compressed_Annual Report 2016-ilovepdf-compressed

Test
Discounted outstanding
claims
liability as at 31
March 2016
1 Increase take -
up rates by 1%
2 Increase real
discount rates
by 1% (decrease
inflation by 1%)
3 Increase average
IBNR claim
amount by 5%
E000’s
134 746
%
Change
137 041 1.7
132 735 -1.5
137 509 2.1
Inflating cash flows at a lower inflation rate
reduces the present value of liability. The important
assumption in the escalation and discounting
process is the real discount rate. The real discount
rate used for the current valuation is 2%. Increasing
the real discount rate to 3% reduces the liability
by 1.8%. We conclude that the valuation results
are not materially affected by the changes in the
key assumptions as defined in the sensitivity tests.
The results may be summarised as follows:
(Test 1) Increase take up rates by 1%
(Test 2) Increase real discount rates by 1%
(decrease inflation by 1%).
(Test 3) Increase average IBNR claim
amount by 5%.
b) Basis for determining fair values of
investments
The fair values of quoted investments in active
markets are based on current bid prices. If the
market for a financial asset is not active, the
Fund establishes fair value by using valuation
techniques. These include the use of recent arm’s
length transactions or other valuation techniques
commonly used by market participants.
2.15 OFFSET OF FINANCIAL ASSETS AND
LIABILITIES
Financial assets and financial liabilities are offset in
the amount represented in the statement of financial
position when the Fund has a legally enforceable
right to set off the recognised amount, and
intends either to settle on a net basis, or to realise
the assets and settle the liability simultaneously.
3 RISK MANAGEMENT FRAME-
WORK AND OBJECTIVES
The Board acknowledges its responsibility for establishing
and communicating appropriate risk and
control policies and ensuring that adequate risk
management processes are in place. The Fund has
a board of directors which deals with the various
aspects on policies for accepting risks, including
selection and approval of risks to be insured, use
of limits and avoiding undue concentrations of risk
to ensure the appropriate risk classification.
Responsibility for the board of directors
The Fund’s board of directors is appointed by the
Minister of Finance and is in place to assist the
management in discharging its risk management
obligations. The principal objectives of the Fund’s
board of directors in terms of risk management are
to:
Review the Fund’s risk philosophy, strategy,
policies and processes recommended by
executive management;
Review compliance with risk policies and
with the overall risk profile of the Fund;
Review and assess the integrity of the
process and procedures for identifying,
assessing, recording and monitoring of risk;
Review the adequacy and effectiveness of
the Fund’s risk management function and its
implementation by management;
Ensure that material corporate risks have
been identified, assessed and receive
SINCEPHETELO MVA FUND 41