Group equity value sensitivity analysis

at 31 December 2010
 
Given the Group's exposure to financial instruments, market risk has a significant impact on the value of the Group's operations as measured by Group Equity Value. The sensitivity of Group Equity Value to market risk is presented in the table below and comprises of the following two main components: 
 
> Impact on net result from financial services (profitability): A large portion of the Group's fee income is linked to the level of assets under management. A change in the market value of investments managed by the Group on behalf of policyholders and third parties will commensurately have a direct impact on the Group's net result from financial services. The present value of this impact is reflected in the table below as the change in the value of in-force and the fair value of other operations. 
> Impact on capital: The Group's capital base is invested in financial instruments and any change in the valuation of these instruments will have a commensurate impact on the value of the Group's capital. This impact is reflected in the table below as the change in the fair value of the covered business's adjusted net worth as well as the fair value of discretionary and other capital. 
 
The following scenarios are presented:
 
> Equity markets and property values decrease by 10%, without a corresponding change in dividend and rental yields.
> Investment return and inflation decrease by 1%, coupled with a 1% decrease in risk discount rates, and with bonus rates changing commensurately. 
> The rand depreciates by 10% against all currencies, apart from the Namibian dollar. 
 
The Group's covered business is also exposed to non-market risks, which includes expense, persistency, mortality and morbidity risk. The sensitivity of the value of in-force business, and commensurately Group Equity Value, to these risks is presented in note 1
 
2010
R million
Base value
Equities and
properties
-10%
Interest
rates
-1%
Rand
exchange rate
depreciation
+10%
Covered business
31 045
29 804
31 563
31 272
Adjusted net worth
14 033
13 561
14 039
14 160
Value of in-force
17 012
16 243
17 524
17 112
Other Group operations
19 413
18 178
19 782
19 599
Valued at net asset value
1 120
1 120
1 120
1 120
Listed
8 790
7 911
8 790
8 790
Other
9 503
9 147
9 872
9 689
         
Group operations
50 458
47 982
51 345
50 871
Discretionary and other capital
8 157
7 972
8 169
8 252
Group Equity Value before adjustments to net worth
58 615
55 954
59 514
59 123
Net worth adjustments
(1 254)
(1 252)
(1 254)
(1 254)
Present value of holding company expenses
(1 232)
(1 232)
( 1 232)
(1 232)
Fair value of outstanding equity compensation shares granted by subsidiaries on own shares
(22)
(20)
(22)
(22)
         
Group Equity Value
57 361
54 702
58 260
57 869
2009 Restated
Covered business 28 988 28 279 29 531 29 082
Adjusted net worth 14 247 14 247 14 247 14 247
Value of in-force 14 741 14 032 15 284 14 835
Other Group operations 16 833 15 835 17 104 17 070
Valued at net asset value 1 322 1 322 1 322 1 322
Listed 7 169 6 452 7 169 7 169
Other 8 342 8 061 8 613 8 579
         
Group operations 45 821 44 114 46 635 46 152
Capital diversification (700) (1 274) (693) (537)
Discretionary and other capital 7 095 6 928 7 131 7 225
Group Equity Value before adjustments to net worth 52 216 49 768 53 073 52 840
Net worth adjustments (1 192) (1 189) (1 192) (1 192)
Present value of holding company expenses (1 165) (1 165) (1 165) (1 165)
Fair value of outstanding equity compensation shares granted by subsidiaries on own shares (27) (24) (27) (27)
         
Group Equity Value
51 024 48 579 51 881 51 648