaired bynon-executive directors who report to the board.Terms of reference for all board committees have been confirmedby the board. There is a full disclosure from these committees tothe board; minutes of the sub-committees are submitted to theboard for noting. In addition, all board-delegated authorities arereviewed and updated annually by the board.Audit committeeMembers: Ms Margaret Dawes (Chairperson),Mr John A Burbidge, Mr Sanjeev Gupta, Mr Maclean C Letshwiti,Ms Regina D Sikalesele-Vaka, Mr Victor SenyeComposition: Four non-executive members and two executivemembersThe committee is chaired by Ms Margaret Dawes a charteredaccountant. The committee has a formally written charter whichsets out its responsibilities. The committee meets at least threetimes a year. The internal and external auditors attend thesemeetings, and have unrestricted access to the chairman of thecommittee.The main responsibilities of this committee are to assist theboard in discharging its responsibilities under the CompaniesAct, Insurance Industry Act and common law, with regard to thefinancial affairs of the Group. In particular it monitors financialcontrols, accounting systems and reporting, compliance withlegal and statutory requirements, evaluating the managementof risk areas and internal control systems and the effectivenessof external and internal auditors. The committee also evaluatesthe Group’s exposure and response to significant risks, includingsustainability issues.Investment committeesMembers of the Bifm investment committee:Dr Keith Jefferis (Chairman), Dr Happy Fidzani, Mr Sanjeev Gupta,Mr Victor SenyeMembers of the Botswana Life investment committee:Ms Margaret Dawes (Chairperson), Mr John Burbidge,Mr Maclean Letshwiti, Ms. Regina Sikalesele-VakaDue to the uniqueness of investment risks for the life and assetmanagement business; there are two investment committees;Botswana Life and Bifm. The investment committee of Bifmis chaired by Dr Keith Jefferis, an independent non-executivedirector. Ms Margaret Dawes, a non-executive director, chairs theBotswana Life investment committee.The Bifm investment committee meets on a monthly basis, whileBotswana Life’s meets at least once a quarter. The committees areresponsible for formulating investment strategy and monitoringthe performance of asset managers. In addition, the committeesreview the matching of assets against policyholder liabilities andshareholder investment. The committees also ensure compliance42


BIHL | Corporate governancewith investment mandates set for each of the asset portfoliosmanaged by the asset manager.Human resources committeeMembers: Dr Happy Fidzani (Chairman), Mr John A Burbidge,Mr Sanjeev GuptaComposition: Three non-executive directorsChaired by Dr Happy Fidzani, an independent non-executivedirector, and includes three non-executive directors. Thiscommittee is responsible for monitoring and advising on theGroup’s human intellectual capital and transformation processesregarding employees. In particular, the committee approvesexecutive appointments and reviews succession planning.The committee is also responsible for the remuneration strategy ofthe Group, the approval of guidelines for incentive schemes andthe annual determination of remuneration packages for BIHL’sexecutive committee. The committee takes cognisance of localand international industry benchmarks, ensures that incentiveschemes are aligned with good business practice and that excellentperformance is rewarded. It also makes recommendations to theboard regarding directors’ remuneration. The Chief ExecutiveOfficers and heads of human resources attend the meetings byinvitation.Non-executive directors do not participate in an incentive bonusnor do they receive share options. Details of remuneration of nonexecutivedirectors are set out on page 41 of this annual report.Nominations committeeMembers: Mr Maclean Letshwiti (Chairman),Mr John A Burbidge, Mr Heinie WerthComposition: Three non-executive directorsThe procedure for the appointment of new directors is formaland transparent, and a matter for the board as a whole. Itsresponsibility is to make recommendations to the board on theappointment of new directors, including recommendations onthe composition of the board. These appointments are subjectto shareholder confirmation at the following annual generalmeeting. The committee meets as and when appropriate.Ad hoc board committeesThe board has the right from time to time to appoint and authorisespecial ad hoc board committees to perform specific tasks. Theappropriate board members make up these committees.STATUTORY ACTUARYMr Giles Waugh is an independent statutory actuary, who is notin the employ of the Company. He is responsible for assistingthe board in all actuarial matters and conducting the actuarialvaluation of the Group. He is also responsible for all regulatoryreporting to the Registrar of Insurance and for safeguardingthe interests of policyholders. The statutory actuary attendsthe interim and year end board meetings as well as the auditcommittee meetings. The report of the statutory actuary is setout on page 58.COMMUNICATION WITH STAKEHOLDERSThe Group is committed to a policy of effective communicationand engagement with its stakeholders on issues of mutualinterest. This includes statutory, regulatory and other directivesregulating the dissemination of information by companies andtheir directors and officers. Financial results presentations aremade to investment analysts at least once a year and personalmeetings with analysts and fund managers/trustees are arrangedwhen appropriate. The Group publishes its annual and interimresults in the press, in addition to mailing its annual report to allshareholders.Each item of special business included in the notice of theannual general meeting is accompanied by a full explanationof the effects of the proposed resolution. In the course of theannual general meeting, as with other shareholder meetings, thechairperson provides reasonable time for discussion. Shareholdersare encouraged to attend the annual general meeting.CORPORATE CODE OF ETHICAL CONDUCTBusiness ethics and organisational integrityThe Group remains committed to the highest standards ofintegrity and ethical conduct in dealing with all stakeholders. Thiscommitment is confirmed at board and general managementlevel by their endorsement of the code of ethics for the Group.The human resources departments monitor compliance withthe principles underlying the code of ethics and investigates allmatters brought to its attention if necessary. In terms of BIHL’scode of ethics, no director or employee within the Group mayoffer or receive any gift, favour or benefit that may be regardedas an attempt to exert influence in unduly favouring any party.BIHL, therefore, has a formal Group gift/gratification policy toprovide for the official declaration and recording of corporategifts received or given.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200643


BIHL | Corporate governanceBOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006ForensicsThe Group recognises that financial crime and unlawful conductare in conflict with the principles of ethical behaviour, as set outin the code of ethics, and undermines the organisational integrityof the Group. The financial crime combating policy for theBIHL Group is designed to counter the threat of financial crimeand unlawful conduct. A zero tolerance approach is applied incombating financial crime and all offenders will be prosecuted.A Group Forensic Services function at Sanlam Group leveloversees the prevention, detection and investigation of incidentsof unlawful conduct that are of such a nature that they mayhave an impact on the Group. Group Forensic Services is alsoresponsible for the formulation of Group standards in respect ofthe combating of unlawful conduct and the implementation ofmeasures to monitor compliance with these standards.Quarterly reports are submitted by Group Forensic Services to theBIHL audit and risk committee on the incidence of financial crimeand unlawful conduct in the Group and on measures taken toprevent, detect, and investigate and deal with such conduct.STRATEGIC RISK MANAGEMENTIn acknowledging its responsibility for strategic risk management(SRM) within the Group, the board has tasked the audit and riskcommittee to ensure that its responsibilities are fulfilled. A majorfunction of the committee is therefore to analyse and report backto the board on the status of various risks and risk management.Considered an integral part of the decision-making process inthe Group, the primary objective of the Group’s SRM programmeis to optimise the Group’s risk-adjusted return on capital andembedded value. To ensure an optimal return, an organisationassumes an acceptable level of risk in conducting its operations.This level of risk is dependent on the organisation’s risk appetite,as determined and managed by the board. The role of riskmanagement is therefore to enhance the organisation’s abilityto manage, and not necessarily avoid or eliminate these risks,ensuring that the overall risk profile remains acceptable. This mayinvolve various risk responses or a combination thereof, namelyacceptance, mitigation and/or avoidance of the risk. The processesin place provide reasonable, but not absolute assurance, that therisks are adequately managed. These processes have been inplace throughout the period under review, and cover all materialactivities of the Group.The SRM policy is regularly reviewed and updated where necessary,evaluating risk as a combination of impact and likelihood. Theassessments of the various risks in the Group are evaluated onboth a quantitative and qualitative basis, while amendments tothe SRM policy require board approval. Risks characterised by alow likelihood of occurring but with a potentially catastrophicimpact, are regarded as unacceptable, and are actively avoided asfar as practically possible. The SRM policy sets out the minimumstandard of risk management that the various businesses have toadopt and adhere to.Rigorous policies, procedures and methodologies have beenadopted and implemented throughout the Group, enabling theeffective identification and management of risks. All processesand procedures have been designed to provide reasonableassurance that the risks are adequately managed.EMPLOYMENT EQUITY AND LOCALISATIONEmployment equity and localisation remains a high prioritybusiness imperative. Both Group businesses have implementedtheir respective plans for the period to 2007. These plans arereviewed annually to ensure they are aligned with businessobjectives and industry needs.FINANCIAL REPORTINGThe financial statements of BIHL are prepared in accordance withInternational Financial Reporting Standards and Companies Act.The embedded value statement is subject to an independentaudit.INTERNAL AUDITThe Group’s internal audit function is co-ordinated at SanlamGroup level by the Chief Audit Executive of Sanlam Limited.A board-approved internal audit charter governs internal auditactivity within the Group. It carries out regular risk-focused reviewsof internal control and risk management systems. The ChiefAudit Executive of Sanlam Limited is appointed in consultationwith the chairman of the Sanlam audit and risk committee andhas unrestricted access to the chairman of the committee. Theauthority, resources, scope of work and effectiveness of thefunctions are reviewed regularly.44


BIHL | Corporate governanceEXTERNAL AUDITThe external auditors provide an independent assessment of BIHL’ssystems of internal financial control and express an independentopinion on the annual financial statements. The external auditfunction offers reasonable, but not absolute, assurance on theaccuracy of the financial disclosures. The external auditors’ planis reviewed by the audit committee to ensure that significantareas of concern are covered, without infringing on the externalauditors’ independence and right to the audit. Close co-operationbetween the internal and external auditors ensures appropriatecombined audit and minimisation of duplicated effort.COMPANY SECRETARY AND PROFESSIONAL ADVICEThe board-appointed Company secretary is Ms S Boitumelo. Alldirectors have unlimited access to the advice and services of theCompany secretary, who is accountable to the board for ensuringthat procedures are complied with and that sound corporategovernance and ethical principles are adhered to. If appropriate,individual directors are entitled to seek independent professionaladvice concerning the discharge of their responsibilities at BIHL’sexpense.GOING CONCERNThe board has considered and recorded the facts and assumptionson which it relies to conclude that BIHL will continue as a goingconcern in the financial year ahead. Their statement in this regardis also contained in the statement of directors’ responsibility forannual financial statements.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200645


BIHL | Corporate social investmentAs a company that is controlled and managed by Batswana from Botswana,the Group is committed to using its capital in Botswana to develop andsupport the country and its people.46


BIHL | Corporate social investmentBIHL, THROUGH ITS OPERATING SUBSIDIARIES BIFM AND BOTSWANA LIFE (BLIL), SUPPORT A WIDE RANGE OFCHOSEN PROJECTS WHICH CONTRIBUTE IN A VARIETY OF WAYS TO IMPROVING THE LIVES OF THOSE IMPACTEDBY THEM.The Group continued to provide financial support to deservingcharities, particularly those involving;• needy children• education; and• art and drama.During the period under review, the Group and its subsidiariesextended their involvement in World Aids Day by hosting aChristmas party at the Botswana-Baylor Children’s ClinicalCentre which provides state-of-the-art care and treatment toover 1,200 HIV-infected infants and children, as well as babiesand youngsters orphaned by the Aids epidemic. This sponsorshipenabled the 300 children who are resident at the Centre and theircaregivers to put aside their Aids concerns for a few hours andjust have fun.However, a major focus of the Group’s CSR programmes remainsthe promotion of health of the nation: healthy bodies as well ashealthy minds. So once again, Bifm and BLIL were at the forefronton supporting the arts in Botswana – music and drama and, forthe first time ballet, as well as learning.The Group’s commitment to the development of Botswana artsand culture reached unprecedented heights when the worldrenowned Ballet of the Stars Moscow performed at the GICC.This was the first time a Gaborone audience was treated to themagic of professional ballet, performed by one of the world’smost highly acclaimed companies. It was a spectacular experiencefew will forget.The sponsorship of the “Star of the Ballet” performance was anextension of the Company’s four-year sponsorship of the grandfinale concert at the annual Maitisong festival.This year, our sponsorship made it possible for a rising local star,Angela Kerrison who is studying in Cape Town, to perform athome with the 56-piece Johannesburg Festival Orchestra – and toshare the stage with world-renowned diva Sibongile Khumalo.We also continued our sponsorship of the Botswana TeachersUnion National Eisteddfod, which provides two days of traditionaldance and choral music and brings together 5,000 students fromacross the country.To promote learning, BLIL continues to sponsor the operationof the insurance school at the Botswana Accountancy College,providing a mechanism to equip those wanting to enter the lifeassurance industry, to do so effectively.The Group also devoted considerable attention to the AIDS/HIVissue through a number of educational sponsorships.We continued the sponsorship of MBA students at University ofBotswana as well as the provision of generic training for pensionfund trustees, empowering them to perform their duties moreeffectively.And on the sports front, sponsorship of the annual BifmBotswana Ladies and Legends golf tournament was extendedto benefit Botswana’s emerging golf talent. Twelve junior-sizedsets of golf clubs were donated to the Botswana Golf Unionfor use by children involved in the union’s Botswana Junior GolfDevelopment programme.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200647


BIHL | Wellness and HIV policyBOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006With the sustainability of the Group a major management focus,management remains acutely aware of the potential impact the Aidspandemic could have on its own success and sustainability. The Grouptherefore continues to implement its dynamic HIV/Aids policy with vigour.48


BIHL | Wellness and HIV policyWhile the death rate from Aids has slowed significantly, thereis still no real evidence of a similar downturn in the rate of HIVinfection in Botswana. As a result, companies like BIHL can notbecome complacent about the enormous challenge to economicdevelopment in Botswana posed by the ongoing pandemic.With sustainability of the Group a major management focus,management remains acutely aware of the potential impactpandemic could have on its own success and sustainability.The Group, therefore, continues to implement its dynamic HIV/Aidspolicy with vigour.The focus of the policy remains on empowerment: empowermentof employees through education that will enable them to reducetheir risk of infection; and empowerment of those directly affectedby the pandemic through illness or death of family members.Information relating to the medical facts and preventativeprogrammes that will reduce the risk of HIV/Aids transmissionis regularly made available to employees, their families and theircommunities.The Group also continues to provide networking and supportstructures for those affected and infected by HIV/Aids. All BIHLemployees and their families have access to appropriatesupport, and counselling services are available to employees andtheir families through external support groups and companycounsellors.Medical treatment and assistance is provided to those who areinfected with HIV/Aids in terms of existing company policies andprocedures as well as the relevant Medical Aids Benefit Societies.and when they can no longer continue due to ill health, theCompany’s rules governing ill health apply.Prospective and current employees are not and will not be testedfor HIV/Aids without their consent and employees are under noobligation to disclose their HIV status.Particulars of employees confirmed to have Aids or to be HIVpositive are dealt with in strict confidentiality. However, the Groupalso recognises the need to manage the impact of Aids effectively inthe workplace and to plan for the future manpower requirements.This dictates the sharing of information in a restricted, protectedand confidential manner with authorised persons.The Group’s Aids Task Force continues to provide strategicdirection for the effective management of HIV/Aids.The responsibilities of the executive committee; line managersand supervisors; support groups – including peer group educators,Aids counsellors and the Aids Task Force are set out in theHIV/Aids Policy.However, BIHL is well aware that the total concept of employeewellness directly affects productivity and sustainability. Employeewellness encompasses all illness, from HIV/Aids to lifestyle-relatedconditions such as diabetes, coronary artery disease, substanceabuse and even stress, poor personal financial management andstress can negatively impact the performance and sustainability ofan organisation.A Group Staff Wellness Programme is being implemented.The aim is to initiate and implement health awarenessprogrammes for lifestyle-related conditions.While recognising that there are circumstances unique toHIV infection, the fundamental principle to which the Groupsubscribes is that HIV infection and Aids should be approachedon the same basis as any other life threatening or serious healthcondition.Employees with Aids are entitled to all normal employee benefits;they are permitted to continue with their usual duties for aslong as they are capable of normal performance requirements,BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200649


BIHL | Embedded value report1 DEFINITION OF EMBEDDED VALUEThe embedded value represents an estimate of the economic value of the Company excluding the value attributable to future newbusiness and the value attributable to minority interests. The embedded value comprises:– the value of the shareholders’ net assets;– fair value adjustments; and– the value of the in-force business.The value of in-force business is the present value of future after-tax profits arising from business in force at the valuation date,discounted at the risk discount rate, and adjusted for the cost of capital required to support the business.Other operations have been taken at net asset value.The value of new business represents the value of projected after-tax profits at the point of sale arising from new policies sold duringthe period to 31 December 2006, accumulated to the end of the year at the risk discount rate. The value is adjusted for the cost ofcapital required to support the new business2 EMBEDDED VALUE RESULTS12 months to 9 months to31 Dec 2006 31 Dec 2005RestatedP’000 P’000Shareholders’ net assets excluding goodwill 836,560 631,387Fair value adjustments 100,784 50,564937,344 681,951Value of in-force business 386,837 313,204Value before cost of capital 440,301 360,262Fair value adjustments (16,506) (12,258)Cost of capital (36,958) (34,800)Embedded value 1,324,181 995,155Group capital adequacy requirement 124,652 90,990CAR cover 7.5 7.5BOTSWANA INSURANCE HOLDINGS LIMITED annual report 20063. EMBEDDED VALUE EARNINGSThe embedded value earnings are derived as follows:Embedded value at the end of the period restated 1,324,181 995,155Embedded value at beginning of the period 995,155 852,895Change in embedded value 329,026 142,260Consolidation of the staff share scheme 1,283 (124)Dividends and new capital 105,486 48,438Embedded value earnings 435,796 190,57450


BIHL | Embedded value report3 EMBEDDED VALUE EARNINGS (continued)12 months to 9 months to31 Dec 2006 31 Dec 2005RestatedP’000 P’000These earnings can be analysed as follows:Roll forward 256,819 112,040Investment return on free assets 215,605 75,228Expected return on life business in force 41,214 36,812Value of new business at end of the period 63,976 35,228Value of new business at point of sale 59,257 32,850Expected return on new business to end of the period 4,719 2,378Changes in assumptions and methodologyExpenses (42,157) (22,961)Mortality 14,812 –Persistency (14,078) (13,147)Data and methodology changes (2,425) (1,177)Total operational (43,848) (37,285)Economic 2,277 (6,066)Total (41,571) (43,351)Experience variationsMortality and morbidity 29,437 30,978Persistency 4,612 (20,385)Expenses and commission 2,804 (6,375)Other 37,547 24,045Total operational 74,400 28,263Investment returns 65,841 44,482Taxation 16,331 13,912Total 156,572 86,657Total earnings 435,796 190,574Fair value adjustmentsStaff share scheme (28,434) (6,792)Group holding expenses (16,506) (12,258)Funeral Services Group write-up to fair value 5,218 5,130Reversal of cross holding adjustment 124,000 52,226Total 84,278 38,306Consisting ofNet asset value adjustments 100,784 50,564Value of in-force business adjustments (16,506) (12,258)BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200651


BIHL | Embedded value report4 VALUE OF NEW BUSINESSThe value of new business represents the value of projected after-tax profits at the point of sale arising from new policies sold duringthe period to 31 December 2006, accumulated to the end of the period at the risk discount rate. The value is adjusted for the cost ofcapital required to support the new business.12 months to 9 months to31 Dec 2006 31 Dec 2005P’000 P’000Value of new business at end of the period 63,969 35,228Value at point of sale after cost of capital 59,258 32,850Value at point of sale before cost of capital 61,821 37,301Recurring premium 28,125 22,107Single premium 33,696 15,194Cost of capital at point of sale (2,563) (4,451)Expected return 4,711 2,3785 SENSITIVITY TO THE RISK DISCOUNT RATEThe risk discount rate appropriate to an investor will vary depending on the investor’s own requirements, tax position and perceptionof the risks associated with the realisation of the future profits of the Botswana Insurance Holdings Limited Group. The sensitivity ofthe embedded value to the risk discount rate is set out below.Risk discount rate 13.5% 14.5% 15.5%P’000 P’000 P’000Shareholder’s net assets and fair value adjustments, excluding goodwill 937,344 937,344 937,344Value of in-force business 411,074 386,837 365,079Value before cost of capital 459,386 440,301 423,255Fair value adjustments (16,506) (16,506) (16,506)Cost of capital (31,805) (36,958) (41,669)Embedded value 1,348,418 1,324,181 1,302,423BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006Value of one year’s new business at valuation date 60,933 59,258 57,891Value before cost of capital 63,188 61,821 60,721Cost of capital (2,255) (2,563) (2,830)6 ASSUMPTIONSThe assumptions used in the calculation of the embedded value are the same best estimate assumptions used for the FinancialSoundness Valuation. The main assumptions used are as follows:6.1 Economic assumptionsBest estimate economic assumptions are the same as those assumed in the Financial Soundness Valuation as shown in thefinancial statements. The main assumptions (% p.a.) used are as follows:31 Dec 2006 31 Dec 2005% p.a % p.aRisk discount rate 14.50 13.50Overall investment return (before taxation) 12.09 11.06Expense inflation rate 8.00 7.0052


BIHL | Embedded value report6 ASSUMPTIONS (continued)6.2 Mortality RatesThe assumptions for future mortality rates are based on the results of recent experience investigations conducted by the CompanyAllowance has been made for expected future Aids mortality allowing for the effect of the roll out of anti retroviral treatment.6.3 ExpensesThe maintenance expense assumption is based on the results of conducted expense investigations for the year ended31 December 2006.6.4 Premium escalationsThe embedded value of in-force business includes the expected value of future premium increases resulting from premiumindexation arrangements on in-force business. The value of new business includes the expected value of future premium increasesresulting from premium indexation arrangements on new business written during the period to 31 December 2006.6.5 Persistency/surrender basisThe assumptions for lapse and surrender rates are based on the results of experience investigations conducted on 30 September2006 by the Company.6.6 TaxAllowance was made for the current life office taxation basis, including capital gains tax.6.7 Mix of assets backing the Capital Adequacy Requirement31 Dec 2006 31 Dec 2005Asset classFixed interest 23.8% 30.9%Property 1.1% 4.2%Equities 75.0% 64.9%Total 100.0% 100.0%6.8 Other assumptionsThe embedded value per share does not include an allowance for the future cost of the share option scheme. Where shares havenot yet been issued, the number of shares used to calculate the embedded value per share will be increased as and when theseoptions are granted. Granting share options will therefore influence the embedded value per share in future.7 SENSITIVITIESThis section illustrates the effect of different assumptions on the value of in-force business net of cost of capital. The effect ofassumption changes in the Financial Soundness Valuation has been included in the value of in-force business. For each sensitivityillustrated all other assumptions have been left unchanged.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200653


BIHL | Embedded value report7 SENSITIVITIES (continued)Cost of Value beforecapital cost ofValue of over base capital %in-force capital Total changeP’000 P’000 P’000Embedded value at 31 December 2006Base 403,344 36,958 440,301Lapse increases by 10% 385,040 35,185 420,225 (4.6%)Future expenses increase by 10% 376,248 36,958 413,205 (6.2%)Mortality experience increases by 10% 387,252 34,523 421,774 (4.2%)Investment returns decrease by 1% 394,326 36,701 431,027 (2.1%)Risk discount rate decreases by 1% 427,580 31,805 459,386 4.3%Risk discount rate increases by 1% 381,585 41,669 423,255 (3.9%)Value ofValue beforenew Cost of cost of %business capital capital changeP’000 P’000 P’000Value of one year’s new business as at 31 December 2006Base 59,257 2,563 61,821Lapse increases by 10% 55,454 2,391 57,845 (6.4%)Future expenses increase by 10% 55,857 2,563 58,421 (5.5%)Maintenance and acquisition costs increase by 10% 54,356 2,563 56,919 (7.9%)Mortality experience increases by 10% 55,186 2,378 57,563 (6.9%)Investment returns decrease by 1% 58,464 2,531 60,996 (1.3%)Risk discount rate decreases by 1% 60,933 2,255 63,188 2.2%Risk discount rate increases by 1% 57,891 2,830 60,721 (1.8%)Assumed management actionNo management action has been assumed.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006GT WaughStatutory ActuaryFIA FASSA14 February 200754


BIHL Financial Statementsfor the twelve months ended 31 December 2006IndexDirectors’ report 55Directors’ statement of responsibility 56Report of the independent auditors 57Report of the statutory actuary 58Basis of presentation and accounting policies 61Risk management 79Income statements 88Balance sheets 89Statement of changes in equity 90Cash flow statements 91Notes to the financial statements 92Notice of annual general meeting 112Explanatory notes to resolution ofannual general meeting 113Shareholder’s calender 113Glossary of terms 114Proxy and voting instructions 117Administration and managementIBC


BIHL | Directors’ reportFor the year ended 31 December 2006The board of directors of Botswana Insurance Holdings Limited(“the Company”) has pleasure in submitting its report and theaudited financial statements of the Company and its subsidiariesfor the year ended 31 December 2006.NATURE OF BUSINESSThe Company and its subsidiaries (“the Group”) underwrites allclasses of long-term insurance, administers deposit administrationschemes, manages investments and administers life and pensionfunds. It also provides funeral services through one of itsassociated companies. The Company is listed on the BotswanaStock Exchange.RESULTS FOR THE PERIODThe Group reported a surplus after tax for the year to31 December 2006 of P316.1 million (nine months to 31 December2005: P172.6 million). Shareholders’ equity at 31 December2006 was P849.1 million (31 December 2005: P644.6 million).The results are fully explained in the financial statements.SHARE CAPITALThe authorised share capital of the Company consists of1,200,000,000 ordinary shares with a nominal value of 5 thebeeach. The issued share capital consists of 275,684,402 ordinaryshares of 5 thebe each.EVENTS SUBSEQUENT TO THE BALANCE SHEET DATEThe directors are not aware of any matters or circumstancesarising since the end of the financial period, not otherwise dealtwith in this report or the Group Financial Statements, that wouldhave a significant effect on the operations of the Group or theresults of its operations.DIRECTORATEThe composition of the board is as follows:MC LetshwitiChairmanJA BurbidgeM DawesH FidzaniS GuptaC Harding Resigned March 2006H Werth Appointed February 2006K JefferisJ van der Merwe Appointed August 2006J Rowse Resigned March 2006V SenyeJoint Group Managing DirectorRD Sikalesele-VakaJoint Group Managing DirectorCOMPANY SECRETARY AND REGISTERED ADDRESSS Boitumelo, Block A: Fairgrounds Office Park, Plot 50676,Gaborone/P O Box 336, GaboroneDIVIDENDSAn interim dividend of 12.5 thebe per share was declaredduring the period. The directors propose a final dividend of24.5 thebe per share and a special dividend of 5 thebe pershare; making the total dividend for the year 42 thebe per share(31 December 2005: 27.5 thebe per share).DIRECTORS’ SHAREHOLDINGSThe aggregate number of Botswana Insurance Holdings Limitedshares held directly or indirectly by directors of the Company is59,942 (31 December 2005: 49,767). Details of the holding ofthese shares are disclosed in note 19 to the financial statements.INDEPENDENT AUDITORSErnst and YoungSTATUTORY ACTUARYGT WaughBANKERSFirst National Bank of Botswana LimitedBarclays Bank of Botswana LimitedStanbic Bank Botswana LimitedStandard Chartered Bank Botswana LimitedBOTSWANA INSURANCE HOLDINGS LIMITED annual report 200655


BIHL | Directors’ statement of responsibilityFor the year ended 31 December 2006The directors of the Company are responsible for the annualfinancial statements and all other information presentedtherewith. Their responsibility includes the maintenanceof true and fair financial records and the preparation ofannual financial statements in accordance with InternationalFinancial Reporting Standards and in the manner required bythe Insurance Industry Act and the Botswana Companies Act(CAP 42:01).The Company maintains systems of internal control which aredesigned to provide reasonable assurance that the recordsaccurately reflect its transactions and to provide protection againstserious misuse or loss of company assets. The directors are alsoresponsible for the design, implementation, maintenance andmonitoring of these systems of internal financial control. Nothinghas come to the attention of the directors to indicate that anysignificant breakdown in the functioning of these systems hasoccurred during the year under review.The going concern basis has been adopted in preparing the annualfinancial statements. The directors have no reason to believe thatthe Company will not be a going concern in the foreseeablefuture based on forecasts and available cash resources.Our external auditors conduct an examination of the financialstatements in conformity with International Standards onAuditing, which include tests of transactions and selective tests ofinternal accounting controls. Regular meetings are held betweenmanagement and our external auditors to review matters relatingto internal controls and financial reporting. The external auditorshave unrestricted access to the board of directors.The annual financial statements set out here were authorised forissue by the board of directors on 14 February 2007 and weresigned on their behalf by:MC LetshwitiV SenyeChairmanJoint Group Managing DirectorRD Sikalesele-VakaJoint Group Managing DirectorBOTSWANA INSURANCE HOLDINGS LIMITED annual report 200656


BIHL | Report of the independent auditorsTO THE MEMBERS OF BOTSWANA INSURANCE HOLDINGSLIMITEDWe have audited the Group and Company annual financialstatements of Botswana Insurance Holdings Limited whichcomprise the directors’ report, the balance sheet as at31 December 2006, the income statement, the statement ofchanges in equity and cash flow statement for the year thenended, a summary of significant accounting policies and otherexplanatory notes, as set out on pages 55 to 111.DIRECTORS’ RESPONSIBILITY FOR THE FINANCIALSTATEMENTSThe Company’s directors are responsible for the preparation andfair presentation of these financial statements in accordance withInternational Financial Reporting Standards, and in the mannerrequired by the Botswana Companies Act (CAP 42:01). Thisresponsibility includes: designing, implementing and maintaininginternal control relevant to the preparation and fair presentationof financial statements that are free from material misstatement,whether due to fraud or error; selecting and applying appropriateaccounting policies; and making accounting estimates that arereasonable in the circumstances.AUDITOR’S RESPONSIBILITYOur responsibility is to express an opinion on these financialstatements based on our audit. The financial statements of theGroup and Company as at 31 December 2005 were audited byanother auditor whose report dated 10 February 2006 expressedan unqualified opinion on those statements. We conducted ouraudit in accordance with International Standards on Auditing.Those standards require that we comply with ethical requirementsand plan and perform the audit to obtain reasonable assurancewhether the financial statements are free from materialmisstatement.An audit involves performing procedures to obtain audit evidenceabout the amounts and disclosures in the financial statements.The procedures selected depend on the auditorís judgment,including the assessment of the risks of material misstatement ofthe financial statements, whether due to fraud or error. In makingthose risk assessments, the auditor considers internal controlrelevant to the entity’s preparation and fair presentation of thefinancial statements in order to design audit procedures thatare appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the entity’s internalcontrol. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accountingestimates made by the directors, as well as evaluating the overallpresentation of the financial statements.We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our audit opinion.OPINIONIn our opinion, the financial statements present fairly, in all materialrespects, the financial position of the Group and Company as of31 December 2006, and of the financial performance and its cashflows for the year then ended in accordance with InternationalFinancial Reporting Standards and in the manner required by theBotswana Companies Act (CAP 42:01).REPORT ON OTHER LEGAL AND REGULATORYREQUIREMENTSIn accordance with Section 129 of the Botswana Companies Act(CAP 42:01), we confirm that:• We have satisfied ourselves as to the existence of securitiesissued by the Group; and• In our opinion, it appears that the Group has kept properbooks of account.Certified Public Accountants2nd Floor UN PlaceKhama CrescentPO Box 41015GaboroneBotswana20 April 2007BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200657


BIHL | Report of the statutory actuaryFor the year ended 31 December 2006GROUP31 Dec to 31 Dec2006 2005P’000 P’000Statement of actuarial values of assets and liabilitiesTotal assets as per balance sheet 9,228,994 6,925,637Current liabilities, deferred taxation and minorities as per balance sheet (239,851) (166,935)Net assets 8,989,143 6,758,702Actuarial value of policy liabilities (8,140,007) (6,114,114)Excess of assets over liabilities 849,136 644,588Capital Adequacy Requirement 124,652 90,990Capital Adequacy Requirement cover 7.5 7.5Analysis of change in excess of assets over liabilitiesExcess assets as at beginning of reporting period as previously reported 644,588 506,506Prior year adjustments – 6,735Excess assets as at beginning of reporting period as restated 644,588 513,241Excess assets as at end of reporting period 849,136 644,588Change in excess assets over the reporting period 204,548 131,347This change in the excess assets is due to the following factors:Investment income 48,365 35,165Capital gains 159,458 54,588Total investment return on shareholders’ funds 207,823 89,753Changes in valuation methods or assumptions 9,703 (19,696)Operating profit 169,561 137,850Taxation (77,478) (39,532)Surplus for the year after tax 309,609 168,375Currency translation 1,191 8,208Changes in share-based payment and treasury shares (766) 3,202Total earnings 310,034 179,785Capital raised and dividends paid (105,486) (48,438)BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006Total change in excess assets 204,548 131,34758


BIHL | Report of the statutory actuaryFor the year ended 31 December 2006CERTIFICATION OF FINANCIAL POSITIONI hereby certify that:• The valuation of Botswana Insurance Holdings Limited as at31 December 2006, the results of which are summarisedabove, has been conducted in accordance with, and thisStatutory Actuary Report has been produced in accordancewith the Botswana Insurance Industry Act (Chapter 46:01)and the professional guidance notes of the Actuarial Society ofSouth Africa (“ASSA”), PGN103 (2005) and PGN104;• The Group was financially sound as at the valuation date and,in my opinion, is likely to remain financially sound for theforeseeable future.CHANGES IN VALUATION METHODS OR ASSUMPTIONS OFASSETS AND LIABILITIESThe value of the policyholder liabilities as at 31 December 2006increased by P9.7 million as a result of changes in valuationassumptions and methodology. The components of this were asfollows:P millionMortality assumptions 12.0Lapse assumptions (7.6)Expense assumptions (7.7)Other 12.9Total 9.7VALUATION METHODS AND ASSUMPTIONSThe valuation was performed using the Financial SoundnessValuation method for insurance contracts and for investmentcontracts with participation in profits on a discretionary basis.Investment contracts without discretionary participation featureshave been valued in terms of IAS 39 Financial Instruments:Recognition and Measurements.The result of the valuation methods and assumptions is thatprofits for insurance contracts and for investment contractswith participation in profits on a discretionary basis are releasedappropriately over the term of each policy, to avoid the prematurerecognition of profits that may give rise to losses in later years.Assets and policy liabilities have been valued using methodsand assumptions that are consistent with each other. A financialsoundness valuation gives a statement of the financial position of alife assurance company, according to a realistic or best estimate setof assumptions regarding future investment returns, bonus rates,expenses, persistency, mortality and other factors that may impacton the financial position of the Company. These assumptions arebased on past experience and anticipated future trends. In particular,provision is made for the expected impact of Aids on the experienceof the Company. The liability calculations also make allowance forthe reasonable benefit expectations of policyholders, which mayexceed the minimum contractual obligations of the Company.Liability valuation methods and assumptionsInsurance contracts and for investment contracts withparticipation in profits on a discretionary basisIn the calculation of the policy liabilities for insurance contractsand for investment contracts with participation in profits on adiscretionary basis, compulsory margins prescribed in the ASSAguidelines have been added to the various realistic assumptionsregarding future experience. In addition, discretionary marginshave been added in line with policy design.The purpose of these margins is to introduce an appropriatedegree of prudence, to allow for possible adverse deviationsin the experience of the Company and to avoid the prematurerecognition of profits that may give rise to losses in later years.Profits are recognised in line with work done and the risk borneby the Company.Valuation basis of policy liabilities for insurance contractsand for investment contracts with participation in profits ona discretionary basisFor market-related unbundled business (e.g. those where aportion of the premium is allocated to an accumulation account)the liability was taken as the market value of the units notionallycredited to the policies, less the present value of future charges notrequired for risk benefits and renewal expenses. For the purpose ofcalculating the Pula reserves, the discount rates as supplied below,were used.Appropriate reserves for the unexpired risk portion and for claimsincurred but not reported were held for group risk premiumbenefits.In the case of group policies for which the bonuses are stabilised,the liabilities are equal to the balances of the investment accountsplus corresponding bonus stabilisation reserves. Group linkedbusiness was valued at the market value of the underlying assets.Liabilities for life and term annuities and guaranteed non-profitendowment policies were valued on a discounted cash flow basisat interest rates based on the bond yield curve at the valuationdate.No bonus stabilisation reserve for any class of business wasmore negative than –7.5% of corresponding liabilities at thevaluation date.For reversionary bonus policies, a gross premium valuation wasdone. Future bonuses were provided for at the latest declaredreversionary bonus rates and at final bonus rates supported by theassumed investment return of 12.1% p.a. A discount rate of 12.1%per annum (previous year: 11.1%) was used. Bonus stabilisationreserves were held to equate the liabilities to the market/fair valueof the corresponding assets.For individual unbundled policies of which the bonuses arestabilised/smoothed, a gross premium valuation was done. Futurebonuses were provided for at bonus rates that would be declaredshould an investment return of 12.1% per annum be earned.A discount rate of 12.1% per annum (previous year: 11.1%)was used to place a present value on assumed future cash flows.A negative Pula reserve has been allowed for, equal to the presentvalue of future charges not required for risk benefits and renewalexpenses. Bonus stabilisation reserves were held to equate theliabilities to the market value of the corresponding assets.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200659


BIHL | Report of the statutory actuaryFor the year ended 31 December 2006BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006Where policyholders participate on a discretionary basis in theproceeds of the business, their reasonable benefit expectations havebeen interpreted as their share in the funds accumulated to themas a group over their in-force lifetime. To achieve a steady build upvia bonus declarations it is necessary to apply some smoothing ofinvestment returns experienced by these funds. For this purpose aBonus Stabilisation Reserve is held that represents the differencebetween the funds set aside and the value of policy liabilities basedon declared bonuses, ensuring that excess investment returns areheld back to provide for future payment of policy benefits. No bonusstabilisation reserve for any class of business was more negativethan –7.5% of corresponding liabilities at the valuation date.Where relevant, liabilities include provisions to meet maturity,mortality and disability guarantees and for losses in respect ofpotential lapses and surrenders.• Plus the compulsory margins prescribed by PGN104• Plus discretionary margins as follows to release profits consistentwith policy design:– the mortality basis has been increased to reflect uncertaintydue to Aids, by the addition of an extra 10% of the Aidsmortality table– the expense inflation has been increased by 1.2% p.a.(inclusive of prescribed margin)– the discount rate on single premium guaranteed annuitieshas been decreased by 0.75% p.a.– the renewal expenses have been increased by 17.8%(inclusive of prescribed margin)– the surrender rates have been increased by 25% of thebest estimate assumption (inclusive of prescribed margin)– additional reserves are created to ensure that no policy istreated as an assetA more detailed description of the individual elements of the basisfollows below.Economic parametersThe best estimate assumptions for the major investment parametersare based on estimated future inflation. The current Botswanainflation rate was not used as it was believed to be a short termspike. The estimate for the future expected Botswana inflation wasobtained from an economist. The assumptions quoted below arebefore the allowance for compulsory and discretionary marginsand tax:DecDec2006 2005% %Gilt return 11.0 10.0Equity return 13.0 12.0Property return 12.0 11.0Cash return 9.0 8.0Average return 12.1 11.1Expense inflation 8.0 7.0Bonus ratesBonus rates on smoothed bonus policies have been assumed at aself-supporting rate.Policy decrementsThe assumptions (before adding margins) with regard to futuresurrender, lapse, disability payment termination, mortality, medicalclaims and morbidity rates were consistent with the Company’srecent experience and provision has been made for the expectedincrease in the occurrence of Aids-related claims. The mostrecent experience investigations were done as at the end ofSeptember 2006.ExpensesProvision for expenses (before adding margins) starts at a levelconsistent with the Company’s current experience and allows foran 8% escalation per annum thereafter (previous year: 7%).Valuation basis of policy liabilities for Investment contractswithout discretionary participation featuresIn the calculation of liabilities for investment contracts that provideinvestment management services, e.g. market-related investmentcontracts, the account balance has been held as the value of theliability. No negative Pula reserves have thus been held for thesecontracts.Valuation of assetsThe assets (including the excess of assets over liabilities) arevalued at fair value, as per the accounting policies in the financialstatements. Goodwill has been excluded from the value of theassets.Capital adequacy requirementsThe capital adequacy requirement is the minimum level of capitalthat is necessary to provide for more extreme adverse deviations infuture experience than those assumed in the calculation of policyliabilities. The capital adequacy requirements have been calculatedin accordance with section 6 of PGN 104 of the Actuarial Societyof South Africa.Botswana Life Insurance Limited now calculates its capitaladequacy requirement on the termination capital adequacyrequirement (TCAR) basis. At 31 December 2005 BLIL calculatedits capital adequacy requirement on the Ordinary (OCAR) basis. Indetermination of the amount of the capital adequacy requirement,no allowance has been made for action by management.For the purpose of grossing up the intermediate ordinary capitaladequacy requirements (IOCAR) to determine the ordinary capitaladequacy requirements (OCAR), it has been assumed that assetsbacking the capital adequacy requirements are invested 100% infixed interest assets.The ratio of accumulated surplus to the Capital AdequacyRequirement, of P124.7 million (December 2005: P91.0 million) is6.8 times (December 2005: 7.1 times).GT WaughStatutory Actuary14 February 200760


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 20061 GENERAL INFORMATIONThe Company and its subsidiaries (“the Group”) underwritesall classes of long-term insurance, administers depositadministration schemes, manages investments andadministers life and pension funds. It also provides funeralservices through one of its associated companies.The Company is a limited liability company incorporated inBotswana. The Company is listed on the Botswana StockExchange.The Group’s major shareholder, African Life AssuranceCompany Limited, holds 54.2% of the Company’s sharecapital. The ultimate shareholder is Sanlam Limited.Established in 1918, Sanlam is one of the leading financialservices groups in South Africa. It is listed on the JSE Limitedin Johannesburg and on the Namibian Stock Exchange.2 BASIS OF PRESENTATIONThe Group annual financial statements have been preparedin accordance with International Financial ReportingStandards (“IFRS”) and in the manner required by theBotswana Companies Act (CAP 42:01) and the BotswanaStock Exchange Act. The Group annual financial statementshave been prepared on the historical cost convention,modified by: the revaluation of financial assets and liabilitiesat fair value through profit or loss; investment properties;and land and buildings to fair value.The Group changed its financial reporting period fromMarch to December. The change was effected in 2005.The comparatives are prepared for 9 months ended31 December 2005 whereas the current period is a12 month period to 31 December 2006. As a result, thecurrent financial year income statement, statement ofchanges in equity, cashflow statement and the related notesare not comparable to the comparatives.All amounts in the notes are shown in thousands of Pulawhich is the Company’s functional and presentationcurrency. All values are rounded to the nearest thousand,unless otherwise stated.The assets, liabilities and activities of the policyholders andshareholders in respect of the life insurance business aremanaged separately and are governed by the valuationbases for policy liabilities and profit entitlement rules,which are determined in accordance with prevailinglegislation, IFRS and generally accepted actuarial practice.The valuation bases in respect of policy liabilities andthe profit entitlement of shareholders are set out onpage 77. The Financial Soundness Valuation methodology asoutlined in the report of the statutory actuary is equivalentto the liability adequacy test.3 STATEMENT OF COMPLIANCEThe financial statements have been prepared in accordancewith IFRS, the Botswana Companies Act (CAP 42.01) andthe Botswana Stock Exchange Act.4 CHANGES IN ACCOUNTING POLICIESThe accounting policies adopted are consistent with thoseof the previous financial year except as detailed below:The Group has adopted the following new and amendedIFRSs during the year. Adoption of these revised standardsdid not have any effect on the financial statements of theGroup. They did however, in certain instances, give rise toadditional disclosures.• Amendment to IAS 19 Employee Benefits and IAS 1Presentation of Financial Statements – Actuarial gainsand losses, group plans and disclosures.• Amendment to IAS 21 The Effects of Changes inForeign Exchange Rates – Monetary items between asubsidiary and a foreign operation• Amendment to IAS 39 Financial Instruments:Recognition and Measurement – The fair value option.• Amendment to IAS 39 Financial Instruments:Recognition and Measurement and IFRS 4 Insurancecontracts – Financial guarantee contracts• IFRIC 4 Determining whether an Arrangement Containsa LeaseThe Group has not applied the following new and amendedIFRSs and IFRIC Interpretations which have been issued butwhich are not yet effective:• IFRS 7 Financial Instruments: Disclosures• Amendment to IAS 1 Presentation of FinancialStatements – Capital disclosures• IFRS 8 Operating Segments• IFRIC 8 Scope of IFRS 2• IFRIC 10 Interim financial reporting and impairment• The Group has early adopted IFRIC 11 IFRS 2 – Groupand Treasury Share Transactions. Early adoptionprovided guidance on the application by the Group’sBOTSWANA INSURANCE HOLDINGS LIMITED annual report 200661


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 2006BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006subsidiaries of IFRS 2 Share-based Payment for the firsttime (see below for further details).During the current period, the Group changed itsaccounting policy in respect of it‘s share-based paymentscheme.Only IFRSs and IFRIC Interpretations which are applicable tothe Group have been listed above. The principal effects ofthe changes are as follows:Amendment to IAS 19 Employee Benefits and IAS 1Presentation of Financial Statements:As of 1 January 2006, the Group adopted the amendmentsto IAS 19 and IAS 1. As a result, additional disclosures aremade providing information about trends in the assets andliabilities in the defined benefit plans and the assumptionsunderlying the components of the defined benefit cost.This change has also resulted in additional disclosuresbeing included for the years ending 31 December 2006and 31 December 2005 but has not had a recognition ormeasurement impact, as the Group chose not to apply thenew option offered to recognise actuarial gains and lossesoutside of the income statement.Amendment to IAS 21 The Effects of Changes inForeign Exchange Rates:As of 1 January 2006, the Group adopted the amendmentsto IAS 21 which requires all exchange differences arisingfrom a monetary item that forms part of the Group’s netinvestment in a foreign operation to be recognised in aseparate component of equity in the consolidated financialstatements regardless of the currency in which the monetaryitem is denominated. This change has had no significantimpact as at 31 December 2006 or 31 December 2005.Amendment to IAS 39 Financial Instruments:Recognition and Measurement:As of 1 January 2006, the Group adopted this amendmentwhich restricted the use of the option to designate anyfinancial asset or any financial liability to be measured atfair value through profit or loss to three particular situations.This did not have any effect on the Group’s designationof its financial assets or its financial liabilities and hencethe amendment did not have an effect on the financialstatements.Amendment to IAS 39 Financial Instruments:Recognition and Measurement and IFRS 4 InsuranceContractsAs of 1 January 2006, the Group adopted this amendmentto the scope of IAS 39 which requires financial guaranteecontracts that are not considered to be insurance contractsto be recognised initially at fair value and to be re-measuredat the higher of the amount determined in accordance withIAS 37 Provisions, Contingent Liabilities and Contingent Assetsand the amount initially recognised less, when appropriate,cumulative amortisation recognised in accordance with IAS18 Revenue. This amendment did not have an effect on thefinancial statements as the Group currently does not holdany financial guarantee contracts.IFRIC 4 Determining whether an Arrangement Containsa LeaseThe Group adopted this IFRIC interpretation as of 1 January2006 which provides guidance in determining whetherarrangements for the supply of goods and services containa lease to which lease accounting must be applied. Thisguidance did not have an effect on the financial statementsof the Group.IFRS 7 Financial InstrumentsIFRS 7 is effective for annual periods beginning on orafter 1 January 2007. IFRS 7 includes all of the disclosurerequirements relating to financial instruments and willreplace the disclosure section of IAS 32 Financial Instruments:Disclosure and Presentation. IAS 32 will then contain onlypresentation requirements for financial instruments. IFRS 7also contains additional disclosure requirements which mustbe provided for all comparative periods presented.Amendment to IAS 1 Presentation of FinancialStatementsThis amendment to IAS 1, which is effective for annualperiods beginning on or after 1 January 2007, requiresdisclosure of information that enables readers to evaluatethe entity’s objectives, policies and processes for managingcapital. The disclosures are based on information providedinternally to key management personnel.IFRS 8 Operating SegmentsThis new standard, which is effective for annual periodsbeginning on or after 1 January 2009, replaces IAS 14 SegmentReporting and requires information which managementuses internally for evaluating the performance of operating62


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 2006segments and allocating resources to those segments tobe disclosed. This information may be different from thatreported in the balance sheet and income statement andexplanations and reconciliations of the differences may berequired.IFRIC 8 Scope of IFRS 2This interpretation, which is effective for accounting periodsbeginning on or after 1 May 2006, requires IFRS 2 SharebasedPayment to be applied to any arrangements whereequity instruments are issued for consideration whichappears to be less than fair value. As equity instruments areonly issued to employees in accordance with the employeeshare scheme, the interpretation will have no impact on thefinancial position of the Group.IFRIC 10 Interim Financial Reporting and ImpairmentThis interpretation, which is effective for accounting periodsbeginning on or after 1 November 2006, requires that anyimpairment loss recognised on goodwill in an interim periodmay not be reversed in subsequent interim periods.IFRIC 11 in relation to IFRS 2 Share-based PaymentIFRIC 11 is effective for annual periods beginning on or after1 March 2007. This IFRIC provides guidance on the way inwhich subsidiaries, in their separate financial statements,account for schemes when their employees receive rightsto equity instruments of the parent. It also covers situationswhere an the entity chooses or is required to buy the equityinstruments which it granted to its employees from anotherparty or the shareholders of the entity provide the equityinstruments required. Share-based payments previously wererecognised at a holding company level only. In the currentperiod, the Group’s subsidiaries applied the provisions of IFRS2 for the first time, using the guidance provided by IFRIC 11.However this did not have an impact on the consolidatedresults of the Group.Share-based Payment SchemeAs detailed in note 8.15 (vi) below, there are two elementsto the Group’s share-based payment scheme, one formanagement staff and one for other staff. Historicallythe share scheme for management staff was classified as“equity settled”. On vesting, the manager has the optionof purchasing the shares for cash or opting that a portionor all of the shares be sold. Due to the fact that a practicehas developed whereby the shares may be sold to themarket or to a fellow group entity, the classification basisfor the management staff scheme has been changed to“equity settled with a cash alternative” in line with IFRS 2.This change in accounting policy has resulted in a prior yearadjustment which is detailed in note 23.5 ABBREVIATIONS AND KEYA list of insurance specific abbreviations used throughoutthe publication:DPF Discretionary participation featuresPVIF Present value of in-force businessDAC Deferred acquisition costIBNR Claims incurred but not reportedA glossary of insurance specific terminology:Insurance contract Contract under which insurance risk isaccepted and upon occurrence of theinsured event, the policyholder will receivecompensation.Investment contract Investment policy, which may containinsignificant insurance risk, but which willnot be classified as an insurance contract.Life insurance Contract under which the term ofinsurance covers a period longer than12 months. For example: Whole life orterm insurance.InvestmentManaging of investments, for which amanagement services service fee will be charged.Reinsurance Insurance risk is ceded to a reinsurer, butthe ultimate obligation to the policyholderremains with the entity who issued theoriginal insurance contract.Premiums earned Premiums earned are when it is payable bythe policyholder.Premiums written Premiums written are on accepting theinsurance contract by the policyholder.Unearned premiums Reserve for premiums received for whichthe underlying risk has not yet expired.This reserve is released over the term of thecontract as the underlying risk expires.DPFPolicyholder has a contractual right toreceive, as a supplement to its guaranteedbenefits, additional benefits.Liability adequacy test Reassessment of the sufficiency of theinsurance liability to cover future insuranceobligations.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200663


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 2006BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006PVIFPresent value of the entity’s interest inthe expected pre-tax cash flows of thein-force business acquired.DACDirect and indirect costs incurred duringthe writing or renewing of an insurancecontract which are deferred, to the extentthat these costs will be recovered out offuture revenue margins.Deferred revenue Initial and other front end fees for renderingfuture investment management services,which are deferred and recognised asrevenue when the related services arerendered.Assumptions Underlying variables and uncertaintieswhich are taken into account indetermining values, which could beinsurance contract liabilities or financialassets fair value.Benefit experience Difference between the expected benefitvariationpayout and the actual payout.IBNRClaims incurred by the policyholder but notyet reported to the insurance company.Unit holder/ Investor in unit linked products, whereunit linkedthe insurance risk is borne by thepolicyholder and not the insurancecompany.Embedded value This is an estimate of the economicworth of a life insurance business. Themeasurement principles however do differfrom the measurement principles underIFRS.IFRS 4International Financial Reporting Standardthat regulates insurance contracts.A glossary of share-based payment specific terminology:Equity-settled A share-based payment transactionshare-based in which the entity receives goods orpayment transaction services as consideration for equity,instruments of the entity (including sharesor share options)Employees and Individuals who render personal servicesothers providing to the entity and either (a) thesimilar services individuals are regarded as employees forlegal or tax purposes, (b) the individualsEquity instrumentEquity instrumentgrantedFair valueGrant dateIntrinsic valuework for the entity under its directionin the same way as individuals who areregarded as employees for legal or taxpurposes, or (c) the services rendered aresimilar to those rendered by employees.For example, the term encompasses allmanagement personnel, ie those personshaving authority and responsibility forplanning, directing and controlling theactivities of the entity, including nonexecutivedirectors.A contract that evidences a residualinterest in the assets of an entity afterdeducting all of its liabilities.The right (conditional or unconditional)to an equity instrument of the entityconferred by the entity on anotherparty, under a share-based paymentarrangement.The amount for which an asset could beexchanged, a liability settled, or an equityinstrument granted could be exchanged,between knowledgeable, willing parties inan arm’s length transaction.The date at which the entity and anotherparty (including an employee) agree to ashare-based payment arrangement, beingwhen the entity and the counterpartyhave a shared understanding of theterms and conditions of the arrangement.At grant date the entity confers on thecounterparty the right to cash, otherassets, or equity instruments of the entity,provided the specified vesting conditions,if any, are met. If that agreement is subjectto an approval process (for example, byshareholders), grant date is the date whenthat approval is obtained.The difference between the fair valueof the shares to which the counterpartyhas the (conditional or unconditional)right to subscribe or which it has theright to receive, and the price (if any) thecounterparty is (or will be) required to payfor those shares. For example, a share64


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 2006Market conditionMeasurement dateShare-basedpaymentarrangementShare-basedpayment transactionoption with an exercise price of P15 ona share with a fair value of P20, has anintrinsic value of P5.A condition upon which the exerciseprice, vesting or exercisability of an equityinstrument depends that is related tothe market price of the entity’s equityinstruments, such as attaining a specifiedshare price or a specified amount of intrinsicvalue of a share option, or achieving aspecified target that is based on the marketprice of the entity’s equity instrumentsrelative to an index of market prices ofequity instruments of other entities.The date at which the fair value of theequity instruments granted is measured.For transactions with employees andothers providing similar services, themeasurement date is grant date. Fortransactions with parties other thanemployees (and those providing similarservices), the measurement date is thedate the entity obtains the goods or thecounterparty renders service.An agreement between the entity andanother party (including an employee)to enter into a share-based paymenttransaction, which thereby entitles theother party to receive cash or other assetsof the entity for amounts that are basedon the price of the entity’s shares or otherequity instruments of the entity, or toreceive equity instruments of the entity,provided the specified vesting conditions,if any, are met.A transaction in which the entity receivesgoods or services as consideration forequity instruments of the entity (includingshares or share options), or acquiresgoods or services by incurring liabilities tothe supplier of those goods or services foramounts that are based on the price of theentity’s shares or other equity instrumentsof the entity.Share option A contract that gives the holder the right,but not the obligation, to subscribe to theentity’s shares at a fixed or determinableprice for a specified period of time.VestTo become an entitlement. Under ashare-based payment arrangement, acounterparty’s right to receive cash, otherassets, or equity instruments of the entityvests upon satisfaction of any specifiedvesting conditions.Vesting conditions The conditions that must be satisfiedfor the counterparty to become entitledto receive cash, other assets or equityinstruments of the entity, under a sharebasedpayment arrangement. Vestingconditions include service conditions,which require the other party to completea specified period of service, andperformance conditions, which requirespecified performance targets to be met(such as a specified increase in the entity’sprofit over a specified period of time).Vesting period The period during which all the specifiedvesting conditions of a share-basedpayment arrangement are to be satisfied.6 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATESAND ASSUMPTIONSThe Group makes judgements, estimates and assumptionsthat affect the reported amounts of assets and liabilitieswithin the next financial year. Estimates and judgements arecontinually evaluated and based on historical experience andother factors, including expectations of future events thatare believed to be reasonable under the circumstances.(i) Estimate of future benefit payments and premiumsarising from long-term insurance contracts andother intangible assetsThe estimation of the ultimate liability arising fromclaims made under insurance contracts is the Group’smost critical accounting estimate. There are severalsources of uncertainty that need to be considered in theestimate of the liability that the Group will ultimatelypay for such claims. In particular, the claims arising fromHIV and Aids related causes.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200665


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 2006The determination of the liabilities under long-terminsurance contracts is dependent on estimates madeby the Group. Estimates are made as to the expectednumber of deaths for each of the years in which theGroup is exposed to risk. The Group bases theseestimates on standard industry and national mortalitytables that reflect recent historical mortality experience,adjusted where appropriate to reflect the Group’s ownexperience. The estimated number of deaths determinesthe value of the benefit payments and the value of thevaluation premiums. The main source of uncertainty isthat epidemics such as Aids and wide-ranging lifestylechanges, such as in eating, smoking and exercise habits,could result in future mortality being significantly worsethan in the past for the age groups in which the Grouphas significant exposure to mortality risk. However,continuing improvements in medical care and socialconditions could result in improvements in longevity.For contracts without fixed terms, it is assumed that theGroup will be able to increase mortality risk charges infuture years in line with emerging mortality experience.Estimates are also made as to future investment incomearising from the assets backing long-term insurancecontracts. These estimates are based on current marketreturns as well as expectations about future economicand financial developments.The balance of policyholder liabilities at 31 December2006 was P2,157 million (31 December 2005:P1,600 million).(ii) Fair value of investments in un-quoted equity,debentures, insurance policies and other loansThe investments in un-quoted equity instruments,debentures, insurance policies and other loans have beenvalued based on the expected cash flows, discounted atthe current rates applicable for items with similar termsand risk characteristics. This valuation requires theGroup to make estimates about expected future cashflows and discount rates and hence they are subjectto significant judgement. Carrying amount at year-endP273,238 million (2005: P204,160 million).(iii) Impairment of financial assetsThe investments in unlisted equity instruments,debentures, insurance policies and other loans havebeen impaired based on the expected cash flows,discounted at the current rates applicable for items withsimilar terms and risk characteristics. This impairmentrequires the Group to make estimates about expectedfuture cash flows and discount rates and hence theyare subject to significant judgement uncertainty.The impairment losses written off in the current yearwere P4,4 million (31 December 2005: P5.3 million).(iv) The table below indicates the impact of changes in assumptionsBOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006Policy liabilities in respect of insurance contractsAssumption changesLapse Mortalityand andBase Investment Expense surrender morbidityvalue returns Expenses inflation rates ratesP millionNon-participating annuities -1% +10% +1% +10% +10%Individual business 756.4 815.9 757.3 757.8 756.4 765.4Non-participating annuities policy liability 756.4 815.9 757.3 757.8 756.4 765.4Non-participating life businessIndividual business 1.97 1.97 1.98 1.98 1.97 2.01Non-participating life business policy liability 1.97 1.97 1.98 1.97 1.97 2.01The above sensitivities are after taking into account the re-rating of premiums but before the impact of reinsurance. The impactof reinsurance is not material for the disclosed sensitivities.66


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 20067 OFF-BALANCE SHEET SEGREGATED FUNDSThe Group also manages and administers assets for theaccount of and the risk of the clients. As these are not assetsof the Group, they are not recognised in the Group balancesheet in terms of IFRS but are disclosed as a note. Refer tonote 16.8 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES8.1 Revenue recognitionRevenue is recognised to the extent that it is probable thatthe economic benefits will flow to the Group and the amountof revenue can be reliably measured. Revenue is measuredat the fair value of the consideration received or receivableexcluding discounts, rebates and Value Added Tax.Specifically revenue is recognised as follows:Fees for investment management servicesFees for investment management services in respect ofinvestment contracts are recognised as services and arerendered on the accrual basis.Fees consist primarily of investment management feesarising from services rendered in conjunction with theissue and management of investment contracts where theGroup actively manages the consideration received from itscustomers to fund a return that is based on the investmentprofile that the customer selected on origination of theinstrument.Investment revenueInterest income is accounted for on a time proportionatebasis that takes into account the effective yield on theasset and includes the gross amounts of interest received orreceivable and interest expense paid or payable.Rental income is recognised on the accrual basis, apart fromoperating leases that contain fixed escalation clauses, whereit is recognised on a straight-line basis over the lease term.The difference between rental income on a straight-line andaccrual basis is recognised as part of the carrying amount ofproperties in the balance sheet.Dividend income is recognised when the shareholder’s rightto receive payment is established through approval by theshareholders.Deposit administration fund incomeDeposit administration income consists of the share ofinvestment surpluses generated on the depositadministration fund. These surpluses are recognised inthe income statement when realised or upon revaluationto fair value.Fee income – long-term policy contractsInvestment and insurance contract policyholders arecharged for policy administration, risk underwriting andother services. These fees are recognised as revenue on anaccrual basis as the related services are rendered.Premium incomeThe monthly premiums in terms of their policy contracts areaccounted for when due. Group life insurance premiumsare accounted for when receivable. Single premiumson insurance contracts are recognised as income whenreceived. Premium income is reflected gross of reassurancepremiums.8.2 Basis of consolidation(i) SubsidiariesThese consolidated financial statements haveincorporated the assets, liabilities, results and cashflows of the Company and its subsidiaries. Thereporting dates of the subsidiaries and the Group arewithin three months of reporting and all use consistentaccounting policies.Subsidiaries are those entities in which the Group hasan interest and control; where control represents thepower to govern the financial and operating policiesof an entity so as to obtain benefits from its activities.The existence and effect of potential voting rights thatare presently exercisable or presently convertible arealso taken into consideration when assessing whetherthe Group has the power to govern the financialand operating policies of another entity. Subsidiariesare consolidated from the date on which control istransferred to the Group and are no longer consolidatedfrom the date that control ceases.The cost of an acquisition is measured as the aggregateof the fair value of the assets given up, shares issuedor liabilities undertaken at the date of acquisition pluscosts directly attributable to the acquisition. The excessBOTSWANA INSURANCE HOLDINGS LIMITED annual report 200667


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 2006BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006of the cost of acquisition over the fair value of the netidentifiable assets of the subsidiary acquired is recordedas goodwill.Intercompany transactions, balances and unrealisedgains on transactions between Group companies areeliminated; unrealised losses are also eliminated unlessthe transaction provides evidence of an impairmentof the asset transferred. The accounting policies forsubsidiaries are consistent, in all material respects, withthe policies adopted by the Group.(ii) Special purpose entitiesThe Group consolidates special purpose entities (“SPE”)when the substance of the relationship between theGroup and the SPE indicates that the Group controlsthe SPE.(iii) AssociatesInvestments in associates are accounted for by theequity method of accounting. Under this method theGroup’s share of the post-acquisition profits or lossesof associates is recognised in the income statementand its share of post-acquisition movements inreserves is recognised in reserves. The cumulative postacquisitionmovements are adjusted against the costof the investment. Associates are entities over whichthe Group generally has between 20% and 50%of the voting rights, or over which the Group hassignificant influence, but which it does not control.Unrealised gains on transactions between the Groupand its associates are eliminated to the extent of theGroup’s interest in the associates; unrealised lossesare also eliminated unless the transaction providesevidence of an impairment of the asset transferred.The Group’s investment in associates includes goodwillon acquisition. When the Group’s share of losses in anassociate equals or exceeds its interest in the associate,the Group does not recognise further losses, unless theGroup has incurred obligations or made payments onbehalf of the associates.The year-ends of some of the associates donot coincide with that of the Group and fall on30 September. Adjustments are made for any significanttransaction or events in the intervening period.(iv) Interest in a joint ventureThe Group has an interest in a joint venture which is ajointly controlled entity. A joint venture is a contractualarrangement whereby two or more parties undertakean economic activity that is subject to joint control,and a jointly controlled entity is a joint venture thatinvolves the establishment of a separate entity in whicheach venture has an interest. The Group recognises itsinterest in the joint venture using equity accounting.The year-end of the joint venture company is31 October. Adjustments are made for any significanttransactions or events in the intervening period.8.3 Investment propertiesInvestment properties are measured initially at cost,including transaction costs. The carrying amount includesthe cost of replacing part of an existing investment propertyat the time that cost is incurred if the recognition criteriaare met; and excludes the costs of day to day servicing ofan investment property. Subsequent to initial recognition,investment properties are stated at fair value, which reflectsmarket conditions at the balance sheet date. Gains orlosses arising from changes in the fair values of investmentproperties are included in the income statement in the yearin which they arise.Investment properties are derecognised either when theyhave been disposed of or when the investment property ispermanently withdrawn from use and no future economicbenefit is expected from its disposal. Any gains or losseson the retirement or disposal of an investment property arerecognised in the income statement in the year of retirementor disposal.8.4 Financial assets and financial liabilitiesFinancial assets within the scope of IAS 39 FinancialInstruments: Recognition and Measurement are classified aseither financial assets at fair value through profit or loss, loansand receivables, held to maturity investments and availablefor sale financial assets as appropriate. When financial assetsare recognised initially, they are measured at fair value plus,in the case of investments not at fair value through profit orloss, directly attributable transaction costs.The Group determines the classification of its financial assetson initial recognition and, where allowed and appropriate,re-evaluates this designation at each financial year-end.68


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 2006All regular way purchases and sales of financial assetsare recognised on the trade date, which is the date thatthe Group commits to purchase the asset. Regular waypurchases or sales are purchases or sales of financialassets that require delivery of assets within the periodgenerally established by regulation or convention in themarketplace.Financial assets at fair value through profit or lossThis category has two sub-categories: financial assets heldfor trading and those designated at fair value through profitor loss at inception. A financial asset is classified into thiscategory at the inception if acquired principally for thepurpose of selling in short term, it forms part of a portfolioof financial assets in which there is evidence of short term,profit-taking, or if so designated by management subjectto restrictions in IAS 39 Financial Instruments: Recognitionand Measurement.Financial assets may be designated at initial recognition asat fair value through profit or loss if the following criteriaare met: (i) the designation eliminates or significantlyreduces the inconsistent treatment that would otherwisearise from measuring the assets or recognising gains orlosses on them on a different basis; or (ii) the assets are partof a group of financial assets which are managed and theirperformance evaluated on a fair value basis, in accordancewith a documented risk management strategy; or (iii) thefinancial asset contains an embedded derivative that wouldneed to be separately recorded.The fair values of quoted investments are based on currentbid prices or by using valuation techniques, including theuse of recent arm’s length transactions, reference to otherinstruments that are substantially the same and discountedcash flow analysis.The following investments in financial assets are classifiedas at fair value through profit or loss:• Government bonds and public authority• Corporate bonds• Fixed interest securities• Equity investments – listed• Equity investments – unlisted• Funds on depositLoans and receivablesLoans and receivables are non-derivative financial assetswith fixed or determinable payments that are not quotedin an active market. After initial measurement loans andreceivables are subsequently carried at amortised costusing the effective interest method less any allowancefor impairment. Amortised cost is calculated taking intoaccount any discount or premium on acquisition andincludes fees that are an integral part of the effectiveinterest rate and transaction costs. Gains and losses arerecognised in the income statement when the loans andreceivables are derecognised or impaired, as well as throughthe amortisation process.Derecognising financial assetsA financial asset or part thereof is derecognised when:• The rights to receive cash flows from the asset haveexpired;• The Group retains the right to receive cash flows fromthe assets but has assumed an obligation to pay themin full without material delay to a third party under a‘pass through’ arrangement; or• The Group has transferred its rights to receive cashflows from the asset and either (a) has transferredsubstantially all the risks and rewards of the assets, or(b) has neither transferred nor retained substantially allthe risks and rewards of the asset, but has transferredcontrol of the asset.Where the Group has transferred its rights to receive cashflows from an asset and has neither transferred nor retainedsubstantially all the risks and rewards of the asset nortransferred control of the asset, the asset is recognised to theextent of the Group’s continuing involvement in the asset.The continuing involvement takes the form of a guaranteeover the transferred asset is measured at the lower of theoriginal carrying amount of the asset and the maximumamount of consideration that the Group could be requiredto repay.Where continuing involvement takes the form of a writtenand/or purchased option (including a cash settled optionor similar provision) on the transferred asset, the extent ofthe Group’s continuing involvement is the amount of thetransferred asset that the Group may re-purchase, except inBOTSWANA INSURANCE HOLDINGS LIMITED annual report 200669


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 2006BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006the case of a put option (including a cash settled option ora similar provision) on an asset measured at fair value, theextent of the Group’s continuing involvement is limited tothe lower of the fair value of the transferred asset and theoption exercise price.Financial liabilities at fair value through profit and lossFinancial liabilities at fair value through profit or loss includefinancial liabilities held for trading and financial liabilitiesdesignated upon initial recognition as at fair value throughprofit and loss.Financial liabilities are classified as held for trading if theyare acquired for the purpose of selling in the near term.Gains or losses on liabilities held for trading are recognisedin profit and loss.Financial liabilities may be designated at initial recognitionas at fair value through profit or loss if the following criteriaare met:(i) The designation eliminates or significantly reduces theinconsistent treatment that would otherwise arise frommeasuring the liabilities or recognising gains or losseson them on a different basis; or(ii) Or the liabilities are part of a group of financial liabilitieswhich are managed and their performance evaluatedon a fair value basis, in accordance with a documentedrisk management strategy; or(iii) Or the financial liability contains an embeddedderivative that would need to be separately recorded.Derecognising financial liabilitiesA financial liability is derecognised when the obligationunder the liability is discharged or cancelled or expires.Where an existing financial liability is replaced by anotherfrom the same lender on substantially different terms, or theterms of an existing liability are substantially modified, suchan exchange or modification is treated as a derecognitionof the original liability and the recognition of a new liability,and the difference in the respective carrying amount isrecognised in the income statement.8.5 Impairment of financial assets and non-financial assetsThe Group assesses at each balance sheet date whether afinancial asset or group of financial assets are impaired.Financial assets carried at fair value through profitor lossA financial asset or group of financial assets is impairedand impairment losses are incurred only if there is objectiveevidence of impairment as a result of one or more eventsthat have occurred after the initial recognition of the asset(a ‘loss event’) and that loss event (or events) has an impacton the estimated future cash flows of the financial assetor group of financial assets that can be reliably estimated.The amount of the loss is measured as the differencebetween the asset’s carrying amount and the present valueof estimated future cash flows. The amount of the loss isrecognised in the income statement.The Group first assesses whether objective evidence ofimpairment exists individually for financial assets that areindividually significant. If the Group determines that noobjective evidence of impairment exists for an individuallyassessed financial asset, whether significant or not, it includesthe asset in a group of financial assets with similar credit riskcharacteristics and collectively assesses them for impairment.Assets that are individually assessed for impairment and forwhich an impairment loss is or continues to be recognisedare not included in a collective assessment of impairment.For the purpose of a collective evaluation of impairment,financial assets are grouped on the basis of similar creditrisk characteristics. Those characteristics are relevant to theestimation of future cash flows for groups of such assetsby being indicative of the issuer’s ability to pay all amountsdue under the contractual terms of the debt instrumentbeing evaluated.In the case of equity investments classified as held at fairvalue through profit or loss, objective evidence includesa significant or prolonged decline in the fair value of thesecurity below its cost. If any such evidence exists, thecumulative loss – measured as the difference between theacquisition cost and current fair value, less any impairmentloss on the financial asset previously recognised in profitor loss – is removed from equity and recognised in the incomestatement. Impairment losses recognised in the incomestatement on equity instruments are not subsequentlyreversed.In relation to trade receivables, a provision for impairmentis made when there is objective evidence (such as theprobability of insolvency or significant financial difficulties70


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 2006of the debtor) that the Group will not be able to collectall of the amounts due under the original terms of theinvoice. The carrying amount of the receivable is reducedthrough use of an allowance account. Impaired debts arederecognised when they are assessed as uncollectible.If, in a subsequent period, the amount of the impairmentloss decreases and the decrease can be related objectivelyto an event occurring after the impairment was recognised,the previously recognised impairment loss is reversed. Anysubsequent reversal of an impairment loss is recognisedin profit or loss, to the extent that the carrying valueof the asset does not exceed its amortised cost at thereversal date.Non-financial assetsAssets that have an indefinite useful life are not subject toamortisation and are tested annually for impairment. Assetsthat are subject to depreciation/amortisation are reviewedfor impairment whenever events or changes in circumstancesindicate that the carrying amount exceeds its recoverableamount. The recoverable amount is the higher of an asset’sfair value less costs to sell and value in use and is determinedfor an individual asset, unless the asset does not generatecash inflows that are largely independent of those fromother assets or groups of assets. Where the carrying amountof an asset exceeds its recoverable amount, the asset isconsidered impaired and is written down to its recoverableamount. In assessing value in use, the estimated future cashflows are discounted to their present value using a pre-taxdiscount rate that reflects current market assessments of thetime value of money and the risks specific to the asset.In determining fair value less costs to sell, an appropriatevaluation model is used. These calculations are corroboratedby valuation multiples, quoted share prices for publiclytraded subsidiaries or other available fair value indicators.For the purpose of assessing impairment, assets are groupedat the lowest levels for which they are separately identifiablecash flows (cash-generating units).Impairment losses of continuing operations are recognisedin the income statement in those expense categoriesconsistent with the function of the impaired asset, exceptfor property previously revalued where the revaluation wastaken to equity. In this case the impairment is also recognisedin equity up to the amount of any previous revaluation.For assets excluding goodwill, an assessment is made ateach reporting date as to whether there is any indicationthat previously recognised impairment losses may no longerexist or may have decreased. If such indication exists,the Group makes an estimate of recoverable amount.A previously recognised impairment loss is reversed only ifthere has been a change in the estimates used to determinethe asset’s recoverable amount since the last impairmentloss was recognised. If that is the case the carrying amountof the asset is increased to its recoverable amount. Thatincreased amount cannot exceed the carrying amount thatwould have been determined, net of depreciation, had noimpairment loss been recognised for the asset in prior years.Such reversal is recognised in the income statement unlessthe asset is carried at the revalued amount, in which case thereversal is treated as a revaluation increase.8.6 Offsetting financial instrumentsFinancial assets and liabilities are offset and the net amountreported in the balance sheet only when there is a legallyenforceable right to offset the recognised amounts andthere is an intention to settle on a net basis, or to realise theasset and settle the liability simultaneously.8.7 Cash and cash equivalentsCash and cash equivalents are carried in the balance sheet atcost. For the purposes of the cash flow statement, cash andcash equivalents comprise cash on hand and at bank andfunds on deposit.8.8 Segment reportingA business segment is a distinguishable component of anentity that is engaged in providing products or services thatare subject to risks and returns that are different from thoseof other business segments. A geographical segment is adistinguishable component of an entity that is engaged inproviding products or services within a particular economicenvironment that are subject to risks and returns that aredifferent from those of components operating in othereconomic environments. The Group only has significantoperations in Botswana hence a geographical segmentanalysis has not been provided.8.9 Foreign currency translation(i) Functional and presentation currencyItems included in the financial statements of eachentity in the Group are measured using the currencyof the primary economic environment in which theentity operates (“the functional currency”). The entity’sBOTSWANA INSURANCE HOLDINGS LIMITED annual report 200671


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 2006BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006financial statements are presented in Botswana Pula,which is the Group’s functional and presentationcurrency.(ii) Transactions and balancesForeign currency transactions are translated intothe presentation currency using the exchange ratesprevailing at the date of the transactions. Monetaryassets and liabilities denominated in foreign currenciesare retranslated at the functional currency rate ofexchange ruling at the balance sheet date. Foreignexchange gains and losses resulting from the settlementof such transactions and from the translation ofmonetary assets and liabilities denominated in foreigncurrencies are recognised in the income statement.Non-monetary items measured at fair value in aforeign currency such as equities are translated usingthe exchange rates at the date when the fair value wasdetermined and the translation differences are reportedas part of the fair value gain or loss included in theincome statement as part of the investment return.(iii) Foreign operation financial statementsA foreign operation is an entity that is a subsidiary,associate, joint venture or branch of the parentcompany, the activities of which are based or conductedin a country or currency other than that of the Group.The foreign operation’s financial statements aretranslated into the presentation currency as follows:• Assets and liabilities are translated into BotswanaPula at rates of exchange ruling at the balance sheetdate;• Income and expenditure of foreign operations aretranslated into Botswana Pula at the weightedaverage rates of exchange during the year; and• All resulting exchange differences are recognised asa separate component of equity.8.10 Property, plant and equipmentProperty, plant and equipment is stated at cost lessaccumulated depreciation and impairment losses.Depreciation is calculated on straight-line basis to writeoff the cost of each asset to their residual value over theirestimated useful lives as follows;Furniture and fittings5 – 10 yearsComputer equipment4 yearsMotor vehicles4 yearsLeasehold improvements lesser of lease period and 4 yearsWhere the carrying value of an asset is greater thanits estimated recoverable amount, it is written downimmediately to its recoverable amount. Gains and losses ondisposals are determined by comparing proceeds with thecarrying amount and are included in operating profit.Repairs and maintenance are charged to the incomestatement during the financial period in which they areincurred. The cost of major renovations is included in thecarrying amount of the asset if the recognition criteria aremet. Major renovations are depreciated over the remaininguseful life of the related asset.An item of property, plant and equipment is derecognisedupon disposal or when no future economic benefits areexpected from its use or disposal. Any gains or losses arisingon derecognition of the asset (calculated as the differencebetween the net disposal proceeds and the carrying amountof the asset) is included in the income statement in the yearthe asset is derecognised.The asset’s residual values, useful lives and methods ofdepreciation are reviewed, and adjusted if appropriate ateach financial year-end.8.11 Intangible assetsIntangible assets acquired separately are measured on initialrecognition at cost. Following initial recognition intangibleassets are carried at cost less any accumulated amortisationand any accumulated impairment losses. Intangible assetswith finite lives are amortised over the useful economic lifeand assessed for impairment at each reporting date andwhenever there is an indication that the intangible assetis impaired. The amortisation period and the amortisationmethod for an intangible asset with a finite useful life isreviewed at least each financial year-end. Changes inthe expected useful life and the expected pattern ofconsumption of future economic benefits embodied inthe asset are accounted for by changing the amortisationperiod or method as appropriate and treated as changesin accounting estimates. The amortisation expense isrecognised in the income statement in the expense categoryconsistent with the function of the intangible asset. Theestimated useful life of the intangible assets is three years,and a nil residual value has been assumed.(i) Computer softwareGenerally costs associated with researching computersoftware programs are recognised as an expense asincurred. However, costs that are clearly associated72


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 2006with an identifiable system, which will be controlledby the Group and has a probable benefit beyond oneyear, are recognised as an asset. Computer softwaredevelopment costs recognised as assets are amortisedin the income statement on the straight-line methodover their useful lives, not exceeding a period ofthree years and are carried in the balance sheet atcost less accumulated amortisation and accumulatedimpairment losses.The residual values, useful lives of assets, anddepreciation methods are reviewed and adjusted ifappropriate at each balance sheet date.(ii) GoodwillGoodwill represents the excess of the cost of anacquisition over the fair value of the Group’s share ofthe net identifiable assets, liabilities and contingentliabilities recognised in accordance with IFRS 3 BusinessCombinations; of the acquired subsidiary/associateat the acquisition date. Goodwill on acquisition ofsubsidiaries is included in intangible assets. Goodwill onacquisition of associates is included in investments inassociates. Goodwill is tested annually for impairmentand carried at cost less accumulated impairmentlosses. Gains and losses on the disposal of an entityinclude the carrying amount of goodwill relating to theentity sold.8.12 ProvisionsProvisions are recognised when the Group has a presentlegal or constructive obligation as a result of past events, it isprobable that an outflow of resources embodying economicresources will be required to settle obligations, and a reliableestimate of the amount of the obligation can be made.Employee entitlements to annual leave and gratuities arerecognised when they accrue to employees. A provisionis made for the estimated liability for annual leave andgratuities as a result of services rendered by employees up tothe balance sheet date.8.13 Taxes and Value Added Tax (VAT)Deferred income taxDeferred income tax is provided, using the liability method,on all temporary differences at the balance sheet datebetween the tax bases of assets and liabilities and theircarrying amounts for financial reporting purposes. Deferredtax liabilities are recognised for all taxable temporarydifferences.Deferred tax assets are recognised for all deductibletemporary differences, carry-forward of unused tax creditsand unused tax losses, to the extent that it is probable thattaxable profit will be available against which the deductibletemporary differences, carry-forward of unused tax assetsand unused tax losses can be utilised.Deferred tax assets and liabilities are measured at the taxrates that are expected to apply to the period when theasset is realised or the liability is settled, based on tax rates(and tax laws) that have been enacted or substantivelyenacted at the balance sheet date. Deferred income taxassets and deferred income tax liabilities are offset, if alegally enforceable right exists to set off current tax assetsagainst current income tax liabilities and the deferredincome taxes relate to the same taxable entity and the sametaxation authority.Current income taxTaxation is provided in the financial statements using thegross method of taxation. Current taxation is chargedon the net income for the year after taking into accountincome and expenditure, which is not subject to taxation,and capital allowances on fixed assets. Withholding tax ondividends paid is set off against the additional companytaxation of the Group in the year in which the dividendsare paid.Current tax assets and liabilities for the current period andprior periods are measured at the amount expected to berecovered from or paid to the taxation authorities. The taxrates and tax laws used to compute the amount are thoseenacted or substantively enacted by the balance sheet date.VATRevenue, expenses and assets are recognised net of theamount of the VAT except:• Where the VAT incurred on the purchase of assets orservices is not recoverable from the taxation authority,in which case the VAT is recognised as part of the costof acquisition of the asset or as part of the expenseitem as applicable, and• Receivables and payables that are stated with theamount of VAT included.The net amount of VAT recoverable from, or payable to,the taxation authority is included as part of receivables orpayables in the balance sheet.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200673


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 2006BOTSWANA INSURANCE HOLDINGS LIMITED annual report 20068.14 Share capitalOrdinary share capital is recognised at the fair value ofthe consideration received by the Company. Ordinaryshares are classified as equity. Incremental external costsdirectly attributable to the issue of new shares, other thanin connection with business combinations, are shown inequity as a deduction, net of tax, from the proceeds.Where any Group entity purchases the Company’s equityshare capital (treasury shares), the consideration paid,including any directly attributable incremental costs (netof income taxes), is deducted from equity attributable tothe Company’s equity holders until the shares are cancelled,reissued or disposed of.Own equity instruments which are reacquired (treasuryshares) are deducted from equity. No gain or loss is recognisedin the income statement on the purchase, sale, issue orcancellation of the Group’s own equity instruments.8.15 Employee benefits(i) Pension obligationsThe Group operates a defined benefit pension schemefor its post-employment benefits to employees. Underthe defined benefit plan, the Group’s obligation is toprovide the agreed benefits to current and formeremployees and actuarial risk (that benefits will cost morethan expected) and investment risk fall in substance tothe Group. The scheme is funded through payments toa trustee administered fund as determined by actuarialcalculations that are performed at the end of everyfinancial year.The Group determines the estimated liability using theprojected unit credit method. The present value of theoverfunded portion of the scheme is recognised asan asset to the extent that there are material benefitsavailable in the form of refunds and reductions incontributions.The amount of actuarial gains and losses recognised inthe income statement is equal to the amount that thecumulative actuarial gains and losses at the end of theprevious reporting period exceed the greater of 10%of the present value of the defined benefit obligationor 10% of the fair value of the plan assets, amortisedover the year’s average working life.The past service cost is recognised as an expense ona straight-line basis over the average period until thebenefits become vested. If the benefits are alreadyvested immediately following the introduction of,or changes to, a pension plan, past service cost isrecognised immediately.The defined benefit asset or liability comprises thepresent value of the defined benefit obligation lesspast service cost not yet derecognised and less the fairvalue of plan assets out of which the obligations are tobe settled directly. The value of any asset is restricted tothe sum of any past service cost not yet recognised andthe present value of any economic benefits available inthe form of refunds from the plan or reductions in thefuture contributions to the plan.(ii) Medical aidIn terms of employment contracts and the rules ofthe relevant medical aid scheme, medical benefits areprovided to employees. The Group subsidises a portionof the medical aid contributions for certain employees.Contributions in relation to the Group’s obligations inrespect of these benefits are charged against income inthe period of payment.There are no post-retirement medical fundingrequirements.(iii) Termination benefitsTermination benefits are payable whenever anemployee’s employment is terminated before thenormal retirement date or whenever an employeeaccepts voluntary redundancy in exchange for thesebenefits. The Group recognises termination benefitswhen it is demonstrably committed to either terminatethe employment of current employees according to adetailed formal plan without possibility of withdrawalor to provide termination benefits as a result of an offermade to encourage voluntary redundancy. Terminationbenefits that fall due after more than 12 months arediscounted to present value.(iv) Leave pay provisionThe Group recognises, in full, employees’ rights toannual leave entitlement in respect of past service.The recognition is made each year-end and iscalculated based on accrued leave days not takenduring the year. The charge is made to expenses in theincome statement and trade and other payables in thebalance sheet.74


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 2006(v) Profit sharing and bonus plansA liability for employee benefits in the form of profitsharing and bonus plans is recognised in otherprovisions when there is no realistic alternative butto settle the liability and at least one of the followingconditions is met:• There is a formal plan and the amounts to be paidare determined before the time of issuing thefinancial statements; or• Past practice has created a valid expectation byemployees that they will receive a bonus/profit sharepayment and the amount can be determined beforethe time of issuing the financial statements.Liabilities for profit sharing and bonus plans areexpected to be settled within 12 months and aremeasured at the amounts expected to be paid whenthey are settled.(vi) Share-based compensationEmployees of the Group receive remuneration in theform of share-based payment transactions, wherebyemployees render services as consideration for equityinstruments. There are two elements to the Group’sshare-based payment scheme; one for managementstaff and one for other staff. The objective of thescheme is to retain staff. Transactions within themanagement staff scheme are accounted for as sharebasedpayments with a cash alternative whereas theother staff scheme is equity settled.The cost of equity settled transactions is recognised,together with a corresponding increase in equity,over the period in which the service conditions arefulfilled, ending on the date on which the relevantemployees become fully entitled to the award (the“vesting date”). The cumulative expense recognisedfor equity settled transactions at each reporting dateuntil the vesting date reflects the extent to whichthe vesting period has expired and the Group’s bestestimate of the number of equity instruments that willultimately vest. The income statement charge or creditfor a period represents the movement in cumulativeexpense recognised as at the beginning and end ofthe period.The cost of share-based payments with a cashalternative is measured initially at fair value at thegrant date using a binomial model. This fair value isexpensed over the period until vesting with recognitionof a corresponding liability. The liability is re-measuredat each balance sheet date up to and including thesettlement date with changes in fair value recognisedin the income statement.8.16 Policy contract benefitsLife insurance policy claims received up to the last day ofeach financial period are provided for and included in policybenefits.Maturity and annuity payments are recognised when due.Surrenders are recognised at the earlier of payment date orthe date on which the policy ceases to be included in longtermpolicy liabilities.Provision is made for underwriting losses that may arisefrom unexpired insurance risks when it is anticipated thatunearned premiums will be insufficient to cover futureclaims.Income from reinsurance policies is recognised concurrentlywith the recognition of the related policy benefit.8.17 DividendsDividends are recorded in the Group’s financial statements inthe period in which they are approved by the shareholders.Hence dividends proposed or declared after the period-endare not recognised at the balance sheet date.8.18 Selling expensesSelling expenses consist of commission and bonuses payableto sales staff on long-term insurance business and expensesdirectly related thereto. Commission on life business isaccounted for on all in-force policies in the financial periodduring which it is incurred.8.19 Administration expensesAdministration expenses include, inter alia, propertyand administration expenses relating to owner-occupiedproperty, property and investment expenses related to themanagement of the policyholders’ investments, claimshandling costs, product development and training costsand are recognised on the accrual basis. Expenses incurredby functional departments are allocated to group andindividual business, and then furthermore for individualbusiness by acquisition and maintenance in accordancewith the function performed by the departments. Premiumcollection costs are accounted for on the accrual basis.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200675


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 2006BOTSWANA INSURANCE HOLDINGS LIMITED annual report 20068.20 Leases (where the Group is the lessee)Operating leasesAn operating lease is one in which all the risks and benefitsof ownership are effectively retained by the lessor. Operatinglease payments are recognised as an expense in the incomestatement on a straight-line basis over the lease term oron a systematic basis when the straight-line basis doesnot reflect the physical usage of the asset unless anothersystematic basis is more representative of the time patternof the Group’s benefit.8.21 Contingent liabilitiesPossible obligations of the Group arising from past eventswhose existence will only be confirmed by the occurrenceor non-occurrence of one or more uncertain future eventsnot wholly within the control of the Group and presentobligations of the Group arising from past events whereit is not probable that an outflow of resources embodyingeconomic benefits will be required to settle the obligationor where the amount of the obligation cannot be measuredreliably, are not recognised in the Group balance sheet butare disclosed in the notes to the financial statements.Possible assets of the Group arising from past events whoseexistence will only be confirmed by the occurrence or nonoccurrenceof uncertain future events not wholly withinthe control of the Group are not recognised in the Groupbalance sheet and are only disclosed in the notes to thefinancial statements where an inflow of economic benefitsis virtually probable.8.22 Non-distributable reservesNon-distributable reserves include the capital reserveaccount as required by section 9 of the BotswanaInsurance Industry Act (Chapter 46:01). The provisions ofthe Botswana Insurance Industry Act require that 25% ofthe surplus arising in a year should be transferred to thisreserve. This reserve is to be utilised at least once every fiveyears to increase the paid up share capital of the Company.The last utilisation was for balances at 31 March 2004.8.23 Consolidation reserveThe consolidation reserve is created for differences inthe valuation bases of long-term policy liabilities andinvestments supporting those liabilities. Certain assetsheld in policyholder portfolios may not be recognised atfair value in terms of IFRS, whereas the valuation of therelated policy liabilities is based on the assets at fair value.This creates a mismatch with a corresponding impact on theshareholders’ fund. A separate reserve is created for thesevaluation differences due to the fact that they representaccounting differences and not economical losses for theshareholders’ fund. Valuation differences also arise frominvestments in the Company’s shares, which are treasuryshares and are deducted from equity on consolidation andconsequently valued at zero.The reserve represents temporary differences insofar as themismatch is reversed when the affected investments arerealised.8.24 Long-term reinsurance contractsContracts entered into with reinsurers under which theGroup is compensated for losses on one or more longtermpolicy contracts issued by the Group and that meetthe classification requirements for insurance contracts areclassified as long-term reinsurance contracts. The expectedclaims and benefits to which the Group is entitled underthese contracts are recognised as assets. The Groupassesses its long-term reinsurance assets for impairmentbi-annually. Impairment occurs when objective evidenceexists that the Group may not recover outstanding amountsunder the terms of the contract and when the impact onthe amounts that the Group will receive from the reinsurercan be measured reliably. The impairment loss is charged tothe income statement.If, in a subsequent period, the amount of the impairmentloss decreases and the decrease can be related objectivelyto an event occurring after the impairment was recognised,the previously recognised impairment loss is reversed. Anysubsequent reversal of an impairment loss is recognisedin profit or loss, to the extent that the carrying valueof the asset does not exceed its amortised cost at thereversal date.8.25 Insurance contractsThe Group’s main insurance products are:• Non-participating annuities;• Employee benefits; and• Universal individual life productsIndividual life products are designed to provide death coverfor the policyholder and his family members. The mainpurpose of the policy is to provide a death benefit to meetfuneral expenses but also includes an investment account.The value of the investment account is paid in the event ofmaturity or surrender (after deducting a surrender penalty,if applicable). The investment account is credited with76


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 2006premiums received and investment returns. Deductions aremade from the investment account to cover the cost offuneral benefits, expenses and commission.The policyholder liability for annuities includes a mismatchand re-investment reserve. Its purpose is twofold:• To ensure that the Group has sufficient assetsin the event that liabilities exceed the value ofassets following an adverse change in investmentconditions; and• To provide against reinvestment risk that arises asa result of the duration of the assets being shorterthan the liabilities. The shorter term of the assets mayresult in future asset proceeds being re-invested onless favourable terms than were available at policyinception. The Group is exposed to financial risk if theinvestment returns on re-invested asset proceeds arelower than were allowed for in the product pricing.Valuation bases and methodologyThe valuation bases and methodology used to calculate thepolicy liabilities of all material lines of long-term insurancebusiness and the corresponding shareholder profitentitlement are set out below.Where the valuation of long-term policy liabilities is basedon the valuation of supporting assets, the assets arevalued on the bases as set out in the accounting policyfor investments, with the exception of investments intreasury shares, associated companies, joint ventures andconsolidated funds, which are also valued at fair value. Itwas not considered necessary to exclude intangible assets,which are inadmissible assets for prudential regulatorypurposes, from the value of the assets for the purposes ofthe Group financial statements.Classification of contractsA distinction is made between investment contracts (whichfall within the scope of IAS 39 Financial Instruments:Recognition and Measurement), investment contracts withdiscretionary participating features and insurance contracts(where the Financial Soundness Valuation (FSV) methodcontinues to apply, subject to certain requirements specifiedin IFRS 4 Insurance Contracts). A contract is classified asinsurance where the Group accepts significant insurancerisk by agreeing with the policyholder to pay benefitsif a specified uncertain future event (the insured event)adversely affects the policyholder or other beneficiary.Significant insurance risk exists where it is expectedthat for the duration of the policy or part thereof, policybenefits payable on the occurrence of the insured eventwill significantly exceed the amount payable on earlytermination, before allowance for expense deductions atearly termination. Once a contract has been classified asan insurance contract, the classification remains unchangedfor the remainder of its lifetime, even if the insurance riskreduces significantly during this period.Insurance contracts and investment contracts withdiscretionary participating features (DPF)The actuarial value of the policy liabilities is determined usingthe FSV method as described in the actuarial guidance notePGN 104 of the Actuarial Society of South Africa (ASSA),which is consistent with the valuation of assets at fair valueas described in the accounting policy for investments. Theunderlying philosophy is to recognise profits prudently overthe term of each contract consistent with the work doneand risk borne. In the valuation of liabilities, provision ismade for:• The best estimate of future experience;• The compulsory margins prescribed in the guidelines ofthe ASSA; and• Discretionary margins determined to release profitsto shareholders consistent with policy design andcompany policy.Best estimate of future experienceThe best estimate of future experience is determined asfollows:• Future investment return assumptions are derived fromestimates of future inflation with adjustments for eachasset class. The asset composition of the various assetfunds, investment management expenses, taxes atcurrent tax rates and charges for investment guaranteesare taken into account.• Unit expenses are based on the 2006 experience ona going-concern basis and escalated at estimatedexpense inflation rates per annum. Expenses incurredby functional departments are allocated to Group andindividual business, and then for individual businessfurther by initial and renewal in accordance with thefunction performed by the departments. Premiumcollection costs are based on the actual costs accrued.• Assumptions with regard to surrender and lapse ratesare consistent with the experience for the period up to30 November 2006. Mortality and disability rates wereBOTSWANA INSURANCE HOLDINGS LIMITED annual report 200677


BIHL | Basis of presentation andaccounting policiesFor the year ended 31 December 2006BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006unchanged since the recent years valuation and makeallowances for the deterioration in mortality rates as aresult of Aids.• There has been a deteriorating trend in the lapse rates,which has not been projected.Asset portfoliosSeparate asset portfolios are maintained in support ofpolicy liabilities for each of the major lines of business; eachportfolio consisting of an asset mix appropriate for thespecific product. Bonus rates are declared for each class ofparticipating business in relation to the funding level of eachportfolio and the expected future net investment return onthe assets of the particular investment portfolio.Bonus stabilisation reservesThe Group and individual stabilised bonus portfolios arevalued on a retrospective basis. If the fair value of the assetsin such a portfolio is greater than the actuarial liabilities, apositive bonus stabilisation reserve is created which will beused to enhance future bonuses. Conversely, if the fair valueof assets is less than the actuarial liabilities, a negative bonusstabilisation reserve is created. A negative bonus stabilisationreserve will be limited to the amount that the statutoryactuary expects will be recovered through the declaration oflower bonuses during the ensuing three years, if investmentreturns are in line with long-term assumptions. There areno negative bonus stabilisation reserves. Bonus stabilisationreserves are included in long-term policy liabilities.Provision for future bonusesFuture bonuses of 3% per annum are allowed for inthe FSV.There are no participating annuities currently payingbonuses.Reversionary bonus businessThe business is valued on a prospective basis assuming 3%per annum bonus rates going forward and allowing forprescribed margins. Bonus stabilisation reserves have beenestablished.Individual stable bonus and market-related businessFor investment policies where the bonuses are stabilised ordirectly related to the return on the underlying investmentportfolios, the liabilities are equated to the retrospectivelyaccumulated fair value of the underlying assets. No secondtier margins are held on this business, except to the extentthat negative Pula reserves are eliminated.Participating annuitiesThere are very few such policies on the book. Those that areparticipating annuities, have been in force for two years. Areserve equal to the purchase price is held.Non-participating annuity businessNon-participating life annuity instalments and futureexpenses in respect of these instalments are discounted atmarket interest rates of two of the major backing bonds,reduced by the prescribed and additional margin, as wellas investment management expenses. All profits or lossesaccrue to the shareholders when incurred. A discretionarymargin is held for this block of business.Other non-participating businessOther non-participating business forms less than 1% of thetotal liabilities. Most of the other non-participating businessliabilities are valued on a retrospective basis.HIV/AIDSNo specific provision is set up for HIV/AIDS claims. Reservesare calculated prospectively and contain allowances forHIV/AIDS claims.Premium rates for group business are reviewed annually.The HIV/AIDS provision is based on the expected HIV/AIDS claims in a year and the time that may elapse beforepremium rates and underwriting conditions can be suitablyadjusted should actual experience be worse than expected.Provision for minimum investment return guaranteesIn addition to the liabilities described above, provision ismade consistent with actuarial guidance note PGN 110 forthe possible cost of minimum investment return guaranteesprovided by the annuity business. Additional mismatchreserves are also held on the annuity business.Working capitalTo the extent that the management of working capital givesrise to profits, no credit is taken for this in determining thepolicy liabilities.ReinsuranceLiabilities are valued gross before taking into accountreinsurance. No adjustments were made for the effects ofreinsurance.78


BIHL | Risk managementFor the year ended 31 December 2006The business is exposed to various risks in connection with itscurrent operating activities. These risks contribute to the keyfinancial risk that the proceeds from the business’s financial assetsare not sufficient to fund the obligations arising from insuranceand investment policy contracts and the operating activitiesconducted by the business. The business has an integratedapproach towards the management of its capital base and riskexposures with the main objective being to achieve a sustainablereturn on embedded value at least equal to the business’s costof capital.The business is exposed to various risks that have a direct impacton the business’s capital base and earnings, and as such returnon embedded value. The management of these risks is thereforean integral part of the business’s strategy to maximise return onembedded value. The business’s risk exposures can be classifiedinto the following broad categories:• Financial risks affecting the net asset value of the shareholders’fund;• General operational risks; and• Long-term insurance risks.1 FINANCIAL RISKSThe main categories of financial risks associated with thefinancial instruments held by the business’s shareholders’fund are summarised in the following table:Financial risk DescriptionMarket risk The risk that the fair value or futurecash flows of a financial instrument willfluctuate due to changes in market prices.Market risk comprises the following typesof risk: trading risk, currency risk, interestrate risk and other price risk (such as equityprice risk).Property risk Property risk is the risk that the value ofinvestment properties will fluctuate as aresult of changes in the environment.Credit risk Credit risk arises from the inability orunwillingness of a counter-party to afinancial instrument to discharge itscontractual obligations.Liquidity risk Liquidity risk is the risk that the businesswill encounter difficulty in raising cashto meet commitments associated withfinancial liabilities. Liquidity risk ariseswhen there is mismatching between thematurities of liabilities and assets.Capital Capital adequacy risk is the risk that theadequacy risk business’s shareholders’ fund is insufficientto meet obligations in the event thatactual future experience is worse thanthat assumed in the financial soundnessvaluation.Market and interest rate riskThe business’ operations are exposed to market risk. Marketrisk arises from the uncertain movement in fair value or netasset value of the investments that stems principally frompotential changes in sentiment towards the investment, thevariability of future earnings that is reflected in the currentperceived value of the investment and the fluctuationsin interest rates and foreign currency exchange rates.Policyholders’ and shareholders’ investments in equities arevalued at fair value and are therefore susceptible to marketfluctuations.The acquisition of policyholders’ assets is based on thecontract entered into and the preferences expressed bythe policyholder. Within these parameters, investmentsare managed with the aim of maximising policyholderreturns while limiting risk to acceptable levels within theframework of statutory requirements. The focus of riskmeasurement and management is to ensure that thepotential risks inherent in an investment are reasonable forthe future potential reward, exposure to investment risk islimited to acceptable levels, premium rates are adequate tocompensate for investment risk and an adequate reservingpolicy is applied for long-term policy liabilities.The diverse product range requires a variety of approachesto the management of risk; these range from portfoliomanagement practices and techniques such as optimisationof expected risks and rewards based on investmentobjectives, to asset-liability matching in support of balancesheet obligations. Quantitative models depend on andare limited by the assumptions and parameters; they areused for improved decision-making but do not substitutefor the experience or judgement of senior management.Separate investment committees exist to focus on theBOTSWANA INSURANCE HOLDINGS LIMITED annual report 200679


BIHL | Risk managementFor the year ended 31 December 2006particular requirements of our insurance business and assetmanagement business. The investment committees setinvestment policy guidelines and govern compliance to riskpolicies and limits.Trading riskMarket risks arise from open positions in interest rate andequity products, both of which are exposed to general andspecific market movements. The investment committeesets limits on amongst others market economic capitalusage, which in turn is based on value at risk and whichis monitored on a regular basis. The risk that an expectedcorrelation relationship (for example, between a pair ofequities or a pair of interest rates) does not materialise, ismanaged by ensuring comprehensive measures and limitsare in place to control all of these types of market risks towhich the business is exposed.Currency riskCurrency risk is the risk that the fair value of future cashflows of a financial instrument will fluctuate owing tochanges in foreign exchange rates. The business’s exposureto currency risk is in respect of foreign investments madeon behalf of shareholders for the purpose of seekinginternational diversification of investments. The followingassets and liabilities included in the shareholders’ funds aredenominated in foreign currencies and are therefore subjectto currency risk:31 December 2006United States Botswana OtherP million Dollar Pula currencies TotalEquities and similar securities 212 391 21 624Public sector stocks and loans – 42 7 49Debentures, insurance policies, preference shares and other loans – 51 3 54Cash, deposits and similar securities 65 120 8 193Trade and other receivables – 48 10 58Trade and other payables – (157) (8) (165)Other net assets – 57 – 57Minorities – (12) (9) (21)Foreign currency exposure 277 540 32 849BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200631 December 2005United States Botswana OtherP million Dollar Pula currencies TotalEquities and similar securities 45 204 – 249Public sector stocks and loans – – 5 5Debentures, insurance policies, preference shares and other loans – 57 2 59Cash, deposits and similar securities – 165 9 174Trade and other receivables – 12 6 18Trade and other payables – (49) (3) (52)Other net assets – 210 – 210Minorities – (10) (7) (17)Foreign currency exposure 45 589 12 64680


BIHL | Risk managementFor the year ended 31 December 2006Other price riskThe Group invests in equity investments on behalf ofpension funds and shareholders. The investments in equitiesare reflected in the balance sheet at market values, whichare susceptible to fluctuations in stock market prices. Theacquisition of assets on behalf of pension funds is based onthe contract entered into and the preferences expressed bythe trustees of the pension funds. Within these parameters,investments are managed with the aim of maximisingpension fund returns while limiting risk to acceptable levels.Management regularly reviews the equity price risk.Credit riskThe business is also exposed to credit risk in respect of itsworking capital assets. The following are some of the maincredit risk management actions:• Counter-party credit quality is determined by referenceto ratings from independent rating agencies or, wheresuch ratings are not available, by internal analysis.• Unacceptable concentrations of credit risk to groups ofcounter-parties, business sectors and product types areavoided by dealing with a variety of major banks andspreading debtors and loans among a number of majorindustries, customers and geographic areas.• Long-term insurance business debtors are secured bythe underlying value of the unpaid policy benefits interms of the policy contract.• Exposure to external financial institutions concerningdeposits and similar transactions is monitored againstapproved limits.2006 2005P million P millionPublic sector stocks and loans 49 5Debentures, insurance policies,preference shares and other loans 54 59Cash, deposits and similar securities 193 174Reinsurance receivables 17 21Insurance premiums receivables 16 11Taxation recoverable 15 22344 292Credit rating:AAA 242 178Other 102 113344 292Liquidity riskThe business’s shareholders’ fund is not subject to excessivelevels of liquidity risk. The majority of the business’s termfinance liabilities are matched by appropriate assetswith the same maturity profile. The shareholders’ fund’sbalanced portfolio is managed to ensure that sufficientliquid investments are available to match the cash flowprofile of the remaining term finance liabilities. The businesshas significant liquid resources and substantial unutilisedbanking facilities.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200681


BIHL | Risk managementFor the year ended 31 December 2006Investment assets other than equities and similar securities and investment propertiesAverage interest rateMaturity analysisFixed Floating Total < 1 year 1–5 years > 5 yearsP’000 P’000 P’000 P’00031 December 2006Public sector stocks and loans 10.13% – 1,091,343 – 1,091,343Debentures, insurance policies, preferenceshares and other loans – 18.00% 251,559 65,432 186,127 –Fixed interest securities and funds on deposit 9.75% – 702,633 696,633 6,000 –Total investments other than equitiesand similar securities and investmentproperties – – 2,045,535 762,065 192,127 1,091,34331 December 2005Public sector stocks and loans 10.25% – 862,143 – – 862,143Debentures, insurance policies, preferenceshares and other loans – 18.00% 181,517 45,624 135,893 –Fixed interest securities and funds on deposit 10.90% – 1,456,889 1,450,889 6,000 –Total investments other than equities andsimilar securities and investment properties – – 2,500,549 1,496,513 141,893 862,143BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006Capital adequacy riskThe business must maintain a shareholders’ fund thatwill be sufficient to meet obligations in the event ofsubstantial deviations from the main assumptions affectingthe business. A stochastic modelling process is used tosimulate a number of investment scenarios, which inturn. This is used to determine required capital levelsthat will ensure sustained solvency within an acceptableconfidence level. Capital adequacy requirements werecovered as indicated by the company’s shareholders’ fund,(as determined according to regulations and the guidelinesissued by the Actuarial Society of South Africa). The CAR iscovered 9.33 times (31 December 2005: 8.64 times).Group’s investment policyThe Group through its asset management company, Bifm,is a traditional asset manager that distinguishes betweenassets based on two broad geographical regions i.e. (1)local (Botswana, i.e. assets with Local Asset Status) and(2) offshore (non-Botswana assets). Within each, a furtherdistinction is made between three broad asset classes i.e.(1) equity (listed share capital of companies), (2) alternatives(including private equity, property, private debt, hedgefunds), and (3) fixed interest (bonds, money-marketinstruments and cash). Different asset classes are managedby different asset managers: Local assets are managedinternally or within subsidiary companies; offshore assetsare managed on a multi-manager principle, with managersbeing appointed by Bifm.Policy: Bifm’s investment policy covers (1) clientrequirements, (2) investment constraints, (3) value-adding,and (4) client reporting.• The client requirements and the basis for managingclient funds are agreed in writing between Bifm and itsclients (the investment mandate). Client requirementsthen constitute the basis of portfolio construction,ongoing management and compliance processes.Exposure limits to different asset classes and rangeswithin which to manage exposures over time are82


BIHL | Risk managementFor the year ended 31 December 2006stipulated as specific client requirements; targetssuch as the client’s neutral long term (strategic) assetallocation and explicit return expectations may also bestipulated in the investment mandate.• Investment constraints are imposed by (1) investmentmandate and (2) internal policies. The clientrequirements (described above) stipulate the long termstrategic asset allocation based on the client’s liabilityprofile. Internal policies require that (1) an acceptablebenchmark is stipulated for each asset class, and (2)that deviations from the benchmark is controlled; scopeto deviate from the benchmark is allowed with the aimof out-performing the benchmark – it constitutes a riskrelative to the neutral position, but one that is acceptedand controlled through either explicit exposure limitsto individual stocks relative to their benchmark marketcapitalization or through tracking-error limits imposedon portfolio managers.• Bifm believes that asset diversification, activemanagement and a value-investment bias add valueto client portfolios over the long term. Diversificationis achieved through exposure to a variety of differentasset classes, active management is performedthrough tactical asset allocation decisions within thescope allowed and through stock-picking relative tothe benchmark within the portfolio managementconstraints described above. Bifm’s value-investmentbias stems from predominantly bottom-up fundamentalanalysis research processes that seek to identify andoverweight stocks that exhibit value over the investmenthorizon suitable to a specific client.• Portfolio investment returns relative to benchmarkinvestment returns are monitored on an ongoingbasis and reported to clients. Monthly statements andquarterly reports are provided by default.Investments over 5% of the fundThe investments over 5% of the Fund largely relates toinvestments that have been made offshore into registeredunitised funds. These unitised funds are managed byreputable large investment houses to support a large varietyof clients requiring a specific asset allocation strategy.Investments into these funds provide cost efficiency intrading, lower fees and better market risk dispersal. Bifmreceives units in these funds which are priced on a daily/monthly basis. Units are disposable at request and the entireholding could be drawn down within predetermined noticeperiods.Significant exposure to such funds as at 31 December 2006is as follows;.MLIPF Global Enhanced Index – Black Rock InvestmentManagersThis is a fund managed by BlackRock (formerly MerrillLynch). Bifm had P597.6 million invested in this fund asat 31 December 2006. This amounts to 7.6% of totalinvestments. The fund is meant for professional investorsand is not quoted in any stock exchange. The managerscould be terminated with 90 days notice and funds drawndown.Octain Hedge Fund – Octain Investment ManagersP471.4 million was invested in Octain Medium Fund Class Bat 31 December 2006. This amounts to 6% of the totalInvestments. This is a fund that is registered in British VirginIsland and is solely run for Bifm as a professional investorwho is the only holder of the fund. The fund is managedby Octain Hedge Fund Management Limited, Geneva,Switzerland. The fund is administered by Equity TrustAdministrators, Luxembourg.World Index Plus Umbrella Fund – State Street GlobalAdvisorsP431 million was invested into this fund as at 31 December2006. The fund is an unlisted fund for professional investorsand is managed by State Street Global Advisors, UK.The top ten investments as at 31 December 2006 inPula – millions.MLIPF Global Enhanced Index Fund 597.6Octain Medium Fund Class B 471.4World Index Plus Umbrella Fund 431.0Allianz Global Investment Fund 295.2Sanlam Multi Manager Universal Bond Fund 157.9Africa Emerging Markets 132.3BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200683


BIHL | Risk managementFor the year ended 31 December 2006BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006Listed on the Botswana Stock ExchangeFirst National Bank of Botswana 204.9Barclays Bank of Botswana 183.5Standard Chartered Bank of Botswana 173.3Botswana Insurance Holdings Limited 124.0Sechaba Breweries 99.02 GENERAL OPERATIONAL RISKSOperational riskOperational risk is the risk of loss due to factors such asinadequate systems, management failure, inadequateinternal controls, fraud or human error. The businessmitigates these risks through its culture and values, acomprehensive system of internal controls, internal audit,forensic and compliance functions and other measures suchas back-up facilities, contingency planning and insurance.The initiation of transactions and their administrationis conducted on the basis of the segregation of duties,designed to ensure the correctness, completeness andvalidity of all transactions. Control is further strengthenedby the settlement of transactions through custodians. Thecustodians are also responsible for the safe custody of thebusiness’s securities. To ensure validity, all transactions areconfirmed with counter-parties independently of the initialexecutors.The business has a risk-based internal audit approach,in terms of which priority is given to the audit of higherrisk areas, as identified in the planning phase of the auditprocess. The internal control systems and procedures aresubject to regular internal audit reviews.The investment committee of the Life and AssetManagement businesses is responsible for the|implementation and monitoring of risk managementprocesses to ensure that the risks arising from tradingpositions are within the approved risk parameters.Legal riskLegal risk is the risk that the business will be exposed tocontractual obligations that have not been provided for,particularly in respect of policy liabilities. The risk also arisesfrom the uncertainty of the enforceability, through legal orjudicial processes, of the obligations of the Group’s counterparties,including contractual provisions intended to reducecredit exposure by providing for the netting of mutualobligations.During the development stage of any new product andfor material transactions entered into by the business, thelegal resources of the business monitor the drafting of thecontract documents to ensure that rights and obligations ofall parties are clearly set out. The Group seeks to minimiseuncertainties through continuous consultation with internaland external legal advisers, to understand the nature of risksand to ensure that transactions are appropriately structuredand documented.3 LONG-TERM INSURANCE RISKThe business’s long-term insurance operations are subjectto the general operational risks described in section 2, butalso to specific long-term insurance risks, which include thefollowing:Long-terminsurance risk DescriptionInvestment The relative sensitivity of long-term policyreturn risk liabilities and the supporting policyholderassets to market, credit, liquidity andderivative risks.Underwriting The risk that the actual mortality,riskmorbidity and medical claims will exceedthe expected claims.Operational riskLapse risk Relates to the risk of financial loss due tonegative lapse experience.Expense risk The risk of loss due to actual expenseexperience being worse than that assumedin premium rates and policy liabilities.Legislation risk The risk that practices established in thepast may not be acceptable in changinglegislative and social environments.Taxation risk Changes in tax legislation may resultin financial loss due to the fact that theactual tax expense relating to policyholderassets and activities may be higher thanthat assumed in the determination ofpremium rates and guaranteed policybenefits.84


BIHL | Risk managementFor the year ended 31 December 2006Reputational The risk that the business is preventedriskfrom applying mitigating risk managementpolicies due to the potential reputationalimpact on the business.GeneralThe investment committee and actuarial committee arealso established within the long-term insurance businesses.The principal aim of these committees is to ensure thatinsurance and investment contract liabilities are matchedwith appropriate supporting assets based on the type ofbenefits payable to the contract holders. Separate assetportfolios are maintained for the different products andcategories of long-term policy liabilities.RISK MANAGEMENT: PER TYPE OF RISKInvestment return riskInvestment return risk is the business’s most importantinsurance risk and is particularly relevant to productsproviding smoothed bonuses or guaranteed investmentamounts. It is managed via the management of market,credit and liquidity risk as discussed below.Market riskThe acquisition of policyholders’ assets is based on thecontract entered into and the preferences expressed bythe policyholder. Within these parameters, investments aremanaged with the aim of maximising policyholder returnswhile limiting risk to acceptable levels within the frameworkof statutory requirements.The focus of risk measurement and management is toensure that the potential risks inherent in an investmentare reasonable for the future potential reward, exposureto investment risk is limited to acceptable levels, premiumrates are adequate to compensate for investment risk andan adequate reserving policy is applied for long-term policyliabilities.Policyholder portfolios with exposure to foreign currenciesare predominately in respect of linked, market-relatedand participating policy liabilities where the holder of thecontract is, in the first instance, exposed to the currencyrisk. For other policies, the currency exposure is negligible.Credit riskRefer to “1 Financial Risks” for information on credit riskmitigation. The same principles are applied for financialinstruments held in policyholder portfolios.Liquidity riskPolicyholder funds are invested in appropriate assets, takinginto account expected cash outflows.Underwriting riskInsurance events are random and the actual number andamount of claims will vary from estimates. The businessmanages these risks through its product developmentprocess and underwriting policy to prevent anti-selectionand ensure appropriate premium rates (loadings) forsubstandard risks. It also ensures adequate reinsurancearrangements are in place to limit exposure per individualand manage concentration of risks, the claims handlingpolicy and adequate pricing and reserving. Half yearlyactuarial valuations are also performed to assist in the timelyidentification of experience variances.Underwriting strategyThe following policies and practices are used by thebusiness as part of its underwriting strategy to mitigateunderwriting risk:• All long-term insurance product additions andalterations are required to pass through the approvalframework that forms part of the life insurancebusiness’ governance process. The statutory actuariesapprove the policy conditions and premium rates ofnew and revised products.• Specific testing for HIV/AIDS is carried out in all caseswhere the applications for risk cover exceed a set limit.Product pricing and reserving policies also includespecific allowance for the risk of HIV/AIDS.• Applications for risk cover are reviewed by experiencedunderwriters and evaluated against establishedstandards. Retention limits are applied to limit theexposure per individual life.• Reasonable income replacement levels apply todisability insurance.• The experience of reinsurers is used where necessaryfor the rating of substandard risks.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200685


BIHL | Risk managementFor the year ended 31 December 2006BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006• The right to rerate premiums is retained as far aspossible. The risk premiums for group risk businessand most of the in-force individual risk business can beadjusted within 12 months should claims experiencedeteriorate to the extent that such an adjustment isconsidered necessary. Most of the individual newbusiness is sold with a guarantee that risk premiumswould not be increased for the first 5 to 15 years.• Risk profits are determined monthly.• Regular investigations into mortality and morbidityexperience are conducted to ensure that correctiveaction, for example re-rating of premiums, is takenwhere necessary.ReinsuranceAll risk exposures in excess of specified monetary limits arereinsured. Credit risk in respect of reinsurance is managedby limiting the business’s exposure to companies with highinternational or similar credit ratings.Claims riskThe risk that the business may pay fraudulent claims (claimsrisk) is mitigated by training client service staff to ensure thatfraudulent claims are identified and investigated timeously.The legitimacy of claims is verified by internal, financial andoperating controls that are designed to contain and monitorclaims risks. The forensic investigation team also advises onimprovements to internal control systems.Linked and market-related liabilitiesThe business is exposed to market risk to the extent thatdeclared bonuses have vested and other investmentguarantees are provided. The risk is managed byappropriate investment policies for supporting investments.Negative bonus stabilisation reserves are allowed for in thevaluation of these liabilities to the extent that the shortfallis expected to be recovered by declaring lower bonuses inthe subsequent three years. The funding level of portfoliosis bolstered in instances where negative stabilisation reserveswill not be eliminated by these management actions. At31 December 2006 all portfolios had a funding level inexcess of 120%.Non-participating annuitiesInterest rate risk is the principle financial risk in respect of nonparticipatingannuities, given the long-term profile of theseliabilities. Liabilities are matched with assets, mostly interestbearing,to ensure that the duration of assets and liabilitiesare closely matched. The impact of changes in interest ratesare continuously tested and for a 1% parallel movement ininterest rates the impact on profit will be immaterial.Dec 2006 Dec 2005The mean duration ofnon-participating annuityliabilities is: 7.58 years 7.57 yearsThe mean duration forthe supporting assets is: 6.59 years 6.02 yearsThe loss from a 1% parallel fall in interest rates isapproximately P11 million.Lapse riskDistribution models are used by the business to identify highrisk clients. Client relationship management programmesare aimed at managing client expectations and relationshipsto reduce lapse rates. The design of insurance productsexcludes material surrender value guarantees, subject toregulatory constraints, to limit financial loss at surrender.Lapse experience is monitored to ensure that negativeexperience is timeously identified and corrective action taken.The business’s reserving policy is based on actual experienceto ensure that adequate provision is made for lapses.Expense riskExpenses are continuously monitored and managed throughthe business’s budgeting process.Legislation riskThe risk is managed as far as possible through clearcontracting. The business monitors and influences eventsto the extent possible by participation in discussions withlegislators, directly and through industry organisations.Taxation riskThe risk is addressed through clear contracting to ensurethat policy contracts entitle policyholders to after-tax86


BIHL | Risk managementFor the year ended 31 December 2006returns, where applicable. The business’s internal taxresources monitor the impact of changes in tax legislation,participate in discussions with the tax legislator to influencechanges in legislation and are involved in the development ofnew products. External tax advice is obtained as required.Reputational riskActions with a potential reputational impact are escalatedto the appropriate level of senior management. The auditcommittee and board of directors are involved as required.Events with an industry-wide reputational impact areaddressed through industry representative groups.Concentration of insurance riskLong-term insurance risks do not vary significantly inrelation to the location of the risk insured. Concentrationby amounts insured could however increase the relativeportfolio risk. The tables below provide analyses of theconcentration of insured benefits per individual life insured(excluding annuity payments) as well as per annuity payableper annum per life assured, expressed as percentages of therelevant long-term policy liabilities:Benefits insured per individual lifeBefore and after reinsurance2006 2005P’000 Number of lives P million P million0 – 500 333,598 3,101.56 2,445.50500 – 1,000 11 90.92 58.631,000 – 5,000 43 80.03 65.915,000 – 8,000 4 29.08 12.17>8,000 4 40.08 3.38333,660 3,341.67 2,585.59Benefits insured per individual lifeBefore and after reinsurance2006 2005P’000 Number of lives P million P million333,766 3,341.67 2,585.580 – 20 1,333 11.29 9.2020 – 40 1,184 17.43 14.1040 – 60 1,458 23.91 17.8060 – 80 948 16.47 13.0080 – 100 710 12.69 8.60>100 852 19.23 12.506,485 101 75.20BIHL is the largest life insurer in Botswana and like other operators in the country has geographical concentration risk to Botswana.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200687


BIHL | Income statementsFor the year ended 31 December 2006GROUPCOMPANYYear to 9 months Year to 9 months31 Dec to 31 Dec 31 Dec to 31 Dec2006 2005 2006 2005P’000 P’000 P’000 P’000Note Restated RestatedIncomeNet insurance premium revenue 2 678,983 450,647 – –Insurance premium revenue 705,041 469,380 – –Insurance premium ceded to reinsurers (26,058) (18,733) – –Fee revenue 81,466 51,429 – –Investment revenue 3 (a) 195,802 117,186 109,445 51,193Fair value gains on financial assets held at fairvalue through profit and loss 3 (b) 2,141,167 1,498,082 – –Net income 3,097,418 2,117,344 109,445 51,193Expenses (190,604) (132,399) (8,890) (2,079)Selling expenses (73,241) (51,124) – –Administration expenses 5 (117,363) (81,275) (8,890) (2,079)Net insurance and investment contract benefits and claims (2,516,038) (1,777,289) – –Net insurance benefits and claims 4 (257,557) (149,194) – –Change in liabilities under investment contracts 16 (1,700,829) (1,299,982) – –Change in liabilities under insurance contracts 16 (557,652) (328,113) – –(2,706,642) (1,909,688) (8,890) (2,079)Surplus from operations 390,776 207,656 100,555 49,114Share of results of associates 9.7 2,304 3,083 – –Surplus before tax 393,080 210,739 100,555 49,114Tax 6 (77,021) (38,150) (16,300) (7,641)Surplus after tax 316,059 172,589 84,255 41,473BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006Attributable to:– ordinary shareholders 309,609 168,375 84,255 41,473– minority shareholders 6,450 4,214Earnings per share (thebe)– basic 7 119.16 64.94– diluted 7 117.77 64.29316,059 172,589 84,255 41,47388


BIHL | Balance sheetsAs at 31 December 2006GROUPCOMPANYDec Dec Dec Dec2006 2005 2006 2005P’000 P’000 P’000 P’000Note Restated RestatedASSETSInvestments 9,112,637 6,767,586 63,247 64,447Held at fair value through profit or loss 9,009,220 6,567,588 – 104Government and public authority 9.1 1,091,343 862,143 – –Fixed interest securities 9.2 466,473 254,258 – –Equity investments 9.3 6,963,685 4,067,039 – –Mortgage and other loans 9.4 251,559 181,517 – 104Funds on deposit 9.5 236,160 1,202,631 – –Other investments 103,417 199,998 63,247 64,343Property investments 9.6 81,686 178,417 – –Interest in subsidiaries 9.7 – – 63,247 64,343Interest in associates 9.7 21,731 21,581 – –Property, plant and equipment 10 20,666 21,380 – –Owner-occupied properties 10.1 – 22,493 –Intangible assets 11 14,649 15,610 – –9,147,952 6,827,069 63,247 64,447Trade and other receivables 12 47,066 69,172 7,543 6,242Tax recoverable 14,938 22,109 – –Cash and bank 25 19,038 7,287 9,975 3,03381,042 98,568 17,518 9,275Total assets 9,228,994 6,925,637 80,765 73,722EQUITY AND LIABILITIESEquity attributable to equity holders of parentShare capital and share premium 13 40,601 40,601 40,601 40,601Non-distributable reserves 14 103,550 107,297 9,762 9,762Retained earnings 704,985 496,690 (8,988) 490Total equity attributable to equity holders of parent 849,136 644,588 41,375 50,853Minority interest 15 21,172 17,723 – –Total equity 870,308 662,311 41,375 50,853LiabilitiesPolicyholder liabilities under 16 8,140,007 6,114,114 – –Insurance contracts 2,157,459 1,599,913 – –Investment contracts 5,982,548 4,514,201 – –Deferred taxation 17 50,664 17,494 – –Trade and other payables 18 164,960 131,718 39,390 22,869Tax payable 3,055 – – –Total liabilities 8,358,686 6,263,326 39,390 22,869Total equity and liabilities 9,228,994 6,925,637 80,765 73,722BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200689


BIHL | Statement of changes in equityFor the year ended 31 December 2006Attributable to equity holders of the parentForeignTotalShare- currency nonbasedStatutory trans- Consoli- distri-Share Share Treasury payment capital lation dation butable Retained Minority Totalcapital premium shares reserve reserve reserve reserve reserve income Total interest equityP’000 P’000 P’000 P’000 P’000 P’000 P’000 P’000 P’000 P’000 P’000 P’000GROUPFor the period ended 31 December 2005Balance at 1 April 2005– as previously reported 13,784 26,817 (2,148) 1,012 114,379 (845) (38,560) 73,838 392,067 506,506 13,509 520,015– prior year adjustment (note 23) – – – – – – – – 6,735 6,735 – 6,735– as restated 13,784 26,817 (2,148) 1,012 114,379 (845) (38,560) 73,838 398,802 513,241 13,509 526,750Net surplus for the period– as previously reported – – – – – – – – 153,137 153,137 4,214 157,351– prior year adjustment (note 23) – – – – – – – – 15,238 15,238 – 15,238– as restated – – – – – – – 168,375 168,375 4,214 172,589Transfer to statutory reserve – – – – 39,583 – – 39,583 (37,290) 2,293 – 2,293Foreign currency translation – – – – – 8,208 – 8,208 – 8,208 – 8,208Transfer to consolidation reserve – – – 909 – – (15,241) (14,332) 15,241 909 – 909Dividends paid – – – – – – – – (48,438) (48,438) – (48,438)Balance at 31 December 2005 13,784 26,817 (2,148) 1,921 153,962 7,363 (53,801) 107,297 496,690 644,588 17,723 662,311For the year ended 31 December 2006Balance at 1 January 2006 as restated 13,784 26,817 (2,148) 1,921 153,962 7,363 (53,801) 107,297 496,690 644,588 17,723 662,311Net surplus for the year – – – – – – 309,609 309,609 6,450 316,059Share-based payment – – – 1,523 – – – 1,523 (4,557) (3,034) – (3,034)Transfer to statutory reserve – – – – 68,854 – – 68,854 (66,586) 2,268 – 2,268Foreign currency translation – – – – – 1,191 – 1,191 – 1,191 (3,001) (1,810)Transfer to consolidation reserve – – – – – – (75,315) (75,315) 75,315 – – –Dividends paid – – – – – – – – (105,486) (105,486) – (105,486)Balance at 31 December 2006 13,784 26,817 (2,148) 3,444 222,816 8,554 (129,116) 103,550 704,985 849,136 21,172 870,308BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200690COMPANYFor the period ended 31 December 2005– as previously reported 13,784 26,817 – 2,613 9,762 – – 12,375 (245) 52,731 – 52,731– reversal of share-based payment toretained earnings – – – (2,613) – – – (2,613) 2,613 – – –– as restated 13,784 26,817 – – 9,762 – – 9,762 2,368 52,731 – 52,731Net surplus for the period– as previously reported – – – – – – – – 38,481 38,481 – 38,481– reversal of transfer to share-based payment – – – – – – – – 2,992 2,992 – 2,992– as restated – – – – – – – – 41,473 41,473 – 41,473Share-based payment– as previously reported – – – 2,992 – – – 2,992 – 2,992 – 2,992– reversal of transfer to share-based payment – – – (2,992) – – – (2,992) – (2,992) – (2,992)– as restated – – – – – – – – – – – –Dividends paid – – – – – – – – (43,351) (43,351) – (43,351)Balance at 31 December 2005 13,784 26,817 – – 9,762 – – 9,762 490 50,853 – 50,853For the year ended 31 December 2006Balance at 1 January 2006 13,784 26,817 – – 9,762 – – 9,762 490 50,853 – 50,853Net surplus for the year – – – – – – – – 84,255 84,255 – 84,255Dividends paid – – – – – – – – (93,733) (93,733) – (93,733)Balance at 31 December 2006 13,784 26,817 – – 9,762 – – 9,762 (8,988) 41,375 – 41,375The reversal of transfer to share-based payment is due to share-based payment being recognised in the subsidiary companies where as historically they were recognised at a holding companylevel only.


BIHL | Cash flow statementsFor the year ended 31 December 2006GROUPCOMPANYYear to 9 months Year to 9 months31 Dec to 31 Dec 31 Dec to 31 Dec2006 2005 2006 2005P’000 P’000 P’000 P’000Note Restated RestatedCash generated from operations 158,482 99,611 6,942 673Cash utilised in operations 24 106,098 42,626 (8,770) 529Interest received 3(a) 148,523 85,280 1,092 195Dividends received from investments 3(a) 38,945 27,205 108,353 43,300Dividends received from associates 3(a) 3,570 1,024 – –Tax paid (50,044) (8,086) – –Dividends paid (88,610) (48,438) (93,733) (43,351)Cash (outflows)/inflows in investing activities (1,113,202) 319,082 – –Purchase of property, plant and equipment (3,396) (6,933) – –Purchase of computer software (1,085) (82) – –Purchase of investments (1,108,721) 326,097 – –(Decrease)/increase in cash and cash equivalents (954,720) 418,693 6,942 673Cash and cash equivalents at the beginning of the period 1,209,918 791,225 3,033 2,360Cash and cash equivalents at the end of the period 25 255,198 1,209,918 9,975 3,033BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200691


BIHL | Notes to the financial statementsFor the year ended 31 December 2006ASSET INTER–GROUPSLIFE BUSINESS MANAGEMENT TRANSACTION TOTALIndividual Life andEmployee benefitsAnnuityYear to 9 months Year to 9 months Year to 9 months Year to 9 months Year to 9 months31 Dec to 31 Dec 31 Dec to 31 Dec 31 Dec to 31 Dec 31 Dec to 31 Dec 31 Dec to 31 Dec2006 2005 2006 2005 2006 2005 2006 2005 2006 2005P’000 P’000 P’000 P’000 P’000 P’000 P’000 P’000 P’000 P’0001 SEGMENT INFORMATIONPremium revenue 391,988 261,566 286,996 189,081 – – – – 678,984 450,647Fee revenue – – – – 81,466 51,429 – – 81,466 51,429Investment revenue 121,345 63,594 – – 75,979 41,611 (1,522) 11,981 195,802 117,186Fair value gains on financial assets held atfair value through profit and loss 420,326 184,759 58,868 47,827 1,767,579 1,258,371 (105,606) 7,125 2,141,167 1,498,082Total net income 933,659 509,919 345,864 236,908 1,925,024 1,351,411 (107,128) 19,106 3,097,419 2,117,344Surplus for the period after tax 243,872 61,682 22,484 3,481 40,745 26,357 8,958 81,069 316,059 172,589Depreciation 2,470 1,768 145 93 195 1,528 – – 2,810 3,389Amortisation 587 351 31 18 807 2,454 – 412 1,425 3,235Assets 2,030,369 1,456,758 980,164 748,053 7,978,537 5,866,522 (1,760,076) (1,145,696) 9,228,994 6,925,637Liabilities 1,368,281 870,370 980,164 748,053 7,794,303 5,691,090 (1,784,062) (1,046,187) 8,358,686 6,263,326Capital expenditure 870 2,107 3,369 111 242 4,797 – – 4,481 7,015Associates and joint venture– share of profit 1,527 1,263 – – 777 1,820 – – 2,304 3,083– investments in associates 4,452 5,737 – – 17,279 15,844 – – 21,731 21,581Notes:– assets, excludes income tax assets and investments for associates– liabilities exclude income tax liabilitiesBOTSWANA INSURANCE HOLDINGS LIMITED annual report 200692


BIHL | Notes to the financial statementsFor the year ended 31 December 2006GROUP COMPANYYear to 9 months Year to 9 months31 Dec to 31 Dec 31 Dec to 31 Dec2006 2005 2006 2005P’000 P’000 P’000 P’000RestatedRestated2 PREMIUM REVENUEIndividual life 646,433 431,028 – –Gross premium 652,521 435,601 – –– gross premium 352,189 242,239 – –– single 300,332 193,362 – –Premium ceded to reinsurers (6,088) (4,573) – –Group and employee benefits 32,550 19,619 – –Gross premium 52,520 33,779 – –– recurring premium 45,619 32,011 – –– single 6,901 1,768 – –Premium ceded to reinsurers (19,970) (14,160) – –678,983 450,647 – –BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200693


BIHL | Notes to the financial statementsFor the year ended 31 December 2006GROUP COMPANYYear to 9 months Year to 9 months31 Dec to 31 Dec 31 Dec to 31 Dec2006 2005 2006 2005P’000 P’000 P’000 P’000RestatedRestated3 (a) INVESTMENT REVENUEInterest 148,523 85,280 1,092 252Rental income on investment properties 4,955 3,232 – –Dividends 42,515 28,229 108,353 50,941Other income (191) 445 – –195,802 117,186 109,445 51,193Shareholders 48,365 35,165 109,445 51,193Policyholders 147,437 82,021 – –(b) Fair value gains on financial assets held atfair value through profit and lossRealised fair value surpluses on investments – 202,727 – –Foreign exchange gains 61,614 73,864 – –Unrealised fair value surpluses on investments 2,154,868 1,238,307 – –Total gains 2,216,482 1,514,898 – –Less treasury share adjustment (75,315) (16,816) – –2,141,167 1,498,082 – –Shareholders 159,458 54,588 – –Policyholders 1,981,709 1,443,494 – –4 NET INSURANCE CLAIMS AND BENEFITSIndividual lifeDeath and disability claims 51,605 31,721 – –Maturity claims 38,371 32,655 – –Policy surrenders 63,595 40,909 – –Annuities 94,322 53,215 – –Reinsurance share on death and disability claims (2,410) (8,510) – –BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006Total individual life 245,483 149,990 – –Group and employee benefitsDeath and disability claims 25,563 14,155 – –Reinsurance share on death and disability claims (13,489) (14,951) – –12,074 (796) – –Total 257,557 149,194 – –94


BIHL | Notes to the financial statementsFor the year ended 31 December 2006GROUP COMPANYYear to 9 months Year to 9 months31 Dec to 31 Dec 31 Dec to 31 Dec2006 2005 2006 2005P’000 P’000 P’000 P’000RestatedRestated5 ADMINISTRATION EXPENSES INCLUDE:Auditors’ remuneration– audit fee current period 1,600 1,285 193 193– audit fee previous period 100 – – –– other services 25 158 25 158Depreciation on property, plant and equipment (note 10) 2,810 3,389 – –Depreciation on owner occupied properties (note 10) – 412 – –Amortisation of computer software (note 11) 1,425 2,823 – –Directors’ fees– for services as directors 1,041 813 – –– for managerial services 2,642 2,124 – –– pension contribution 148 132 – –Operating lease rentals 4,248 1,072 – –Staff costsSalaries and wages for administration staff 28,183 26,066 – –Salaries and wages included in selling expenses 25,310 16,963 – –Termination benefits – 6,878 – –Pension costs 1,181 1,331 – –Medical aid 711 275 – –Share-based payment 10,135 2,992– for managers 8,612 2,083 – –– for staff 1,523 909 – –Total staff costs 65,520 54,505 – –Average number of employees 490 450 2 46 TAXCorporate tax 60,727 40,532 – –Deferred tax 32,451 5,161 – –Witholding tax on dividends (16,157) (7,543) 16,300 7,641Tax charge 77,021 38,150 16,300 7,641Tax reconciliationThe tax on income before tax differs from the theoreticalamount that would arise using the basic tax rate as follows:Surplus before tax 393,537 212,121 100,555 49,114Tax calculated at a tax rate of 25% 98,384 53,030 25,139 12,279Effect of tax rate differential with other countries – 1,391 – –Income not subject to tax (5,206) (8,728) (8,839) (4,638)Withholding tax on dividends (16,157) (7,543) – –Tax charge 77,021 38,150 16,300 7,641Additional company taxThe Group had additional Company Tax (ACT) available for set off against withholding tax on dividends as at 31 December 2006of P62 million (31 December 2005: P55 million).BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200695


BIHL | Notes to the financial statementsFor the year ended 31 December 2006GROUP COMPANYYear to 9 months Year to 9 months31 Dec to 31 Dec 31 Dec to 31 Dec2006 2005 2006 2005’000 ’000 ’000 ’000RestatedRestated7 EARNINGS PER SHAREThe calculation of earnings per share has been based onthe weighted average number of shares in issue duringthe year and earnings as detailed below.Number of shares in issue 275,684 275,684Staff share scheme and treasury shares (15,851) (16,393)Weighted average number of shares used for calculating basicearnings per share 259,833 259,291Weighted number of dilutive options 3,068 2,589Weighted average number of shares used for calculatingdiluted earnings per share 262,901 261,8808 DIVIDENDS PER SHARE PAID DURING THE PERIOD (NET)ThebeRecord date per shareFinal dividend for the period to 31 December 2005 31 March 2006 17.000Interim dividend for six months to 30 June 2006 6 October 2006 12.50029.500Dividend proposed for approval at AGM (not recognised as liability at 31 December ) 16 March 2007 25.075BOTSWANA INSURANCE HOLDINGS LIMITED annual report 20069 INVESTMENTSThe investments both listed and unlisted are managed by Bifm. Bifm has a track record of more than 30 years in asset managementand has in-house expertise in asset management. The local investments are managed directly by Bifm or Bifm subsidiary companies;the offshore component of investments, including equities, alternative investments, bonds and cash, is multi-managed by differentfund managers. The prominent offshore fund managers are:– BlackRock, a top down manager managing a balanced fund and who also provides Bifm’s Investment Committee with assetallocation advice. BlackRock manages in excess of £1 trillion worldwide; and– Sanlam Multi Manager International (SMMI) who was appointed towards the end of 2006 to manage core portfolios of managerson a style-neutral basis for both bonds and equities (a function directly performed by Bifm with the assistance of an internationalasset consultant prior to SMMI’s appointment); and– Octane, who manages funds of hedge funds (alternative investments).Combined, these managers are and will be managing in excess of 90% of international assets; the remainder constitutes specialistportfolios e.g. direct emerging market exposure in India and South Africa and direct exposure to offshore private equity funds, eachof which is managed by appointed international managers.Fair valuesAt 31 December 2006 and 31 December 2005, the carrying value of financial instruments reported in the financial statementsapproximated their value.96


BIHL | Notes to the financial statementsFor the year ended 31 December 2006GROUP COMPANYAt 31 Dec At 31 Dec At 31 Dec At 31 Dec2006 2005 2006 2005P’000 P’000 P’000 P’000RestatedRestated9 INVESTMENTS (continued)Investments held at fair value through profit and lossAt the beginning of the year 6,567,588 4,970,042 – –Purchase of investments 323,686 92,543 – –Revaluation 2,117,946 1,505,003 – –At the end of the year 9,009,220 6,567,588 – –The investments are represented by:9.1 Government and public authorityShareholder investments 49,335 4,655 – –Policyholder investments 1,042,008 857,488 – –1,091,343 862,143 – –9.2 Fixed interest securitiesCorporate bondsShareholder investments 79,985 24,812 – –Policyholder investments 386,488 229,446 – –466,473 254,258 – –9.3 Equity investmentsListed in Botswana 1,175,578 602,897 – –Listed foreign markets 5,766,428 3,441,499 – –Unlisted 21,679 22,643 – –Listed financial assetsThe last traded price has been used to value these investments.Unlisted financial assetsThese investments have been valued based on an independentvaluation done by third parties. The fair value of unlisted financialassets has been calculated by discounting expected future cashflows at prevailing interest rates/market rates of return.6,963,685 4,067,039 – –Sectoral analysisConsumer discretionary 1,080,292 537,124 – –Consumer staples 502,385 316,158 – –Industrials 636,354 423,261 – –Financials 1,549,534 889,961 – –Health care 777,493 447,344 – –Information technology 709,806 422,827 – –Energy 423,663 265,046 – –Materials 396,839 238,613 – –Telecommunication services 583,144 358,316 – –Utilities 304,175 168,389 – –6,963,685 4,067,039 – –Shareholder investments 624,361 70,357 – –Policyholder investments 6,339,325 3,996,682 – –6,963,685 4,067,039 – –BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200697


BIHL | Notes to the financial statementsFor the year ended 31 December 2006GROUP COMPANYAt 31 Dec At 31 Dec At 31 Dec At 31 Dec2006 2005 2006 2005P’000 P’000 P’000 P’000RestatedRestated9 INVESTMENTS (continued)9.4 Mortgages and other loansOpening balance 181,517 173,936 104 104New loans 66,615 20,929 – –Interest charges 29,797 13,675 – –Repayments (24,497) (21,678) – –Impairment (1,873) (5,345) (104) –251,559 181,517 – 104Loans secured against the Group’s insurance policies 246,290 175,575 – –Other loans 5,269 5,942 – 104Shareholder investments 158,460 5,942 – 104Policyholder investments 93,099 175,575 – –The loans secured against the Group’s insurancepolicies have no fixed repayment term; interest rate isvariable depending on market conditions. The effectiveinterest rate at 31 December 2006 was 18% (2005: 18%).The impairment arose as a result of reduction in policyvalues, policy values being the security of the loans, due tomarket conditions. The discount rate used was 14.5%.As at year-end there were no receivables thatwere overdue (2005: Nil).251,559 181,517 – 1049.5 Funds on depositShareholder investments 103,973 1,093,833 – –Policyholder investments 132,187 108,798 – –BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006236,160 1,202,631 – –Funds on deposit are made for varying periods of between one day and three months depending on the immediate cashrequirements of the Group. All deposits are subject to an average variable interest rate of 10% (2005: 11%).The carrying amounts disclosed above reasonably approximate fair values at year-end.98


BIHL | Notes to the financial statementsFor the year ended 31 December 2006GROUP COMPANYAt 31 Dec At 31 Dec At 31 Dec At 31 Dec2006 2005 2006 2005P’000 P’000 P’000 P’000RestatedRestated9 INVESTMENTS (continued)9.6 Property investmentsAt beginning of the period 178,417 90,713 – –Additions – 94,625 – –Disposals in exchange of shares (119,952) – – –Revaluations 23,221 (6,921) – –81,686 178,417 – –Shareholder investments 20,350 56,112 – –Policyholder investments 61,336 122,305 – –Investment properties are stated at fair value which hasbeen determined based on valuations performed byKnight Frank; an accredited independent valuer, as at31 December 2006 and 31 December 2005 for thecurrent and previous years respectively. Knight Frank isan industry specialist in valuing these types of investmentproperties.The fair value represents the amount at which assets couldbe exchanged between a knowledgeable willing buyerand a knowledgeable willing seller in an arm’s lengthtransaction at the date of valuation, in accordancewith International Assets Valuation Committee.81,686 178,417 – –9.7 Interest in associates/subsidiariesCarrying amounts at beginning of the period 21,581 22,531 63,247 64,343Share of results before tax 2,761 4,465 – –Share of tax (457) (1,382) – –Dividend received (2,154) (4,500) – –Payments – 467 – –Closing balance 21,731 21,581 63,247 64,343Investment in associates at 31 December 2006 and 31 December 2005 includes goodwill of P968,000. There was no impairmentloss during the period.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200699


BIHL | Notes to the financial statementsFor the year ended 31 December 2006VenturePartners FuneralGaborone Botswana ServicesSun (Pty) Limited Group Total9 INVESTMENTS (continued)9.7 Interest in associates/subsidiaries (continued)As at 31 December 2006Carrying amount 17,279 – 4,452 21,731Directors’ valuation (unlisted associates) 17,279 – 9,670 26,949Interest in issued share capitalShareholders’ fund 12% – 27% 39%Share of earnings after tax for current yearShareholders’ fund 272 505 1,984 2,761Distributions receivedShareholders’ fund – (342) (1,812) (2,154)Assets and liabilities of associated companyNon-current assets 155,456 – 15,518 170,974Current assets 5,295 – 7,568 12,863Current liabilities (11,790) – (6,597) (18,387)Earnings attributable to shareholders 1,360 – 4,678 6,038As at 31 December 2005Carrying amount – directors’ evaluations 15,353 1,370 4,858 21,581Interest in issued share capitalShareholders’ fund 12% 30% 27% 69%Share of earnings after tax for current yearShareholders’ fund 1,567 1,370 1,528 4,465Distributions receivedShareholders’ fund (2,847) – (1,653) (4,500)Assets and liabilities of associated companyNon-current assets 37,442 1,014 15,700 54,156Current assets 11,504 3,595 4,490 19,589Current liabilities (9,036) (499) (1,729) (11,264)Revenue 85,217 5,562 25,214 115,993Earnings attributable to shareholders 13,169 4,110 4,452 21,731BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006Investment in a joint ventureDuring the year, the Group through its 100% owned subsidiary, Bifm, bought a 50% stake in the Joint Venture Company – KhumoProperty Asset Management (Pty) Limited, a property development and property management company.Joint venture’s balance sheet:Current assets 1,080Non-current assets 187Current liabilities (713)Non-current liabilities (42)Net assets 512Joint venture’s income and expenses:Income 3,841Expenses (3,825)Profit before tax 16P’000100


BIHL | Notes to the financial statementsFor the year ended 31 December 2006GROUPFurniture,equipment,Computer vehiclesequipment and other TotalP’000 P’000 P’00010 PROPERTY, PLANT AND EQUIPMENTYear to 31 December 2006Opening net book value 3,306 18,074 21,380Additions 1,317 1,091 2,408Disposals – (312) (312)Depreciation charge (1,522) (1,288) (2,810)Closing net book value 3,101 17,565 20,666Period 31 December 2005Opening net book value 2,351 15,485 17,836Additions 2,509 4,424 6,933Depreciation charge (1,554) (1,835) (3,389)Closing net book value 3,306 18,074 21,380At 31 December 2006Cost 11,578 31,251 42,829Accumulated depreciation (8,477) (13,686) (22,163)Net book value 3,101 17,565 20,666At 31 December 2005Cost 10,261 30,472 40,733Accumulated depreciation (6,955) (12,398) (19,353)Net book value 3,306 18,074 21,380GROUPYear to Period to31 Dec 31 Dec2006 2005P’000 P’00010.1 Owner occupied propertiesOpening net book value 22,493 29,691Additions and expenditure capitalised 988 –Disposals (23,481) (6,786)Depreciation charge – (412)Closing net book value – 22,493At 31 Dec At 31 Dec2006 2005Cost – 22,959Accumulated depreciation – (466)Net book value – 22,493BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006101


BIHL | Notes to the financial statementsFor the year ended 31 December 2006GROUPComputerGoodwill software TotalP’000 P’000 P’00011 INTANGIBLE ASSETSYear to 31 December 2006Opening net book value 13,200 2,410 15,610Additions – 1,085 1,085Foreign currency translation difference (621) – (621)Impairment/amortisation – (1,425) (1,425)Closing net book value 12,579 2,070 14,649Period to 31 December 2005Opening net book value 11,481 5,151 16,632Foreign currency translation difference 1,719 – 1,719Additions – 82 82Disposals – – –Amortisation – (2,823) (2,823)Closing net book value 13,200 2,410 15,610At 31 December 2006Cost 12,579 11,925 24,504Accumulated impairment/amortisation – (9,855) (9,855)Net book value 12,579 2,070 14,649At 31 December 2005Cost 13,200 10,840 24,040Accumulated impairment/amortisation – (8,430) (8,430)Net book value 13,200 2,410 15,610GROUPCOMPANYBOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006At 31 Dec At 31 Dec At 31 Dec At 31 Dec2006 2005 2006 2005P’000 P’000 P’000 P’000RestatedRestated12 TRADE AND OTHER RECEIVABLESOutstanding premiums 16,182 11,062 – –Due from related companies 1,019 1,354 1,909 1,476Other amounts receivable 10,487 36,161 5,634 4,766Due from reinsurers 19,378 20,595 – –– opening balance 20,595 15,789 – –– premiums paid (16,641) (6,796) – –– claim recoveries 15,424 11,602 – –47,066 69,172 7,543 6,242Trade receivables are non-interest bearing and are generally on 30 days terms. No impairment loss has been provided for during thecurrent year (2005: Nil).As at year-end there were no receivables that were overdue (2005: Nil).102


BIHL | Notes to the financial statementsFor the year ended 31 December 2006GROUP COMPANYAt 31 Dec At 31 Dec At 31 Dec At 31 Dec2006 2005 2006 2005P’000 P’000 P’000 P’000RestatedRestated13 SHARE CAPITAL AND PREMIUMShare capitalAuthorised1,200,000,000 ordinary shares of 5 thebe each 60,000 60,000 60,000 60,000Issued and fully paid(Number at the start and end of year)275,684,402 ordinary shares of 5 thebe each 13,784 13,784 13,784 13,784Share premiumShare premium 26,817 26,817 26,817 26,817Total share capital and share premium 40,601 40,601 40,601 40,60114 NON-DISTRIBUTABLE RESERVESForeign currency translation reserveOpening balance 7,363 (845) – –Movement for the period 1,191 8,208 – –Balance at end of period 8,554 7,363 – –Consolidation reserveOpening balance (53,801) (38,560) – –Treasury shares (75,315) (15,241) – –Balance at end of period (129,116) (53,801) – –Number of shares held at 31 December:Shareholders’ fund 000s 4,179 4,179 – –Policyholders’ fund 000s 10,410 10,410 – –14,589 14,589 – –Shareholders’ fundCost of shares heldCost of shares held at beginning and end of year 626 626 – –Market value of shares heldMarket value of shares held at beginning of year 14,960 10,594 – –Unrealised market value adjustment on shares held 20,560 4,366 – –Market value of shares held at end of year 35,520 14,960 – –Policyholders’ fundCost of shares heldCost of shares held at beginning and end of year 1,558 1,558 – –Market value of shares heldMarket value of shares held at beginning of year 38,841 26,391 – –Unrealised market value adjustment on shares held 54,755 12,450 – –Market value of shares held at end of year 93,596 38,841 – –Total in consolidation reserve 129,116 53,801Treasury sharesTreasury shares (2,148) (2,148) – –BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006103


BIHL | Notes to the financial statementsFor the year ended 31 December 2006GROUP COMPANYAt 31 Dec At 31 Dec At 31 Dec At 31 Dec2006 2005 2006 2005P’000 P’000 P’000 P’000RestatedRestated14 NON-DISTRIBUTABLE RESERVES (continued)Share-based payment reserveOpening balance 1,921 1,012 – –Transfer from surplus for the period 1,523 909 – –3,444 1,921 – –Statutory capital reserveOpening balance 153,962 114,379 9,762 9,762Transfer from surplus for the period 68,854 39,583 – –222,816 153,962 9,762 9,762Total non-distributable reserves 103,550 107,297 9,762 9,762In accordance with the requirements of section 9 of theBotswana Insurance Industry Act (Chapter 46:01), 25%of the annual after-tax income of those subsidiariesregistered under the Act is transferred to theStatutory Capital Reserve. This reserve is utilised at leastonce every five years to increase the paid up share capitalof the respective subsidiary companies. The last utilisationwas for balances at 31 March 2004.15 MINORITY INTERESTBalance at beginning of the period 17,723 13,051 – –Share of net profit 6,450 4,214 – –Currency translation difference (3,001) 458 – –Balance at end of the period 21,172 17,723 – –BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006104


BIHL | Notes to the financial statementsFor the year ended 31 December 2006GROUP COMPANYAt 31 Dec At 31 Dec At 31 Dec At 31 Dec2006 2005 2006 2005P’000 P’000 P’000 P’000RestatedRestated16 POLICYHOLDER LIABILITIESInsurance contractsOpening balance– as previously reported 1,599,913 1,306,007 – –– prior year adjustments (note 23) – (34,207) – –– as restated 1,599,913 1,271,800 – –Transfer from income statement 557,652 328,113 – –Other transfers (106) – – –Closing balance 2,157,459 1,599,913 – –Financial Soundness Valuation (FSV) 2,129,914 1,565,647 – –Unearned premium reserve (UPR) 2,748 2,767 – –Annuity mismatch and re-investment reserve 23,181 28,000Claims incurred but not yet reported (IBNR) reserve 1,616 3,499 – –Investment contractsBalance at the beginning of the period 4,514,201 3,595,491 – –Pension and investment contributions 363,366 34,525 – –Net investment return 1,700,829 1,299,982 – –Benefits paid and withdrawals (595,848) (415,797) – –Balance at end of the period 5,982,548 4,514,201 – –Total policyholder liabilities 8,140,007 6,114,114 – –Off balance sheet segregated funds 2,669,406 2,755,353 – –Segregated funds are excluded from investments and liabilitiesunder investment management contracts on the balance sheet.17 DEFERRED TAXBalance at the beginning of the period 17,494 13,785 – –Charge to the income statement 32,450 3,709Foreign currency translation 720 –Balance at end of the period 50,664 17,494 – –Representing:Unrealised gains on shareholders’ investments 50,664 17,494 – –18 TRADE AND OTHER PAYABLESInsurance claims payable 53,991 48,692 – –Amounts due to group companies – – 38,624 22,044Premiums received in advance 31,496 19,086 – –Intermediary retention balance 17,136 16,192 – –Other accounts payable 47,733 44,371 766 825Reassurance payable 14,604 3,377 – –– opening balance 3,377 4,309 – –– premiums due 21,305 7,889 – –– claim recoveries (10,078) (8,821) – –Terms and conditions of the above financial liabilities are:– trade payables are non-interest bearing and are normally settled on 30 – 60 days terms.– other payables are non-interest bearing and have an average term of 90 days.164,960 131,718 39,390 22,869BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006105


BIHL | Notes to the financial statementsFor the year ended 31 December 2006GROUP COMPANYYear to 9 months to Year to 9 months to31 Dec 31 Dec 31 Dec 31 Dec2006 2005 2006 2005P’000 P’000 P’000 P’000RestatedRestated19 RELATED PARTY TRANSACTIONS(a) Transactions on insurance contracts African LifeAssurance Company Limited (54% shareholder of BIHL)– premium ceded to reinsurer 9,523 6,207 – –– claim recoveries from reinsurer (2,410) (8,510) –(b) Year end balances arising from transactions oninsurance contracts and other servicesNet due from/(to)– African Life Assurance Company Limited (3,957) 6,629 – –– BLIL (100% owned by BIHL) – – (34,007) (22,044)– BIFM (100% owned by BIHL) – – (3,141) 1,341The above transactions were carried out oncommercial terms and conditions and at market prices.(c) Loans to associatesAt beginning of the period 2,427 1,960 – –Less repayments received – 467 – –Balance at end of the period 2,427 2,427 – –The loan is due from Funeral Services Group (27% owned by BIHL),bears interest at bank’s prime rate, repayable within 36 monthsand is unsecured.(d) Loans to directorsThere were no loans to directors.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006(e) Transactions with key management(i) Compensation– short-term employee benefits 6,234 5,101– pension costs – defined contribution plans 230 205– other long-term benefits 276 214– termination benefits – 8336,740 6,353(ii) Holding in Company’s policies 260 61(f) Directors’ shareholdingOpening Purchases/ Sales/ Closingbalance appointments resignations balanceKR Jefferis – 10,175 – 10,175MC Letshwiti (indirect holding) 21,871 – – 21,871R Sikalesele-Vaka 25,200 – – 25,200H Fidzani 2,696 – – 2,696Total 49,767 10,175 – 59,942106


BIHL | Notes to the financial statementsFor the year ended 31 December 2006Country of % of interest held Nature ofincorporation Dec 2006 Dec 2005 business20 PRINCIPAL SUBSIDIARIESDirectly heldBotswana Life Insurance Limited Botswana 100 100 Life insuranceBifm Holdings Company Limited Botswana 100 100 Holding companyBLI Investments (Pty) Limited Botswana 100 100 Holding companyIGI Insurance Holdings Limited Botswana 100 100 DormantIndirectly heldBotswana Insurance Fund Management Limited Botswana 100 100 Asset managementBotswana Life Properties (Pty) Limited Botswana 100 100 Property investmentBifm Holdings and Financial Services Limited Isle of Man 100 100 Holding companyInnisfree Apartments (Pty) Limited Botswana – 100 HotelBifm Capital (Pty) Limited Botswana 51 51 Corporate financeBifm Projects (Pty) Limited Botswana 100 100 Building projectsAfrican Life Financial Services (Zambia) Limited Zambia 70 50 Asset managementand pension administrationKYS Investments (Pty) Limited Botswana 58 58 Holding companyPhoton Private Equity Fund Managers (Pty) Limited Botswana 70 – Private equityBifm Capital 1 Botswana 100 – Corporate financeBifm Capital 2 Botswana 100 – Corporate financeGROUPCOMPANYAt 31 Dec At 31 Dec At 31 Dec At 31 Dec2006 2005 2006 2005P’000 P’000 P’000 P’000RestatedRestated21 COMMITMENTSCapital expenditure contracted for at the balance sheetdate but not recognised in the financial statementsProperty, plant and equipment 3,300 – – –Operating lease commitmentsThe future minimum lease payments undernon-cancellable operating leasesWithin one year 18,897 4,235 – –Within two to five years 53,991 12,91122 EMPLOYEE BENEFITS(a) Retirement benefitsThe Group provides retirement benefits to employees by means of a defined benefit pension fund. The pension plan is registeredunder the Pension and Provident Funds Act (Chapter 27:03). Expatriate employees are provided with gratuity in terms of theirconditions of employment.Valuations are performed annually on 30 November, the last valuation was performed on 30 November 2006. The fund is financiallysound according to the latest valuation.Based on reasonable actuarial assumptions about future experience, the employers’ contribution as a fairly constant percentage ofthe remuneration of the members of the funds is sufficient to meet the promised benefits of the fund.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006107


BIHL | Notes to the financial statementsFor the year ended 31 December 2006At 31 Nov At 31 Nov2006 2005P’000 P’00022 EMPLOYEE BENEFITS (continued)(a) Retirement benefits (continued)Number of employees covered by the fund 152 147Contributions to defined pension fund during the year (P’000)relating to current service cost (P’000) 2,743 1,510Principal actuarial assumptions at latest valuation date:Pre-retirement discount rate per annum 10% 10%Post-retirement discount rate per annum 10% 10%Future salary increases per annum 8% 8%Expected return on plan assets at beginning of the year per annum 10% 10%Changes in the present value of the defined benefitobligation and in the fair value of the plan assetsOpening present value of defined benefit obligation 18,990 18,206Interest cost 1,893 1,821Current service cost 1,335 1,470Contribution by fund participant 686 380Past service cost – vested benefits 614 –Benefits paid (3,998) (2,600)Actuarial gain/loss on obligation 1,970 (287)Closing present value of defined benefit obligation, 31 December 21,490 18,990The defined benefit obligation is wholly funded.Opening fair value of plan assets 25,949 19,598Expected return on plan assets 2,534 1,960Member contributions 686 380Employer contributions 2,057 1,130Benefits paid (3,998) (2,600)Actuarial gain on plan assets 4,896 5,481Closing fair value of plan assets 32,124 25,949BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006Asset allocation by major categoriesLocal equity 17% 15%Offshore equity 49% 38%Local bonds and fixed interest 16% 21%Offshore money market 14% 15%Other 4% 11%Total 100% 100%The expected return on plan assets is based on the weightings aboveand expected rates of return on the different asset classes.Fair value of BIHL’s own financial instruments included in plan assets 815 306Actual return on plan assetsExpected return on plan assets 2,534 1,960Actuarial gain on plan assets 4,896 5,481Actual return on plan assets 7,430 7,441108


BIHL | Notes to the financial statementsFor the year ended 31 December 2006At 31 Nov At 31 Nov2006 2005P’000 P’00022 EMPLOYEE BENEFITS (continued)(a) Retirement benefits (continued)Amounts recognised in the balance sheetPresent value of the obligation 21,490 18,990Fair value of plan assets (32,124) (25,949)(10,634) (6,959)Unrecognised actuarial gains 8,567 5,768Asset recognisable in the balance sheet per IAS 19 (2,067) (1,191)The assets in 2006 and 2005 have not beenrecognised in the balance sheet as they are not material.Amounts recognised in the income statementCurrent service cost 1,335 1,470Interest cost 1,893 1,821Expected return on plan assets (2,534) (1,960)Net actuarial gain recognised in year (127) –Past service cost – vested benefits 614 –Net expense included in staff costs 1,181 1,331Dec 2006 Dec 2005 Mar 2005 Mar 2004 Mar 2003P’000 P’000 P’000 P’000 P’000Plan surplus trend analysisPresent value of funded obligations 21,490 18,990 18,206 14,240 11,120Fair value of plan assets (32,124) (25,949) (19,598) (16,190) (12,370)Surplus of plan assets over defined benefit obligation (10,634) (6,959) (1,392) (1,950) (1,250)(b) Share-based paymentThe Group has a share-based payment scheme. The scheme is divided for (i) Management Staff (ii) Other Staff.(i) Management Staff schemeThe objective of the scheme is to retain staff. Management staff are granted share options after a period of two years’ continuousservice to the Group. The shares vest after a period of six years of continuous service, from the grant date; 1/3 vesting after every twoyears. The shares are issued at the ruling market price on the date of granting the option. On vesting, the manager has the option ofpurchasing the shares for cash or opting that a portion or all of the shares be sold. The fact that the shares may be sold to the marketor to a fellow group entity forms the basis of classifying this element of the scheme as equity settled with a cash alternative.After the shares have vested, employees are given a period of 10 years from the date of vesting to exercise their option. The carryingamount of the liability at 31 December 2006 is P12 million (31 December 2005: P4 million). The expense recognised in the incomestatement is P8,612 million (2005: P2,083 million).Year to 31 Dec 2006 9 months to 31 Dec 2005Number of Weighted average Number of Weighted averageshares exercise price shares exercise priceMovement during the period ’000 Pula ’000 PulaOutstanding at the beginning 5,500 2.53 6,706 2.12Granted 2,175 3.65 1,325 2.63Forfeited (1,463) 2.53 (1,275) 2.12Exercised (1,079) 2.53 (1,256) 2.12Outstanding at the end 5,133 3.00 5,500 2.53Exercisable at 31 December 82 2.50 33 2.15The weighted average remaining contractual life for the share options outstanding as at 31 December 2006 is eight years (2005: nine years).The weighted average fair value of options granted during the year was P4.50 (2005: P1.21).The range of exercise prices for options outstanding at the end of the year was P2.15 – P3.60 (2005: P2.10 – P2.63).BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006109


BIHL | Notes to the financial statementsFor the year ended 31 December 200622 EMPLOYEE BENEFITS (continued)(b) Share-based payment (continued)(ii) Other StaffThe objective of the scheme is to retain staff. Staff are granted share options after a period of two years’ continuous service to theGroup. The shares vest after a period of three years of continuous service from the grant date; therefore the employee has to becontinuously employed with the Group for five years. Staff do not pay for the shares. As the settlement is by way of shares, thescheme is equity settled for accounting purposes. The carrying amount of the share-based payment reserve was P3,444 million(2005: P1,921 million). The expense recognised in the income statement was P1,523 million (2005: P0,505 million).Year to 9 months to31 Dec 31 Dec2006 2005Number of Number ofsharessharesMovement during the period ’000 ’000Outstanding at the beginning 2,891 4,035Granted 1,646 948Forfeited (644) (751)Exercised (825) (1,341)Outstanding at the end 3,068 2,891There were no options exercisable at the end of 2006 and 2005.The weighted average fair value of optionsgranted during the year was P3.65 (2005: P2.63).(iii) AssumptionsThe following assumptions have been used inthe valuations model of the scheme.Dividend yield 6.00% 5.50%Volatility 23.36% 23.81%Risk free interest rate 12.70% 9.80%Spot price 8.50 3.20% of remaining employees 80.00% 80.00%BOTSWANA INSURANCE HOLDINGS LIMITED annual report 200623 PRIOR YEAR ADJUSTMENTSPrior year results have been restated for– the release of actuarial reserves on certain business portfolios considered by the statutory actuary to be no longer required;– investment management fees on policyholder funds which were undercharged in 2005; and– the impact of the change in accounting for the Group’s share scheme from “equity accounted” to “equity accounted with a cashalternative” in terms of IFRS 2 Share-based Payment.Policyholder Surplus forReserves liabilities the periodat 1 April Tax (insurance to 31 Dec Trade2005 recoverable contracts) 2005 payablesP’000 P’000 P’000 P’000As previously reported 587,510 107,118 1,634,120 157,351 128,034– release of actuarial reserves 10,419 (3,471) (13,890) – –– investment charges on policyholder funds – (5,079) (20,317) 15,238 –– IFRS 2 Share-based Payment (3,684) – – – 3,684As restated 594,245 98,568 1,599,913 172,589 131,718110


BIHL | Notes to the financial statementsFor the year ended 31 December 2006GROUP COMPANYAt 31 Dec At 31 Dec At 31 Dec At 31 Dec2006 2005 2006 2005P’000 P’000 P’000 P’000RestatedRestated24 CASH GENERATED/(UTILISED) IN OPERATIONSSurplus before tax as per income statement 393,080 210,739 84,255 41,473Non-cash flow items (142,680) (41,889) 1,201 –Depreciation 2,810 3,801 – –Amortisation 1,425 2,823 – –Unrealised investment surpluses on shareholder assets (159,458) (54,588) – –Impairment of investments 104 – 1,201 –Equity accounted earnings 2,304 3,083 – –Share-based payments 10,135 2,992 – –Items disclosed separately (191,038) (113,509) (109,445) (51,193)Interest received (148,523) (85,280) (1,092) (252)Dividends received (42,515) (28,229) (108,353) (50,941)Working capital changes: 46,736 (12,715) 15,219 10,249Net decrease/(increase) in trade and other receivables 22,106 (19,560) (1,301) 6,302Net increase/(decrease) in trade and other payables 24,630 6,845 16,520 3,947Cash generated/(utilised ) in operations 106,098 42,626 (8,770) 52925 CASH AND BANK 19,038 7,287 9,975 3,033Funds on deposit (Note 9.5) 236,160 1,202,631 – –Cash and cash equivalents 255,198 1,209,918 9,975 3,033Cash and bank are made for varying periods of between one day and three months depending on the immediate cash requirementsof the Group. All deposits are subject to an average variable interest rate of 10% (2005: 11%). In the current year funds on depositwhich have a maturity value of three months or less have been included as cash and cash equivalents, in line with IAS 7 Cash FlowStatements. The prior year balances have been restated accordingly.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006111


BIHL | Notice of annual general meetingFor the year 31 December 2006Notice is hereby given that the sixteenth annual general meetingof Botswana Insurance Holdings Limited will be held at the BlockA Fairgrounds Office Park, Gaborone, Botswana on 18 May 2007at 17:00 for the following business:ORDINARY RESOLUTIONS1 To read the notice convening the meeting.2 To receive, approve and adopt the audited financialstatements for the year ended 31 December 2006 togetherwith the reports of the statutory actuary and auditors.3 To approve the dividends declared by the directors on14 August 2006 and 14 February 2007.4 To elect directors in accordance with the provisions ofthe Articles of Association of the company. The followingdirectors retire by rotation at this meeting and, being eligible,offer themselves for re-election• Ms M Dawes• Mr S Gupta• Mr V Senye• Dr H Fidzani5 To confirm the appointment of Mr J van der Merwe who wasappointed a director of the Company by the board duringthe course of the year.PROXIES1 A member entitled to attend and vote at the meeting isentitled to appoint a proxy or proxies to attend, speak andvote in his/her stead. The proxy need not be a member ofthe Company.2 The instrument appointing such a proxy must be depositedat the registered office of the Company not less than48 hours before the meeting.3 The completion and lodging of this form of proxy will notpreclude the relevant member from attending the annualgeneral meeting and speaking and voting in person thereatto the exclusion of any proxy appointed in terms hereof.By order of the boardSpankie Boitumelo FCCA, FCPA(Bots)Company Secretary23 April 20076 To approve the remuneration of the auditors for the yearended 31 December 2006.7 To approve the remuneration of the chairman andnon-executive directors.8 To appoint auditors for the coming year to 31 December 2007.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 20069 To transact such other business as may be transacted at anannual general meeting.112


BIHL | Explanatory notes to resolutionsfor the annual general meetingFor the year 31 December 2006• Receiving and adoption of the annual financialstatements together with the reports of the statutoryactuary and the auditorsThe directors have to present to members at the annualgeneral meeting the annual financial statements,incorporating the report of the financial director for theperiod ended 31 December 2006, together with the reportsof the valuator and the auditors contained in this annualreport.• Remuneration of directorsIn terms of the Company’s Articles of Association, thedirectors shall be entitled to such remuneration as maybe determined by the Company in general meeting. Fullparticulars of all fees and remuneration paid are containedon page 41 of this report.• Election of directorsIn terms of the Company’s Articles, one third of the directorsare required to retire at each annual general meeting andmay offer themselves for re-election. The Articles alsoprovide that the appointment of any person as a directorof the Company requires confirmation by shareholders atthe first annual general meeting of the Company after theappointment of such person as director.Shareholders’ calendarAnnual General Meeting 18 May 2007Publication of 2007 half year interim report and dividend announcement August 2007Interim dividend payment September 2007Financial year-end 31 December 2007Publication of 2007 year results and dividend announcement February 2008Publication of 2007 Annual Report April 2008BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006113


BIHL | Glossary of termsFor the year ended 31 December 2006BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006Accidental death rider: An enhancement on life insurancepolicies that provides for payment of an additional death benefitwhen death occurs by accidental means.Accrual rate or factor: The percentage at which a pensionaccrues to a member during the period of membership of apension fund in a defined benefit fund.Agent: A representative of an assurer. He or she may be anindependent contractor or an employee.Annuity: Periodic income payments received by an individual inconsideration of a lump sum purchase amount.Approved pension or provident fund: A pension or providentfund approved by the Commissioner of Taxes.Asset allocation strategy: The splitting of assets of a pensionfund into various asset classes, such as equities, fixed income andcash.Beneficiary: A person named in an assurance policy to receiveall or part of the benefits provided by the policy upon the deathof the assured.Broker: An independent insurance specialist firm or individual,which places business on behalf of its clients.Cedant: Direct insurer, which passes on (cedes) shares of itsinsured risks to a reinsurer in exchange for a premium.Commission: A fee paid to an agent for the agent’s services andis calculated as percentage of the premium generated.Compulsory annuity: An annuity purchased from the proceedsof a pension fund. This is compulsory because it is a statutoryrequirement that a certain portion of pension money be used topurchase an annuity.Commutation: Giving up part or the whole pension in exchangefor an immediate lump sum payment.Contributory fund: A fund which requires contributions fromactive members.Coupon: The annual rate of interest paid by the issuer of a bonduntil maturity.Credit life assurance: A single or recurring premium term lifeassurance policy taken out by borrowers. Its purpose is to coverpayment of outstanding loan balances in the event of their dying,or on the happening of other specified events.Deferred annuity: An annuity which commences at somefuture date.Deferred pensioner: A person entitled to preserved benefits– sometimes referred to as a deferred member.Defined benefit fund: Known also as a final salary scheme.Retirement benefits under this fund are determined by a formula,which takes into account the accrual rate, final pensionable salaryat retirement and pensionable service.Defined contribution fund: Also known as a money purchasefund. Under this type of fund, a member’s retirement benefitsare determined by aggregating contribution made by and/or onbehalf of the member to the fund and the investment incomereceived thereon.Dependent: A person who is financially dependent on themember or pensioner or was so at the time of death orretirement.Deposit administration: A with-profit portfolio, in whichpremiums invested are accumulated with regular bonuses.Disability: A physical or mental condition that makes an insuredperson incapable of performing one or more duties of his/heroccupation. Such disability may be partial, temporary or total.Earned assets share (EAS): Broadly represents the accumulationof actual premiums, less actual expenses and claims, accumulatedwith interest.Embedded value: The embedded value is the determination ofthe economic value of a life insurance company before makingallowances for any value which may be attributed to future newbusiness and goodwill.Endowment assurance: A fixed term life assurance policy inwhich provision is made for premiums to pay for life cover plus asavings/investment element. The policy pays out a sum of money(the sum assured) on the death of the life assured or at maturitydate.Equity: The amount which shareholders own in a publicly quotedcompany.Exclusions: Normally listed in a policy, these are specific situationsfor which an insurance company will not pay a claim.Ex-gratia: A payment made out of a sense of moral rather thanlegal obligation.Facultative reinsurance: Specially negotiated participation onthe part of the reinsurer in a particular individual risk assumed bythe direct insurer.Final pensionable salary: The earnings used to determine amember’s pension.114


BIHL | Glossary of termsFor the year ended 31 December 2006Funding level: This is quoted in percentage terms as actuarialvalue of assets divided by the value of past service liabilitiesincluding an allowance for future pay increases.Group life assurance: Life assurance issued to a group ofpersons with related interests.Guarantee period: The length of time a premium or benefit isguaranteed by the insurance company to remain unchanged. Thelength of time varies by policy and insurance company.Independent trustee: An individual or corporate body with nodirect or indirect involvement with the pension scheme, otherthan performing duties as a trustee.Index: A device that measures changes in the prices of a basketof shares, and represents the changes using a single figure.Individual life: A policy effected on one life – the life assured.Joint life: A policy taken out on two (or more) lives where a claimis incurred on the first life to die.Lapse: A policy is deemed to have lapsed when the policyholderfails to pay the renewal premiums.Life assurance policy: A contract providing for a payment of aspecified sum of money to the policy owner or a named beneficiaryupon the death, or the happening of any contingency dependenton the termination or continuance of the life of the assured.Life expectancy: How long a given person is expected to live.Loading: An amount an insurance company adds to the basicpremium to cover the expense of securing and maintaining thebusiness.Managed fund: An investment contract by which an insurancecompany offers participation in one or more pooled funds.Matching: The policy of selecting assets of a nature, incidence orcurrency similar to the expected outgoing.Mortality: Refers to the probability of death based on factorssuch as family history, current health, past illnesses, lifestylebehaviours and age.Mortality tables: Actuarial tables used in the insurance industryto predict life expectancy, and the death rates for various typesof people.Mortgage-protection: Assurance that decreases in amountperiodically. It may either expire completely after a term of yearsor remain level thereafter at a reduced amount.Nominal value: Price of a security (stocks, shares, bonds, etc)when originally issued. This bears no relation to the market price.Also known as the face value or par value.Non-contributory scheme: A scheme which does not requirecontributions from active members.Non-forfeiture clause: A clause in a life assurance policy whichlays out the conditions under which the policy may remain inforce for a limited period, if the premium remains unpaid afterthe expiry of the days of grace.Normal contributions: The regular contributions required fromactive members in terms of the rules of the fund.Normal retirement age: Also known as pension age. The age atwhich employees retire from service.Open market option: The option to apply proceeds of aninsurance contract to buy an annuity at current market rates fromthe same or another insurance company.Paid up benefit: A preserved benefit which is fully secured foran individual member under a contract of insurance under whichpremiums have ceased to be payable for that member.Paid up scheme: A scheme where contributions have ceased butassets are held by the administrator and benefits continue to bepayable in terms of the rules.Pensionable earnings: The earnings used to determine pensionand/or contributions to a scheme.Pensionable service: The period of service, which is taken intoaccount when calculating pension benefits.Pensioner: A person who is currently receiving a pension froma pension fund.Persistency: An internal measure of how “persistent” the recurringpremium policies are staying on the books of the Company.Portfolio: A group of investments held by an institution orindividual. The process of choosing which investments go into aportfolio is known as portfolio management or asset allocation.Pre-existing condition: Illness or disability for which a life orhealth insurance applicant was treated or advised about within astipulated period before making an application for the assurance.Non-disclosure may result in cancellation of the policy, or adeclining of the claim.Premium: Agreed remuneration for the risks accepted from aninsurance company.Present value: The total of a series of future payments orreceipts, discounted to the date to which the calculation relates,allowing for probabilities for payment or receipt.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006115


BIHL | Glossary of termsFor the year ended 31 December 2006BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006Preservation: The granting by a scheme of preserved benefits toa member leaving a pension scheme before normal retirement.Pure endowment: A standard insurance policy that carries nolife cover.Reassurance: An agreement whereby an assurance companytransfers part or all of its risk of loss under assurance policies itwrites by means of a separate contract or treaty with anotherassurance company or reassurer.Recurring premium: A life assurance policy in which premiumsare made at regular intervals (e.g. monthly).Registered fund: A fund registered under the Pension andProvident Funds Act.Registrar of Insurance: A person appointed by the Minister ofFinance and Development Planning to regulate and supervise theactivities of the insurance industry and ensure public protection.Reinsurer: A company which accepts risks or portfolio segmentsfrom a direct insurer.Repudiate: To refuse to admit liability to a claim.Retention: The part of the accepted risks which an insurer doesnot reassure. The retention ratio is the percentage share of theretention, relative to the gross premium written.Segregated fund: An arrangement whereby the investmentsof a pension scheme are managed by an external investmentmanager independently of other funds under its control.Self-administered scheme: An occupational pension schemewhere assets are invested, other than wholly by payment ofinsurance premiums, by the trustees, an in-house investmentmanager or an external investment manager.Standard risk: Person who, according to an insurance company’sunderwriting standards, is entitled to insurance protectionwithout extra rating or special restrictions.Surrender value: The amount of cash which may be realised byan assured holding a life assurance policy with a life assurancecompany, if it is voluntarily surrendered prior to its maturity ordeath of the life assured.Tracker fund: A fund which aims to achieve the same returns asa chosen share index, and which does this by investing in all thecompanies in the index according to a market value weighting.Transfer payment: A payment made from a pension scheme toanother pension scheme.Transfer value: The amount of transfer payment.Trust deed: A legal document executed in the form of a deed,which establishes, regulates and amends a trust.Trustee: An individual or company appointed to carry out thepurposes of a trust in accordance with the provisions of the trustinstrument and general principles of trust law.Underwriting: The process of examining, accepting, or rejectingassurance risks, and classifying those selected, in order to chargethe proper premium for each. The purpose of underwriting is tospread the risk among the pool of assureds in a manner that isequitable for the assureds and profitable for the assurer.Unfunded scheme: A scheme where assets are not accumulatedin advance of benefit payments.Unit: A quantity generally accepted as a standard for exchange.Universal life insurance: A form of permanent life insurance.Valuation basis: Assumptions used by the actuary to derive thevalue of liabilities.Valuation method: The mathematical model/techniques usedto derive the value of liabilities often specified by statute.Valuation report: Another term for actuarial report.Valuator/statutory actuary: An actuary or any other personwho, in the opinion of the Registrar of Insurance, has sufficientactuarial knowledge to perform the duties required of a valuatorin terms of the Insurance Industry Act. A valuator is appointed bymanagement and the appointment is approved by the Registrarof Insurance.Vested rights: Benefits to which members are unconditionallyentitled.Voluntary annuity: An annuity purchased using funds otherthan pension fund money.Waiver of premium: An insurance policy option allowing apolicyholder, who becomes disabled or dies, to not pay premiums.Winding up: The process of terminating a pension schemeusually by applying the assets to the purchase of immediate and/or deferred annuities for the beneficiaries by transferring assetsand liabilities to another pension scheme.With profit liabilities (Traditional): These liabilities havea guaranteed sum assured, which is augmented by annualreversionary (ie. only payable at maturity or death) bonuses, aswell as a discretionary terminal bonus.116


BIHL | Proxy and voting instructionsFor the year ended 31 December 2006Botswana Insurance Holdings Limited(Incorporated in Botswana)(Company registration number 90/1818)To be completed by certificated shareholders with “own name” registrationFor use at the Annual General Meeting to be held on at 17:00 on 18 May 2007 at Block A, Fairgrounds Office Park, Gaborone, BotswanaI/Weofbeing a shareholder/s of the above mentioned company, holding(number of shares) hereby appoint:1. or failing him/her2. or failing him/her3. the Chairman of the Annual General Meetingas my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held at Block A FairgroundsOffice Park on 18 May 2007, at 17:00, and at any adjournment thereof for the purpose of voting:1 Ordinary resolution number 2 – to receive, approve and adopt theannual financial statements for the year ended 31 December 20062 Ordinary resolution number 3 – to approve the dividends declaredby the directors on 14 August 2006 and 14 February 20073 Ordinary resolution number 4 – to elect directors in accordance withthe provisions of the Articles of Association of the Company.The following directors retire by rotation at this meeting and,being eligible, offer themselves for re-electionFor Against AbstainabcdMs M DawesMr S GuptaMr V SenyeDr H Fidzani4 Ordinary resolution number 5 – to confirm the appointment ofMr J van der Merwe who was appointed a director of theCompany by the board during the course of the year5 Ordinary resolution number 6 – to approve the remuneration ofthe auditors for the year ended 31 December 20066 Ordinary resolution number 7 – to approve the remunerationof the chairman and non-executive directors7 Ordinary resolution number 8 – to appoint auditorsfor the coming year to 31 December 2007Signed at on the day of 2007SignatureA shareholder/s entitled to attend and vote at this Annual General Meeting is/are entitled to appoint one or more proxies (who need notbe shareholders of the Company), to attend, speak and vote on behalf of the shareholder/s at the Annual General Meeting.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006117


BIHL | Proxy and voting instructionsFor the year ended 31 December 2006Notes1 A shareholder may insert the name of a proxy or names oftwo alternate proxies with or without deleting “the chairmanof the meeting”, such a deletion must be initialled by theshareholder. The person whose name appears first on theform of proxy and has not been deleted, will be entitled toact as a proxy to the exclusion of those whose names appearbelow his/hers.2 A shareholder’s instructions to the proxy must be indicatedby the insertion of a cross or a tick or the relevant number ofvotes exercisable by the shareholder in the appropriate spaceprovided. Failure to comply with the above will be deemedto authorise the proxy to vote or abstain from voting at theAnnual General Meeting as he/she deems fit in respect of theentire shareholder’s votes exercisable thereat. A shareholderor his proxy is not obliged to use all the votes exercisableby the shareholder or his proxy, but the total of the votescast and in respect whereof abstention is recorded, may notexceed the total of the votes exercisable by the shareholderor his proxy.3 Completed forms must be lodged with or posted to theCompany’s registered office Block A, Fairgrounds OfficePark or PO Box 336, Gaborone Botswana, or faxed to+267 3906 386 for the attention of the Company Secretary,so as to be received by no later than 48 hours before thetime appointed for the holding of the Annual GeneralMeeting (excluding Saturdays, Sundays or public holidays) orany adjournment thereof.4 The completion and lodging of this form of proxy shall notpreclude the relevant shareholder from attending the AnnualGeneral Meeting and speaking and voting in person thereatto the exclusion of any proxy appointed in terms hereof.5 Any alteration made to or on this form of proxy must beinitialled by the signatory/ies.BOTSWANA INSURANCE HOLDINGS LIMITED annual report 2006118


BIHL | Administration and managementFor the year ended 31 December 2006BOTSWANA INSURANCE HOLDINGSLIMITEDIncorporated in BotswanaCompany registration number 90/1818REGISTERED OFFICEBlock A: Fairgrounds Office ParkPO Box 336GaboroneTRANSFER SECRETARIESPricewaterhouseCoopers (Pty) LimitedPlot 50371Fairground Office ParkPO Box 294GaboroneAUDITORSErnst & Young2nd Floor UN PlaceKhama CrescentPO Box 41015GaboroneCOMPANY SECRETARYSpankie BoitumeloSTATUTORY ACTUARYGT WaughGROUP BANKERSBarclays Bank of Botswana LimitedFirst National Bank of Botswana LimitedStanbic Bank Botswana LimitedStandard Chartered Bank BotswanaLimitedBOTSWANA INSURANCE FUNDMANAGEMENT LIMITEDBlock A: Fairgrounds Office ParkPrivate Bag BR 185GaboroneTel: 3951 564; Fax: 3900 358www.bifm.co.bwBOTSWANA LIFE INSURANCE LIMITEDBlock A: Fairgrounds Office ParkPrivate Bag 00296GaboroneTel: 3951 791; Fax: 3905 884www.botswanalifeinsurance.comFRANCISTOWN BRANCH OFFICEBotswana Insurance BuildingPrivate Bag F283FrancistownTel: 2413 581; Fax: 2414 614SELEBI PHIKWE BRANCH OFFICEBotswana Building Society HouseThe MallPrivate Bag 0081Selebi PhikweTel: 2614 226; Fax: 2615 834PALAPYE BRANCH OFFICEMam Estate Unit 3PO Box 10449PalapyeTel: 4922 332; Fax: 4922 416MAUN BRANCHNgami CentrePrivate Bag 140MaunTel: 6860 129; Fax: 6860 126LOBATSE BRANCH OFFICEBotswana Life Insurance HousePrivate Bag 105LobatseTel: 5331 422; Fax: 5331 423MANAGEMENTBotswana Life Insurance LimitedCorporate BusinessFlorence Matome – Relationship ManagerMartha Seipato – Relationship ManagerHigh Value BrokersMoletlanyi Tshosa – Relationship ManagerBusiness SupportDaphne Smuts – Relationship ManagerIrene Mangope – Relationship ManagerRobert Holgate – Transition ManagerIndividual LifeBeauty Buka – Branch Manager (Maun)Benjamin Mokobela – Branch Manager (Palapye)Evelyn Modise – Branch Manager (Lobatse)Gillian Rakwela – Branch Manager (Selebi Phikwe)Keba Moshe – Branch Manager (Francistown)Thomas Masifhi – Branch Manager (Gaborone)FinanceLorato Mosetlhanyane – Finance ManagerHuman ResourcesGaeyo Moshodi – Services DeliveryMooketsi Maphane – Business PartnerBotswana Insurance FundManagement LimitedMANAGEMENTInvestment ManagementLeonard Siwawa – Portfolio ManagerGlen Lekoma – Business Development andClient Liaison ManagerMoaisi Matlhaku – Portfolio ManagerMoipone Lopang – Head of ResearchOperationsVikas Agarwal – Head of FinanceRuth Tidi – Investment Accounting ManagerKeedo Segakise – Financial ManagerMompati Keabetswe – IT AdministrationManagerSupport ServicesTebogo Hirschfeldt – Support Services Manager200721310dynamoafrica


BOTSWANA INSURANCE HOLDINGS LIMITEDBlock A Fairgrounds Office Park, GaboronePO Box 336 Gaborone BotswanaTelephone +267 3951 791Fax +267 3906 386BOTSWANA INSURANCE FUND MANAGEMENT LIMITEDBlock A Fairgrounds Office ParkPrivate Bag BR 185 GaboroneTelephone +267 3951 564Fax +267 3900 358www.bifm.co.bwBOTSWANA LIFE INSURANCE LIMITEDBlock A Fairgrounds Office ParkPrivate Bag 00296 GaboroneTelephone +267 3951 791Fax +267 3900 358www.botswanalifeinsurance.com

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