AVBOB Financial Statements 2018

90 NOTES TO THE REPORT OF THE INDEPENDENT ACTUARY FOR THE YEAR ENDED 30 JUNE 2018 (continued) 4. PUBLISHED REPORTING LIABILITY VALUATION METHODS AND ASSUMPTIONS • • • • • • • • • 30 June 30 June 2018 2017 The economic assumptions were based on the following: • Bond yield 9.7% 9.7% • Equity return 12.7% 12.7% • Cash 8.2% 8.2% • Property return 10.7% 10.7% The assumed future gross investment return before investment expenses is 11.2% p.a. (2017: 11.2% p.a.). In accordance with generally accepted practice, the best estimates of future expenses, mortality, morbidity and persistency are largely based on recent past experience rather than being an attempt to predict the future course of these variables. The most recent persistency investigation was for the period 1 January 2017 to 31 December 2017. The mortality experience related to the period 1 January 2017 to 31 December 2017. For policies under which regular annual premium increases are granted the actuarial liabilities were determined allowing for assumed future premium escalations where such allowance resulted in higher policyholder liabilities. The actuarial liabilities were valued on bases which were consistent with the asset values, using the Financial Soundness Valuation method, in accordance with the requirements of the Long-term Insurance Act of 1998, and SAP 104 of the Actuarial Society of South Africa (ASSA), as follows: The assumptions regarding future experience are based on best estimates suitably adjusted to provide safety margins according to the requirements of SAP 104 of the ASSA. Discretionary margins have been held to prevent the premature recognition of profits. The best estimate assumptions and discretionary margins will be adjusted from time to time to reflect changes in the underlying experience and in the profitability of the portfolio with due regard being given to the solvency position of the business. The margins amounted to R2 963,3 million at 30 June 2018. For life assurance and assistance benefits the actuarial liabilities were stated at the present value of expected benefit payments and expenses less the present value of expected future premium receipts. For policies for which the benefits payable on death are increased each year with the addition of bonuses, future bonuses were allowed for at the latest declared rates. The allowance for bonuses is consistent with policyholder reasonable benefit expectations. For savings policies and savings benefits where the value of the policy increases each year with discretionary bonuses the actuarial liabilities were stated at the value of the total investment account balances per the financial statements. Bonus smoothing reserves were established in line with the Society’s current profit distribution philosophy. The provision for expenses (before adding margins) is based on the Society’s current experience. Costs per unit of benefit are assumed to escalate at 7.0% (2017: 7.0%) per annum in future. The experience will be monitored and adjustments made as and when necessary. Allowance was made in the assumptions for the assumed future deterioration in mortality experience due to HIV/AIDS. The AIDS assumptions have been determined using models supplied by the ASSA. Although the Society is currently not paying tax in the policyholder fund, the policyholder liabilities have been determined on a basis net of tax. 90