notice of the annual general meeting - medipos20190529083932 am) 4339 medip… · 112% in 2016 to...

Summarised Financial Statements as at 31 December 2018

Notice of the Annual General Meeting to be held on 25 June 2019

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MEDiPOS MEDICAL SCHEME

Notice to all membersNOTICE IS HEREBY GIVEN THAT THE ANNUAL GENERAL MEETING OF MEDiPOS MEDICAL SCHEME WILL BE HELD ON TUESDAY, 25 JUNE 2019 AT 11:00 AT THE NATIONAL POST CENTRE, NCC, GROUND FLOOR, 497 SCHUBART STREET, PRETORIA.

AGENDA

1. Welcome and apologies

2. ConfirmationofminutesTo confirm the minutes of the MEDiPOS Medical Scheme Annual General Meeting (AGM) held on 26 June 2018.

3. AdoptionofreportandaccountsTo receive and adopt the report of the Board of Trustees, as well as the auditor`s report and summarised financial statements for the year ended 31 December 2018.

4. AppointmentofauditorsTo appoint the auditors for the 2019 financial year.

5. AnyotherbusinessTo transact other business as may, in terms of the rules, be transacted at an AGM.

Please note: Notice of any motion to be placed before the AGM must reach the Principal Officer not later than seven days prior to the date of the meeting.

By order of the Board of Trustees

FRANCINA MOSOEUPRINCIPAL OFFICER

Notice to all members

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MEDiPOS MEDICAL SCHEMEMinutes of the Annual General Meeting

Minutes of the Annual General Meeting MINUTES OF THE MEDiPOS MEDICAL SCHEME ANNUAL GENERAL MEETING HELD ON TUESDAY, 26 JUNE 2018 AT 10:00 AT THE NATIONAL POST CENTRE, NCC, GROUND FLOOR, 497 SCHUBART STREET, PRETORIA CENTRAL

PRESENT:

150 members represented in person, 42 valid proxies received, Trustees and representatives from MMI Health and NMG.

APOLOGIES:

Mr David Galloway Member-elected TrusteeMr Robert Serage Member-elected Trustee

1. WELCOME AND APOLOGIES

The Chairperson opened the meeting and welcomed those present. A special word of welcome was directed to the members of the Board of Trustees and representatives from MMI Health and NMG. There being a quorum present, the Chairperson confirmed that the meeting was duly constituted.

The Chairperson advised members that the Principal Officer’s office received a total of 42 valid proxies from members who were not able to attend in person, and who will be recorded as being represented by proxy.

2. MINUTES OF THE PREVIOUS ANNUAL GENERAL MEETING (AGM) HELD ON 27 JUNE 2017

The minutes of the previous AGM held on 27 June 2017, having been circulated, was taken as read and unanimously adopted.

3. ADOPTION OF REPORT AND ACCOUNTS

The report of the Board of Trustees, the report of the external auditors and the summarised annual financial statements for the year ending 31 December 2017, having been circulated, was taken as read and adopted.

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MEDiPOS MEDICAL SCHEME Minutes of the Annual General Meeting

The Chairperson commented on the following:

ff The Scheme continued with its commitment to providing its members with appropriate healthcare funding without compromising on the quality of care or services in the current circumstances. The Board of Trustees continued to steer the Scheme through sound ethical governance processes to ensure the pursuit of service excellence in the provision of medical scheme cover for members of the Scheme.

ff The various sub-committees that added further impetus to the Scheme’s best practice governance principles included:

ff ffthe Audit and Risk Committee;ff ffthe Investment Committee;ff ffthe Operations Committee;ff ffthe Clinical Risk Committee; andff ffthe Marketing Committee.

ff The individuals participating in these committees provided expert insight and guidance on the activities of the Scheme, while maintaining the best interests of members.

ff The Scheme employed the services of independent experts for independent advice and review of the Scheme’s performance.

ff MEDiPOS ended the 2017 financial year in a sound financial position despite the increased healthcare deficits incurred and the ongoing industry challenges affecting most medical schemes. However, as at 31 December 2017, all three options were in a net healthcare deficit position with the total healthcare deficit amounting to R43 502 640. This represented 7.93% (2017: 9.9%) of the aggregated contributions of the Scheme. The Trustees have noted the net healthcare deficit and would continue monitoring the performance of the Scheme, while making appropriate interventions during the annual benefit review process.

ff The Scheme’s solvency ratio as at 31 December 2017 was 95.70% compared to the statutory minimum requirement of 25%, despite the fact that the Scheme had been reflecting an operational deficit since 2014.

ff The Trustees were keeping abreast of external market developments and the pending National Health Insurance, allowing them to proactively plan for any impact on the Scheme.

ff Membership of the Scheme increased by 4.8% over the period January to December 2017. The total number of members as at the end of December 2017 was 13 683 compared to 13 056 at the end of December 2016. The average age of beneficiaries and pensioner ratio remained constant at 36 years and 11% respectively.

ff The Board of Trustees approved contribution increases for 2017 at 11.95% across all three options. This was necessary in order to continue providing members with better value for money and to ensure that the Scheme remained sustainable in the long term.

3. ADOPTION OF REPORT AND ACCOUNTS (continued)

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No significant changes were made to the benefit sub-limits except for the introduction of a pharmacy network and an in-lieu-of-hospitalisation benefit.

ff Due to numerous complaints received from members on how contribution increases and benefits were determined, the Board arranged with the Principal Officer and Scheme actuaries to provide a presentation, which would be discussed in detail under agenda item 6.

ff The Scheme discontinued personal medical spending accounts with effect from 1 January 2013 and any amounts owed to members due to the unsuccessful savings

pay-outs had been invested in a separate call account with Standard Bank at a rate of 6.25% per year. Following the constitutional court ruling in favour of Genesis Medical Scheme, the Council for Medical Schemes (CMS) issued Circular 56 of 2017, which confirmed that savings account liabilities did not require to be treated differently from any other liabilities of a medical scheme and that the Scheme was the holder of the funds. At a Board of Trustees meeting held on 23 November 2017, the Trustees agreed to apply the prescription rule and the unpaid savings balances were written back to income.

4. APPOINTMENT OF THE EXTERNAL AUDITORS

The Board engaged the services of KPMG Inc. auditors for the 2017 financial year, as approved by the members at the previous AGM. In addition, the Board decided that a formal tender process would be followed for the appointment of the Scheme’s external auditors for the 2018 financial year. Subsequently, a tender task team, comprising the Principal Officer and two Trustees and an adjudication team, comprising the Scheme’s Audit and Risk Committee, were formed to execute this task.

The following tender process was followed:ffconsultation with the CMS;ffexpression of interest was sent to the CMS’ accredited audit firms;ffrequest for proposals (RFPs) was sent to all interested bidders;ffthe evaluation of RFPs was done in two phases;

f� phase 1: paper evaluation performed by the task team; andf� phase 2: presentations by shortlisted bidders were made to the adjudication team.

Once both phases were completed and the evaluation criteria had been applied, a recommendation was made to the Board of Trustees regarding the preferred bidder, as well as the reserve bidder. After careful consideration of the evaluation process and the recommendation from the two teams, the Board agreed to propose to the AGM that PricewaterhouseCoopers (PwC) be appointed as the Scheme’s external auditors for the ensuing year. The members of the Scheme approved the appointment of PwC as the Scheme’s external auditors for 2018, as recommended by the Board of Trustees.

Minutes of the Annual General Meeting

3. ADOPTION OF REPORT AND ACCOUNTS (continued)

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5. REMUNERATION OF TRUSTEES

The Chairperson informed the members that the remuneration of Trustees was due for an annual review and the Board noted the recommendation from the Remuneration Committee for a 3.8% increase (consumer price index as at 31 March 2018) to be applied. However, with due cognisance of the Scheme’s current financial position, the Board agreed that no increase would be applied to the Trustees remuneration for the next financial year (2018/ 2019).

6. OTHER BUSINESS

The Chairperson noted that the Principal Officer had been notified of one additional matter to be discussed under agenda item 6.1, as required by the rules of the Scheme.

6.1 Contributionincreasesandbenefitchanges The Principal Officer informed the meeting that several enquiries had been received from

members in relation to how contribution increases were calculated, as well as proposals on how contributions could be kept as low as possible. The Principal Officer provided the members with a presentation outlining the Scheme’s current financial position and highlighted the following salient points:

ff The Scheme was established in 1994 as a restricted medical scheme for employees and pensioners of the South African Post Office (SAPO) and its subsidiaries, and was registered with the CMS in terms of the Medical Schemes Act 131 of 1998. The Medical Schemes Act governed the CMS and the Registrar, to whom the Scheme reports, the operations and finances of the Scheme, as well as the relationship between medical schemes and its beneficiaries and sets out the duties of the Board of Trustees of medical schemes pertaining to governance issues, inclusive of the handling of complaints and appeals;

ff The Scheme’s registered rules were available on the SAPO intranet and the Scheme’s website at www.medipos.co.za and complied with the criteria set by the Medical Schemes Act;

ff The Scheme had an independent Board of Trustees comprising five (5) member-elected Trustees and five (5) employer-appointed Trustees, who served a three-year term of office. There are various sub-committees appointed by the Board, who offered expertise and support to the Board of Trustees;

ff The Scheme has shown steady growth and reflected a membership base of 13 706 and 13 374 dependants as at the end of May 2018. The average age of the principal members was 50 years and beneficiaries was 36.4 years with the pensioner ratio currently at 11%;

ff Currently the Scheme has incurred a deficit of R73 million for 2018 year to date, which was mainly attributed to the claims expenditure exceeding the contribution income received. In addition to this, there were non-healthcare costs such as administration fees, Trustee travelling, etc., which increased the deficit substantially.


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ff The Scheme utilised the investment income on an annual basis as a means to reduce the deficits incurred;

ff The Scheme’s reserves had been steadily declining year on year and have reduced from 112% in 2016 to 73% in 2018 and although it was above the 25% legislated requirement, this declining trend was of major concern;

ff In light of the fact that SAPO employees had not received regular annual salary increases, the Scheme endeavoured to keep the annual contribution increases as low as possible without having to compromise on the benefits offered to beneficiaries. Over the last four years, more than 50% of required contribution increases were subsidised by the Scheme’s reserves;

ff The major claim cost drivers were hospitalisation and associated services provided in hospital. Members were not making use of their general practitioners and a high prevalence of specialist consultations was noted;

ff One of the main challenges facing the Scheme currently was fraud, waste and abuse, whereby members were colluding with service providers with the intention of defrauding the Scheme. It was extremely difficult to identify fraudulent claims and should any member be implicated in such activity, legal steps would be taken against them. Members were encouraged to check their claim statements regularly and to raise any enquiries they have with the Scheme’s Administrator or the Principal Officer’s office; and

ff The Board of Trustees considered all the above factors, as well as medical inflation when determining the annual contribution increases, in order to ensure that the Scheme remained financially sustainable.

The Chairperson stated that it was important for members to have a good understanding of the factors that impacted on the benefit review process and the strategies that the Scheme may implement in order to mitigate the Scheme’s current financial position. It was agreed that the presentation would be forwarded to members who attended the AGM and members were requested to respond with any further suggestions that the Board of Trustees could take into consideration.

6.2 Memberwish-list The Chairperson advised members to submit any requests they have for a wish-list to the Principal Officer prior to the end of August 2018, which would be considered by the Board of Trustees as part of the benefit review process.


6. OTHER BUSINESS (continued)

6.1 Contributionincreasesandbenefitchanges(continued)

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MEDiPOS MEDICAL SCHEME Minutes of the Annual General Meeting

7. CLOSING

There being no further questions from the floor and no further business for discussion, the Chairperson thanked the members for their continued support to the Scheme and attendance and declared the meeting closed.

Approvedandsignedonthis___________dayof___________________________________

___________________________________CHAIRPERSON

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As Chairperson of the Board of Trustees of MEDiPOS Medical Scheme, I have pleasure in presenting the Board’s report for the year ended 31 December 2018.

The Scheme continued with its commitment to providing its members with appropriate healthcare funding, without compromising on the quality of care or services. The Board continued to steer the Scheme through sound, ethical governance processes to ensure the pursuit of service excellence in the provision of medical cover for members of the Scheme.

There are various sub-committees that add further impetus to the Scheme’s best practice governance principles. These include the Audit and Risk Committee, the Investment Committee, the Clinical Risk Committee, the Marketing Committee, the Operations Committee and the Remuneration Committee. The individuals participating in these committees provide expert insight and guidance on the activities of the Scheme, while upholding the best interests of the members.

The Scheme also employs the services of independent experts for independent advice and review of the Scheme’s performance.

Financial performanceMEDiPOS ended the 2018 financial year in a sound financial position, despite ongoing industry challenges affecting most medical schemes. Another important factor influencing this is the increase in the number of fraudulent claims submitted by members and healthcare providers.

The Scheme experienced a substantial increase in hospital admissions for mental health disease and excessive claims from allied health professionals in relation to these mental health admissions. Investigations and recovery initiatives are ongoing.

Due to the financial position of the South African Post Office (SAPO), contributions have not always been received after three days of it becoming due. The Board of Trustees (BOT) has prioritised this matter and informed the employer of its fiduciary responsibilities to act and to request a payment plan for the receipt of future contributions in terms of the Act.

The Trustees agreed that disinvestments would be made from the Scheme’s investments as and when necessary, in order to bridge any cash-flow shortfall that may arise so that members and service providers are not unduly negatively impacted. The Trustees continue to proactively engage with SAPO regarding the payment of contributions.

As at 31 December 2018, all three options reflected a net healthcare deficit. The total healthcare deficit amounted to R73 625 370. The Trustees have noted the net healthcare deficits and will continue to monitor the performance of the Scheme while making appropriate interventions during the annual benefit review process.

Chairperson’s Report


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MEDiPOS MEDICAL SCHEME Chairperson’s Report

Financial performance (continued)The Scheme’s solvency ratio (i.e. accumulated funds as a percentage of total contributions) as at 31 December 2018 was 75.12% and continues to compare favourably against the statutory minimum of 25%.

The Trustees are also keeping abreast of external market developments and the pending National Health Insurance scheme, allowing us to proactively plan for any impact on the Scheme.

MembershipMembership increased by 1.49% during the period under review from 13 683 at the end of December 2017 to 13 887 at the end of December 2018. The average age of beneficiaries remains at 36 and the pensioner ratio increased from 11% to 12.8% over the same period.

Contribution increases and benefit changesThe Board approved contribution increases for 2018 at a rate that is close to inflation, combined with conservative benefit improvements. This was done to continue providing members with better value for money and to ensure that the Scheme remains sustainable in the long term.

The contribution increase for 2018 was 9.4% across all three options (Option A, Option B and Option C). The benefit sub-limits increased with 5.7% across all three options and an additional 1% increase on the day-to-day limit for Option B. The Scheme also introduced a preventative care benefit across the options through a pharmacy and to be paid from the major medical expense benefit. Vote of appreciationI would like to express my thanks to my fellow Trustees, the members of the various sub-committees of the Board of Trustees, the Principal Officer, Ms Mosoeu, her assistant, Ms Masilela, the Scheme`s investment managers and consultants, the actuaries, the auditors, the Administrator, managed care organisations, the Scheme`s other service providers and you, our members, for your support during the past year.

Chairperson’s Report (continued)

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ConclusionThe Board is confident that the Scheme will continue to provide its members with excellent and affordable healthcare cover and encourages you and your dependants to continue to manage your benefits responsibly.

The Board expresses its appreciation to all members for their contribution and ongoing active participation in the Scheme. We look forward to yet another successful year for the Scheme in which our members and their dependants will enjoy good health.

ANDREW NONGOGOCHAIRPERSON

Chairperson’s Report (continued)


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Contents

Report of the Board of Trustees 12Independent auditor’s report 32-33Summarised statement of financial position 34Summarised statement of comprehensive income 35Summarised statement of changes in funds and reserves 36Summarised statement of cash flows 37-38Notes to the summarised financial statements 39-75

Summarised financial statements

for the year ended 31 December 2018

Registration number: 01548

The reports and statements set out below comprise the summarised financial statements presented to the members:

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Report of the Board of Trustees MEDiPOS MEDICAL SCHEME

Report of the Board of TrusteesThe Board of Trustees hereby presents its report for the year ended 31 December 2018.

The summarised financial statements have been extracted from the audited financial statements approved by the Board of Trustees on 24 April 2019.

Registrationnumber:01548

1. MANAGEMENT

1.1 BoardofTrustees(BOT)

The names of the Trustees in office during the year under review and up to the date of signing this report are:

Employerappointed A Nongogo Elected as Chairperson - 19 April 2018 N Ngubane Elected as Vice-Chairperson - 19 April 2018 K Rapoo D John S Sontange

Memberelected M Mpata K Mokgohloa R Serage D Galloway B Thabane

1.2 PrincipalOfficer

MF Mosoeu South African Post Office State-owned Company Ltd First Floor, Room 1032 A & C C|o Sophie de Bryn & Jeff Masemola Streets Pretoria 0074

PO Box 2087 Corporate Shop 0074

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Report of the Board of TrusteesMEDiPOS MEDICAL SCHEME

1.3 Registeredofficeaddressandpostaladdress

SouthAfricanPostOfficeState-ownedCompanyLtd497 Schubart Street C|o Schubart and Jacob Mare Street Pretoria0002

1.4 Medicalschemeadministrator

MMIHealth(Pty)Ltd268 West Avenue PO Box 7400

Centurion Centurion Gauteng 0046 0157 Accreditation no. 13 1.5 Investmentmanagers

CoronationFundManagers(Proprietary)Limited7th Floor PO Box 44684MontClare Place ClaremontC|o Campground and Main Road 7735Claremont7735

Financial service provider number: 548

PrescientInvestmentManagement(Proprietary)LimitedPrescient House PO Box 31142The Terraces TokaiSteenberg Boulevard 7966Steenberg Office Park7966


NedgroupInvestments(Proprietary)Limited Nedbank Clocktower PO Box 1510Clocktower Precinct Cape TownV&A Waterfront 8000Cape Town 8001

1. MANAGEMENT (continued)

PO Box 2087 Corporate Shop 0074

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1.6 Auditor

KPMGInc.(contractended31May2018) KPMG Crescent Private Bag 985 Empire Road ParkviewParktown 21222193

PricewaterhouseCoopersInc.(appointed26June2018)5 Silo Square, Victoria & Alfred WaterfrontCape Town8002

1.7 Actuarialconsultants

NMGConsultantsandActuaries(Pty)Ltd411 Main Avenue PO Box 3075Ferndale RandburgRanburg 2125 2125

1.8 Managedcareservicesprovider

MetropolitanHealthRiskManagement(Proprietary)LimitedParc du Cap PO Box 4313Mispel Road Cape TownBellville 80007530

Accreditation no. MCO26

1.9 Oncologynetwork

IndependentClinicalOncologyNetwork(Proprietary)Limited(ICON)14 Mispel Road PO Box 15811Bellville Panorama7530 7500

1. MANAGEMENT (continued)

PO Box 2799 Cape Town 8000

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2. DESCRIPTION OF THE MEDICAL SCHEME

The Scheme is a not-for-profit, closed medical scheme, registered in terms of the Medical Schemes Act 131 of 1998 (the Act), as amended.

2.1 Benefits

The Scheme offers three benefit options to employees and retirees of the participating employer in the Scheme. These are:

ff MEDiPOS Option A;ff MEDiPOS Option B; andff MEDiPOS Option C.

3. INVESTMENT STRATEGY OF THE MEDICAL SCHEME

The Scheme’s investment strategy is to maximise the return on its investments on a long- term basis at minimum risk. The investment strategy takes into consideration restrictions both imposed by legislation and by the BOT. The strategy is reviewed annually, taking into consideration compliance with the Act, the risk returns of the various investment instruments and surplus funds available. The Scheme’s Investment Committee, which comprises Trustees and independent members, meet to consider the Scheme’s investment strategy and to monitor investment performance and compliance. The committee’s recommendations are considered and approved by the BOT.

The Investment Committee is responsible for all the investment decisions and part of its strategy is to ensure that:ff the Scheme remains liquid;ff investments are placed at minimum risk at the best possible rate of return;ff investments are made in compliance with the Regulations of the Act;ff a risk assessment is performed with feedback to the BOT with recommendations on the

risks identified; and ff investing activities are only conducted with approved financial institutions.

The Scheme invested in bonds, equities, and cash instruments during 2018. This policy is reviewed annually, taking into consideration compliance with the Act, the risk and returns of the various investment instruments and surplus funds available. Realised gains and losses, as well as unrealised gains and losses, are reflected in the summarised statement of comprehensive income in profit and losses.

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4. MANAGEMENT OF INSURANCE RISK

The primary insurance activity carried out by the Scheme assumes the risk of loss from members and their dependants that are directly subject to the risk. These risks relate to the health of Scheme members. As such, the Scheme is exposed to the uncertainty surrounding the timing and severity of claims under the contract. The Scheme also has exposure to market risk through its insurance and investment activities.

The Scheme manages its insurance risk through benefit limits and sub-limits, approval procedures for transactions that involve pricing guidelines, pre-authorisation, case management and service provider profiling. These methods for mitigating insurance risk are reviewed annually and amended for changes in the Act, as amended and/or changes in the Scheme’s ability to accept insurance risk.

Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The Scheme has developed its insurance underwriting strategy to diversify the type of insurance risks accepted and within each of these categories of risk to achieve a sufficiently large population of risks to reduce the variability of the expected outcome.

Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, geographical location and demographics of members covered.

In addition, further uncertainty is introduced via the Scheme's exposure to the risk of adverse member movements. Different plans are priced according to an assumed membership profile per option. Adverse membership movement will invalidate this assumption. The Scheme has partly mitigated this risk by allowing for some adverse membership movement in the pricing of the lower options.

The BOT frequently assesses the necessity to enter into risk transfer arrangements with the assistance of the Scheme's actuarial consultants.

The Scheme uses several methods to assess and monitor insurance risk exposures both for individual types of risks insured and overall risks. The principal risk is that the frequency and severity of claims is greater than expected.

Insurance events are by their nature random and the actual number and size of events during any one year may vary from those estimated using established statistical techniques.

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5.1 ResultsoftheScheme

The results of the Scheme’s operations for the year under review at 31 December 2018 are set out in the summarised financial statements and the Trustees believe no further clarification is required.

Option A, which consists of pensioner members and Option B, which is the mid-range option and largest by membership, as well as Option C, which consists mainly of entry-level and low-income members, were all costed to incur net healthcare deficits in 2018. These deficits would be funded from the favourable reserve position of the Scheme, as the contribution increases required to achieve net healthcare surpluses on these options were considered to be too onerous for members.

Option A’s results were ahead of budget whilst Option B and Option C’s results were worse than budgeted. As a result, the Scheme’s overall results were worse than budget. The driver of this adverse experience is as a result of a different member mix on the different options compared to budget, which resulted in lower than expected members and consequently contribution income on Option A, and higher than expected members and claims on Option B and Option C.

The adverse claims experience was exacerbated by a substantial increase in hospital admissions for mental health disease and excessive claims from allied health professionals in relation to these mental health admissions. Claims relating to these providers were blocked and placed on hold and the value of R5 930 279 was recovered in 2019. Investigations and further recovery initiatives are ongoing.

5. REVIEW OF THE ACCOUNTING PERIOD’S ACTIVITIES

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5.2 Reviewofoperations

Operationalactivities-2018 2018 2018 2018 2018 2017Option A Option B Option C Total Total

Number of members at year-end 1 598 9 282 3 007 13 887 13 683Average number of members for the year 1 629 9 212 2 888 13 729 13 513Number of beneficiaries at year-end 2 085 19 290 5 990 27 365 27 155Average number of beneficiaries for the year 2 132 19 253 5 776 27 160 26 898Dependant ratio 0.3 1.1 1.0 1.0 1.0Average age of beneficiaries 71 33 31 36 36Pensioner ratio 82.3% 8.8% 4.5% 12.8% 11%Average contributions per member per month R 6 945 R 3 579 R 1 882 R 3 621 R 3 384Average contributions per beneficiary per month R 5 307 R 1 712 R 941 R 1 831 R 1 700Relevant healthcare expenditure per member per month R 7 158 R 4 104 R 2 210 R 4 068 R 3 468Relevant healthcare expenditure per beneficiary per month R 5 469 R 1 964 R 1 105 R 2 056 R 1 742Non-healthcare expenditure per member per month R 200 R 200 R 200 R 200 R 184Non-healthcare expenditure per beneficiary per month R 153 R 96 R 100 R 101 R 92Average managed care: Managed services per member per month R 54 R 54 R 54 R 54 R 46Average members’ funds per member at year-end N/A N/A N/A R 33 185 R 40 500Relevant healthcare expenditure as a percentage of net contributions 103.1% 114.7% 117.4% 112.3% 102.5%Managed care: Management services as a percentage of contributions 0.8% 1.5% 2.9% 1.5% 1.4%Non-health expenses as a percentage of contributions 2.9% 5.6% 10.7% 5.5% 5.4%Amount paid to Administrator N/A N/A N/A R 36 910 368 R 33 517 891 ff Administration fees (MMI

Health (Pty) Ltd) N/A N/A N/A R 27 970 050 R 26 037 210 ff Managed care fees

(Metropolitan Health Risk Management (Pty) Ltd) R1 058 875 R5 997 389 R1 884 054 R 8 940 318 R 7 480 681

Return on investments N/A N/A N/A 3.3% 7.3%

5. REVIEW OF THE ACCOUNTING PERIOD’S ACTIVITIES (continued)

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5.2 Reviewofoperations(continued)

Operationalactivities-2017 2017 2017 2017 2017Option A Option B Option C Total

Number of members at year-end 1 734 9 134 2 815 13 683Average number of members for the year 1 779 9 066 2 668 13 513Number of beneficiaries at year-end 2 285 19 258 5 612 27 155Average number of beneficiaries for the year 2 358 19 188 5 352 26 898Dependant ratio 0.3 1.1 1.0 1.0Average age of beneficiaries 71 33 31 36Pensioner ratio 76% 5% 2% 11%Average contributions per member per month R 6 385 R 3 288 R 1 710 R 3 384Average contributions per beneficiary per month R 4 817 R 1 554 R 852 R 1 700Relevant healthcare expenditure per member per month R 6 249 R 3 442 R 1 705 R 3 468Relevant healthcare expenditure per beneficiary per month R 4 715 R 1 626 R 850 R 1 742Non-healthcare expenditure per member per month R 184 R 184 R 184 R 184Non-healthcare expenditure per beneficiary per month R 139 R 87 R 92 R 92Average managed care: Managed services per member per month R 46 R 46 R 46 R 46Average members’ funds per member at year-end N/A N/A N/A R 40 500Relevant healthcare expenditure as a percentage of net contributions 97.9% 104.7% 99.7% 102.5%Managed care: Management services as a percentage of contributions 0.7% 1.4% 2.7% 1.4%Non-health expenses as a percentage of contributions 2.9% 5.6% 10.8% 5.4%Amount paid to Administrator N/A N/A N/A R 33 517 891ff Administration fees (MMI

Health (Pty) Ltd) N/A N/A N/A R 26 037 210ff Managed care fees

(Metropolitan Health Risk Management (Pty) Ltd) R 984 814 R 5 018 966 R 1 476 901 R 7 480 681

Return on investments N/A N/A N/A 7.3%


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5.3 Accumulatedfundsratio 2018R

2017R

The accumulated funds ratio is calculated on the following basis:

Total members’ funds per statement of financial position 460 841 102 554 157 382Less:

Revaluation reserve gain on available-for sale investmentsUnrealised gains on financial assets at fair value through profit and loss

(12 679 954) (28 958 640)

- (28 958 640)

(12 679 954) -

Accumulated funds per Regulation 29 of the Act 448 161 148 525 198 742

Gross contributions 596 597 582 548 775 999Accumulated funds ratio: (Reserve ratio) 75.12% 95.70%

The above calculation has been performed in terms of the formulae recommended by the Council for Medical Schemes (CMS). In terms of Regulation 29(2) of the Act, the Scheme must maintain accumulated funds expressed as a percentage of gross annual contributions for the accounting period under review, which may not be less than 25%.

5.4 Revaluationreserve

The revaluation reserve in the summarised statement of financial position reflects the net unrealised gains on the Scheme’s investment portfolios with Coronation Fund Managers (Pty) Ltd, Prescient Investment Management (Pty) Ltd and Nedgroup Investments (Pty) Ltd.

The Scheme adopted IFRS 9 during 2018. As a result thereof, the Scheme’s investments were classified as financial assets at fair value through profit and loss. The revaluation reserve was reclassified to the opening members’ funds.

5.5 Outstandingclaimsprovision

Movements in the outstanding risk claims provision are set out in Note 3 to the summarised financial statements. The accuracy of the provision was tested against subsequent settlements.

6. INVESTMENTS IN AND LOANS TO PARTICIPATING EMPLOYERS OF MEMBERS OF THE SCHEME AND TO OTHER RELATED PARTIES

The Scheme holds no direct investments in and has granted no loans to the participating employers of the Scheme or any other related parties. Refer to Note 8 to the summarised financial statements for related party disclosures. The investments in administrators form part


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of a pooled vehicle and the Scheme has been granted an exemption in this respect. Refer to Note 15 to the summarised financial statements for non-compliance disclosure.

7. FIDELITY COVER

The Scheme has a fidelity policy underwritten by Carmargue Underwriting Managers (Pty) Ltd. The sum insured is R75 million (2017: R75 million) and extends to the Trustees, Principal Officer and members of sub-committees of the BOT.

8. ACTUARIAL SERVICES

NMG Consultants and Actuaries (Pty) Ltd was consulted in the determination of the contribution and benefit levels, as well as the calculation of the incurred-but-not-reported (IBNR) provision.

9. COMMITTEES OF THE BOT

The BOT conducts the Scheme’s business with integrity by applying appropriate corporate governance policies and practices.

The Scheme has an independent BOT, which has established its own governance practices and committees that comply with the applicable governance and regulatory requirements. These committees fulfil key roles in ensuring good corporate governance.

The following committees are mandated by the BOT by means of written terms of reference as to their membership, authority and duties. These committees meet on a regular basis and when the need arises.

9.1 AuditandRiskCommittee

The committee met on the following four occasions during the course of the year:

5 April 201822 May 201821 August 201810 October 2018

The Principal Officer, the Administrator, internal auditors and the Scheme’s external auditor attend committee meetings and have unrestricted access to the Chairperson of the Audit and Risk Committee.

6. INVESTMENTS IN AND LOANS TO PARTICIPATING EMPLOYERS OF MEMBERS OF THE SCHEME AND TO OTHER RELATED PARTIES (continued)

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9.1 AuditandRiskCommittee(continued)

In accordance with the provisions of the Act, the primary responsibility of the committee is to assist the BOT in carrying out its duties relating to the Scheme’s accounting policies, internal control systems and financial reporting practices. Further objectives include ensuring that all material risks to which the Scheme is exposed, as identified by the BOT, are adequately managed. The external auditors and internal auditors report formally to the committee on critical findings arising from the audit.

The members of the committee are:

M Brown Chairperson and independent member (resigned 31 December 2018)M Sukati Chairperson and independent member (appointed 3 April 2019)D Galloway TrusteeK Rapoo TrusteeL Radebe Member (appointed 14 March 2019)C Phillips MemberM Mncwabe Member (resigned 29 June 2018) The Audit and Risk Committee has reported that:

ff it has carried out its duties in terms of the Act, as amended and the BOT’s written Audit Committee charter;

ff the external auditors have confirmed their independence; ff the assurance provided by the Administrator has satisfied the Audit Committee that

associated risks have been considered and addressed; ff the assurances provided by the Administrator, the external auditors and the internal

auditors have satisfied the committee that internal controls are adequate and effective; and

ff it has reviewed the Scheme’s financial statements, reviewed the accounting policies, obtained assurances from the external auditors and recommended the adoption of the financial statements by the BOT for presentation to members.

9. COMMITTEES OF THE BOT (continued)

23


9.2 InvestmentCommittee

The primary responsibility of the committee is to assist the BOT in carrying out its duties relating to the review, formulation and implementation of the investment strategy of the Scheme.

The committee met on the following three occasions during the course of the year:

5 April 201811 July 201817 October 2018


D Galloway Chairperson and TrusteeA Nongogo TrusteeN Nugubane TrusteeD John TrusteeJ Erasmus MemberM Faasen Member

9.3 Clinical Committee

The primary responsibility of the committee is to assist the BOT in its responsibility for oversight of the Scheme’s various managed care programmes and to ensure that all clinical risks to which the Scheme is exposed, are identified and adequately managed.

The committee met on the following six occasions during the course of the year:

2 March 20184 May 201826 July 2018 (Clinical strategic workshop)27 July 201826 September 2018 (Review of benefits and contributions)16 November 2018


24


9.3 ClinicalCommittee(continued)


Dr M Mpata Chairperson and TrusteeK Rapoo TrusteeD Galloway Trustee (term of office expired 19 April 2018)B Thabane Trustee (appointed to committee 19 April 2018)MF Mosoeu Principal Officer

9.4 BenefitReviewCommittee(SpecialBOTMeeting)

The primary responsibility of the committee is to advise on new benefit and contribution structures.

The committee met on the following five occasions during the course of the year:

13 June 201812 July 201822 August 20186 September 201827 September 2018

The members of the committee are: A Nongogo Chairperson/TrusteeN Ngubane TrusteeK Rapoo TrusteeD John TrusteeS Sontange TrusteeK Mokgohloa TrusteeM Mpata TrusteeR Serage TrusteeD Galloway TrusteeB Thabane Trustee


25


9.5 MarketingCommittee

The primary responsibility of the committee is to assist the BOT to develop a marketing strategy for the Scheme in order to market the Scheme to the employees of the South African Post Office (SAPO).

The committee met on the following four occasions during the course of the year:

14 March 201822 May 201821 August 201811 October 2018


R Serage Chairperson/TrusteeB Thabane TrusteeM Mpata TrusteeK Mokgohloa TrusteeS Khumalo MemberM Fikizolo Member

9.6 OperationsCommittee

The primary responsibility of the committee is to assist the BOT on operational matters of the Scheme.

The committee met on the following two occasions during the course of the year:

6 April 201811 October 2018


R Serage Chairperson/TrusteeK Mokgohloa TrusteeA Nongogo TrusteeS Sontange TrusteeO Godlo MemberD Troskie MemberM Swart MemberJ Mokone MemberG Moore Member


26


10. MEETING ATTENDANCES

The following schedule sets out BOT meeting attendances and attendances by members of Board Sub-Committees.

Trustee/Sub-Committeemember BoardofTrustees

Audit andrisk

committee

Investmentcommittee

Clinical committee

A B A B A B A B

TrusteesA Nongogo (Chairperson) 5 5 3 3

N Ngubane (Vice-Chairperson) 5 5 3 3

K Rapoo 5 4 4 3 6 6

D John 5 4 3 3

S Sontange 5 4

M Mpata 5 4 6 6

K Mokgohloa 5 5

R Serage 5 5

D Galloway 5 5 4 4 3 3 1 2

B Thabane 5 5 5 4

PrincipalOfficerMF Mosoeu (Principal Officer) 5 5 4 3 3 2 6 6

Sub-CommitteemembersM Brown (Chairperson of the Audit and Risk Committee)

1 0 4 4

C Phillips 4 3

M Mcwabe 2 0

J Erasmus 3 3

M Faasen 3 1

O Godlo

D Troskie

M Swart

J Mokone

G Moore

S Khumalo

M Fikizolo

A - Total possible number of meetings could have attendedB - Actual number of meetings attended

27


10. MEETING ATTENDANCES (continued)


Trustee/Sub-Committeemember Benefitreview

committee

Operationscommittee

Marketingcommittee

A B A B A B


N Ngubane (Vice-Chairperson) 5 5

K Rapoo 5 5

D John 5 4

S Sontange 5 5 2 2

M Mpata 5 4 3 2

K Mokgohloa 5 5 2 2 3 3

R Serage 5 5 2 2 4 4

D Galloway 5 5

B Thabane 5 5 4 4

PrincipalOfficerMF Mosoeu (Principal Officer) 5 4 2 2 4 4


C Phillips

M Mcwabe

J Erasmus

M Faasen

O Godlo 2 2

D Troskie 2 2

M Swart 2 1

J Mokone 2 1

G Moore 2 1

S Khumalo 4 2

M Fikizolo 4 3


28


10. MEETING ATTENDANCES (continued)


Trustee/Sub-Committeemember Total meeting

2018

Actualnumberofmeetings

attended 2018

Total meetings

2017

Actualnumberofmeetings

attended 2017A B A B


N Ngubane (Vice-Chairperson) 13 13

K Rapoo 20 18 19 16

D John 13 11

S Sontange 12 11

M Mpata 19 16 11 11

K Mokgohloa 15 15 5 5

R Serage 16 16 15 15

D Galloway 18 19 16 15

B Thabane 19 18 9 7

PrincipalOfficerMF Mosoeu (Principal Officer) 29 26 26 26


5 4 5 5

C Phillips 4 3 4 4

M Mcwabe 2 0 5 3

J Erasmus 3 3 1 1

M Faasen 3 1 1 1

O Godlo 2 2 2 2

D Troskie 2 2 2 2

M Swart 2 1 2 2

J Mokone 2 1 2 1

G Moore 2 1 2 2

S Khumalo 4 2 4 2

M Fikizolo 4 3 4 3


29


11. NON-COMPLIANCE WITH THE MEDICAL SCHEMES ACT 131 OF 1998

The CMS stipulated, via Circular 11 of 2006, that all cases of non-compliance with the Act should be disclosed in the financial statements. The following stipulations were not complied with during the year:

11.1 ContraventionofSection35(8)(c)oftheMedicalSchemesAct131of1998,asamended

Nature and impactThe Scheme holds shares indirectly in MMI Holdings Ltd and Sanlam Ltd. This in contravention of Section 35(8)(c) of the Act, as the Scheme is not allowed to hold shares of the holding company of its administrator and other administrators.

Causes of the non-complianceThe Scheme invests in a pooled product and does not have control over the underlying assets.

Corrective course of actionThe Scheme received an exemption from the CMS on 13 April 2018, valid for a period of 12 months, from complying with Section 35(8)(c) insofar as it relates to investments placed with asset managers who invest on behalf of the Scheme and where such investment choices are not influenced by the Scheme.

11.2ContraventionofSection26(7)oftheMedicalSchemesAct131of1998,as amended Nature and impact

In terms of Section 26(7) of the Act, all contributions shall be paid to a medical scheme not later than three days after payment thereof becoming due. An amount of R36 560 005 was still outstanding after it became due. This may pose a financial risk to the Scheme due to non-payment, as well as a loss of interest on these amounts to the Scheme.

Causes of the non-complianceDue to the financial position of SAPO, contributions have been received after three days of it becoming due. Certain pensioners also paid late due to unsuccessful debit order deductions. As a result, the Scheme is in contravention of Section 26(7). Corrective course of actionThe BOT has prioritised this matter and there are continuous engagements with the Post Office to ensure that contributions are received timeously.

30


11.2ContraventionofSection26(7)oftheMedicalSchemesAct131of1998,as amended(continued)

Corrective course of action (continued)The Board will continue monitoring the payments until the issue is resolved. The Board resolved that disinvestments will be made as and when necessary from the Scheme’s investments in order to bridge any cash-flow shortfall that may arise, and that members as well as service providers, will not be prejudiced in any way.

11.3ContraventionofSection33(2)oftheMedicalSchemesAct131of1998,as amended

Nature and impactIn terms of Section 33(2) of the Act, each benefit option shall be self-supporting in terms of membership and financial performance and will be financially sound. As at 31 December 2018, all three options were in a net healthcare deficit position, thereby contravening Section 33(2) of the Act.

Causes of the non-complianceOption A, which consists of pensioner members and Option B, which is the mid-range option and largest by membership, as well as Option C, which consists mainly of entry-level and low-income members, were all costed to incur net healthcare deficits in 2018. These deficits would be funded from the favourable reserve position of the Scheme as the contribution increases required to achieve net healthcare surpluses on these options were considered to be too onerous for members. Option A’s results were ahead of budget whilst Option B and Option C’s results were worse than budgeted. As a result, the Scheme’s overall results were worse than budget. The driver of this adverse experience is as a result of a different member mix on the different options compared to budget, which resulted in lower than expected members,

11. NON-COMPLIANCE WITH THE MEDICAL SCHEMES ACT 131 OF 1998 (continued)

Nethealthcareresult Deficitfortheyear

Option A (8 066 200) (6 502 467)

Option B (80 257 931) (71 335 561)

Option C (18 296 773) (15 478 251)

(106 620 904) (93 316 279)

31


Causes of the non-compliance (continued)

and consequently contribution income on Option A, and higher than expected members and claims on Option B and Option C. The adverse claims experience was exacerbated by a substantial increase in hospital admissions for mental health disease and excessive claims from allied health professionals in relation to these mental health admissions. Investigations and recovery initiatives are ongoing. Corrective course of actionThe Trustees have noted the net healthcare deficits and will continue to monitor the performance of the Scheme and they will make appropriate interventions during the annual benefit review process together with corrective action to be taken to correct the performance in the ensuing three to five years.

11.4ContraventionofSection36(10)oftheMedicalSchemesAct

Nature and impactIn terms of Section 36(10) of the Act, the Audit Committee must have a minimum of at least five members, of which the majority shall be independent members. The Audit Committee of the Scheme had a vacancy on the Audit Committee at year-end, which resulted in it being non-compliant with the minimum requirements of five members for the composition of an Audit Committee.

Causes for the failureThe structure of the Scheme’s Audit Committee is correct, but a vacancy existed at year-end for an independent member.

Corrective actionThe Board of Trustees ratified the appointment of a fifth independent member at a meeting held on 14 March 2019.

12. EVENTS AFTER THE REPORTING DATE

No material facts or circumstances have arisen between the date of the summarised statement of financial position and the date of this report which affect the financial position or financial performance of the Scheme as reflected in these summarised financial statements.


11.3 Contravention of Section 33(2) of the Medical Schemes Act 131 of 1998, asamended(continued)

Summarised financial statements MEDiPOS MEDICAL SCHEME

32

Independent Auditor’s Report on Summarised FinancialStatementsTO THE MEMBERS OF MEDiPOS MEDICAL SCHEME

Opinion

The summarised financial statements, as set out on pages 34 to 75, which comprise the summarised statement of financial position as at 31 December 2018, the summarised statement of comprehensive income, the summarised statement of changes in funds and reserves, the summarised statement of cash flows for the year then ended and related notes, are derived from the audited financial statements of MEDiPOS Medical Scheme (the Scheme) for the year ended 31 December 2018.

In our opinion, the accompanying summarised financial statements are consistent, in all material respects, with the audited financial statements, in accordance with the content and disclosure requirements of Circular 6 of 2013 issued by the Council for Medical Schemes. Summarised Financial Statements

The summarised financial statements do not contain all the disclosures required by International Financial Reporting Standards and the Medical Schemes Act of South Africa. Reading the summarised financial statements and the auditor’s report thereon, therefore, is not a substitute for reading the audited financial statements and the auditor’s report thereon. The summarised financial statements and audited financial statements do not reflect the effects of events that occurred subsequent to the date of our report on the audited financial statements.

The Audited Financial Statements and Our Report Thereon

We expressed an unmodified audit opinion on the audited financial statements in our report dated 24 April 2019. That report also includes the communication of key audit matters.

Trustees’ Responsibility for the Summarised Financial Statements

The Trustees are responsible for the preparation of the summarised financial statements in accordance with the content and disclosure requirements of Circular 6 of 2013 issued by the Council for Medical Schemes.

Summarised financial statementsMEDiPOS MEDICAL SCHEME

33

Auditor’s Responsibility

Our responsibility is to express an opinion on whether the summarised financial statements are consistent, in all material respects, with the audited financial statements, based on our procedures, which were conducted in accordance with International Standards on Auditing (ISA) 810 (Revised), Engagements to Report on Summary Financial Statements.

Report on Other Legal and Regulatory Requirements

As required by the Council for Medical Schemes’ Circular 38 of 2018, Audit Tenure, we report thatPricewaterhouseCoopers Inc. has been the auditor of MEDiPOS Medical Scheme for 1 year.

The engagement partner, Nicolette Jacobs, has been responsible for MEDiPOS Medical Scheme’s audit for 1 year.

PricewaterhouseCoopersInc.Director: NA JacobsRegistered AuditorCape Town

13 May 2019

Independent Auditor’s report TOTHEMEMBERSOFTHEMEDiPOSMEDICALSCHEME(continued)

34


Summarised statement of financial positionat 31 December 2018

2018 2017Notes R R

ASSETS

Non-currentassets 460 825 341 551 713 740

Financial assets at fair value through profit and loss

2

460 825 341 -

Available-for-sale investments 2 - 551 713 740

Currentassets 48 713 956 44 948 915

Insurance and other receivables 48 388 548 44 256 556

Cash and cash equivalents 325 408 692 359

Total assets 509 539 297 596 662 655

FUNDS AND LIABILITIES

Members’funds 460 841 102 554 157 381

Accumulated funds 460 841 102 525 198 741

Revaluation reserve: Available-for-sale investments - 28 958 640

Currentliabilities 48 698 195 42 505 273

Insurance and financial liabilities 28 332 087 19 414 156

Outstanding claims provision 3 20 366 108 23 091 117

Totalfundsandliabilities 509 539 297 596 662 655

MEDiPOS MEDICAL SCHEMENotes to the summarised financial statements

35


Summarised statement of comprehensive incomefor the year ended 31 December 2018

2018 2017Notes R R

Riskcontributionincome 4 596 597 582 548 775 999

RelevanthealthcareexpenditureNet claims incurred (670 222 952) (562 428 829) Risk claims incurred 6 (662 691 577) (555 702 243) Managed healthcare services (8 940 318) (7 480 681) Third-party claim recoveries 1 408 943 754 095

Grosshealthcareresult (73 625 370) (13 652 830)

Administration expenses (33 039 680) (29 666 941)Net impairment gain/(losses) on healthcare receivables 44 146 (182 869)

Nethealthcareresult (106 620 904) (43 502 640)

Otherincome 37 243 778 40 347 565 Investment income 5 37 243 778 35 967 993 Realised gain on disposal of available-for-sale

investments 2 - 1 995 419 Sundry income - 2 384 153

Otherexpenditure (23 939 153) (3 426 413) Asset management fees (2 885 332) (3 309 017)

Realised loss on disposal of financial assets at fair value through profit and loss (4 775 135) -Unrealised loss on financial assets at fair value through profit and loss (16 278 686) -

Interest allocated to savings accounts - (117 396)

Deficitfortheyear (93 316 279) (6 581 488)

Othercomprehensiveincome

Itemsthatmaybereclassifiedsubsequentlytoprofitandloss: Unrealised gain on available-for-sale

investments 2 - 12 865 592 Realised loss on available-for-sale investments 2 - (1 995 419)

Totalcomprehensive(loss)/incomefortheyear (93 316 279) 4 288 685

MEDiPOS MEDICAL SCHEME Notes to the summarised financial statements

36


Summarised statement of changes in funds and reserves for the year ended 31 December 2018

Revaluationreserve

Accumulated funds

Total members’funds

R R ROpeningbalancefortheyearended31December2017 18 972 595 531 780 229 550 752 824

Net realised gain on available-for-sale investments at fair value throughother comprehensive income 9 986 045 - 9 986 045

Net deficit for the year - (6 581 488) (6 581 488)

Closingbalancefortheyearended31December2017 28 958 640 525 198 741 554 157 381

Effect of IFRS 9 reclassification of the revaluation reserve (28 958 640) 28 958 640 -

Openingbalancefortheyearended31December2018afterIFRS9reclassification - 554 157 381 554 157 381

Total comprehensive loss for the year - (93 316 279) (93 316 279)

Closingbalancefortheyearended31December2018 - 460 841 102 460 841 102


Refer to Note 16

3737


Summarised statement of cash flowsfor the year ended 31 December 2018

2018 2017NOTES R R

CASH FLOWS FROM OPERATING ACTIVITIESCash flows from operations before working capital changes (93 316 279) (6 464 092)Deficit for the year (93 316 279) (6 581 488)Add back: Interest on savings accounts - 117 396Adjustments for:- Investment income (37 243 778) (35 967 993)- Additions to financial assets at fair value through profit and loss (258 207 939) (415 659 802)- Proceeds on disposal of financial assets at fair value through profit and loss 335 297 347 417 660 000- Interest received 723 238 946 770- Realised loss on disposal of investments 4 775 135 (1 995 419)- Movement in accumulated impairment losses (55 195) 134 478- Interest accrued on savings accounts - (117 396)

- Unrealised loss on financial assets at fair value through profit and loss 16 278 686 -

Cash flows utilised in operations before working capital changes (31 748 786) (41 463 454)

Workingcapitalchanges 2 079 468 (2 293 328)- Increase in insurance and other receivables (4 113 454) (5 393 942)- Increase in insurance and financial liabilities 8 917 931 2 609 666- (Decrease)/Increase in savings plan liability - (2 296 727)- Increase in outstanding claims provision (2 725 009) 2 787 675

Netcashutilisedinoperatingactivities (29 669 318) (43 756 782)


Summarised financial statements MEDiPOS MEDICAL SCHEME

38

2018 2017

NOTES R RCASH FLOWS FROM INVESTING ACTIVITIES 29 302 367 41 668 667Additions to financial assets at fair value through profit and loss (534 193 878) 292 104 693Proceeds on disposal of financial assets at fair value through profit and loss 526 939 048 (285 477 715)Interest received 28 911 148 28 118 955Dividends received 7 646 049 6 922 734

NET DECREASE IN CASH AND CASH EQUIVALENTS (366 951) (2 088 115)

Cash and cash equivalents at the beginning of the year 692 359 2 780 474

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 17 325 408 692 359


Summarised statement of cash flowsfor the year ended 31 December 2018 (continued)

39


39



Notes to the summarisedfinancial statements for the year ended 31 December 2018

1. PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of the summarised financial statements are set out overleaf and are in accordance with International Financial Reporting Standards (IFRS). These policies were consistently applied to all years presented, unless otherwise stated.

1.1 BasisofpreparationThe summarised financial statements are prepared in accordance with IFRS. IFRS comprise International Financial Reporting Standards, International Accounting Standards (IAS) and the interpretations originated by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC). The standards referred to are set by the International Accounting Standards Board (IASB). The summarised annual financial statements are prepared on a going-concern basis using the historical cost convention, except for financial assets investments, which are carried at fair value.

Use of estimates and new standards to be implemented The preparation of the summarised financial statements necessitates the use of estimates and assumptions. These estimates and assumptions affect the reported amount of assets, liabilities and contingent liabilities at the reporting date as well as affecting the reported income and expenditure for the year. The actual outcome may differ from these estimates. For further information on critical estimates and judgements refer to Note 13.


40

Effectivedate

Standard,amendment, improvementorinterpretation

Summaryofrequirements

Effective for financial year-end beginning on or after 1 January 2018

IFRS 9 – financial instruments

On 24 July 2014 the IASB issued the final IFRS 9 financial instruments standard, which replaces earlier versions of IFRS 9 and completes the IASB’s project to replace IAS 39 financial instruments: recognition and measurement. This standard will have an impact on the Scheme, which will include changes in the measurement bases of the Scheme’s financial assets to amortised cost, fair value through other comprehensive income or fair value through profit or loss. Even though these measurement categories are similar to IAS 39, the criteria for classification into these categories are significantly different. In addition, the IFRS 9 impairment model has been changed from an ‘incurred loss’ model in IAS 39 to an expected credit loss model. The standard will be applied for annual periods beginning on or after 1 January 2018 with retrospective application.

Effective for annual periods beginning on or after 1 January 2018

Amendment to IFRS 15 – revenue from contracts with customers.

The IASB has amended IFRS 15 to clarify the guidance, but there were no major changes to the standard itself. The amendments comprise clarifications of the guidance on identifying performance obligations, accounting for licenses of intellectual property and the principal versus agent assessment (gross versus net revenue presentation). New and amended illustrative examples have been added for each of these areas of guidance. The IASB has also included additional practical expedients related to transition to the new revenue standard. It will not have a significant impact on the Scheme’s reported results.

1. PRINCIPAL ACCOUNTING POLICIES (continued)

1.1 Basisofpreparation(continued)

Use of estimates and new standards to be implemented (continued)

(a) The following standards, amendments to standards, improvements and interpretations are relevant and effective to the Scheme:

41


Newstandards,amendmentsandinterpretationseffectivein2018thatarerelevanttothe Scheme:The Scheme has retrospectively applied IFRS 9 as from 1 January 2018, with adjustments being reflected in the opening balances on the summarised statement of changes in funds and reserves. The transitional approach was applied whereby the comparative financial results were not restated. Therefore up until 31 December 2017, the financial results were presented in accordance with IAS 39, whereas from 1 January 2018 forward, the classification and disclosures will be reported in accordance with IFRS 9. The IFRS 9 accounting policies were applied to 2018 transactions and balances.

Refer to Note 17 for the impact of the change due to the implementation of IFRS 9.

AdoptionofInternationalFinancialReportingStandard15(IFRS15)-revenuefromcustomerThe Scheme considered the impact of IFRS 15 and concluded as follows: The Scheme’s inflows are mainly contribution income and investment income. The contribution income is accounted for under IFRS 4 and will later be accounted for under the new IFRS 17 - insurance contracts when effective January 2021. The investment income is accounted for under IFRS 9. These inflows are therefore excluded from the scope of IFRS 15 due to the fact that the other standards that are specific to these inflows take precedence over IFRS 15. IFRS 15 has therefore had no material impact on the Scheme’s summarised financial statements.




42


Effectivedate

Standard,amendment, improvementorinterpretation

Summaryofrequirements

Effective for annual periods beginning on or after 1 January 2021

Amendment to IFRS 17 - insurance contracts

IFRS 17 will impact the measurement of the contracts with members in the Scheme’s financial statements. The Scheme will qualify for the premium allocation approach, which requires the Scheme to recognise a liability for remaining coverage (with reference to the premiums received) and liability for incurred claims (calculated as the expected cash outflows and a risk adjustment). The Scheme expects that the boundary of the contracts with members will be one year. The Scheme will be required to assess for onerous contracts at the point members elect the benefit option for the following year.

With IFRS 9, a new method of assessing impairment of financial assets is applied. Under IAS 39, an entity only considers those impairments that arise as a result of ‘incurred loss’ events. The effects of possible future loss events cannot be considered, even when they are expected whereas the IFRS 9 impairment model has been changed to an ‘expected credit loss’ (ECL) model and led to consideration in the Scheme for a provision for bad debts. The Scheme assessed the nature of receivables and impact of a move to an ECL model. The move to an ECL model did not have a material impact on the Scheme.

Once effective, IFRS 17 will replace IFRS 4 insurance contracts (IFRS 4) that was issued in 2005. IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. As IFRS 17 is effective for annual periods beginning on or after 1 January 2022, the impact of this amendment will still be assessed by the Scheme.

(b) The following standards, amendments to standards, improvements and interpretations are relevant but not effective to the Scheme:




43


1.2 Financialinstruments

Accountingpoliciesappliedupuntil31December2017

Until31December2017,theSchemeclassifieditsfinancialassetsinthefollowingcategories:

ff financial assets at fair value through profit or loss;ff insurance and other receivables;ff held-to-maturity investments; andff available-for-sale investments.

The classification depended on the purpose for which the investments were acquired. Management determined the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluated this designation at the end of each reporting period.

Available-for-saleinvestmentsrevaluationreserveThe Scheme retrospectively adopted IFRS 9 on 1 January 2018 with adjustments to the Scheme’s opening 1 January 2018 available-for-sale investments revaluation reserves. Based on the transitional approach adopted, as permitted by IFRS 9, comparative financial results were not restated. Accordingly, the Scheme’s previously reported financial results up to 31 December 2017 are presented in accordance with the requirements of IAS 39 and for 2018, and future reporting periods, are presented in terms of IFRS 9. The impact of this is that 2017 classification and disclosures are under IAS 39, and 2018 are under IFRS 9. The IFRS 9 accounting policies therefore apply to 2018 transactions with the comparatives under IAS 39.


44


2018 2017R R

Fair value at the beginning of the year 551 713 740 548 359 452

Effect of reclassification of available-for-sale investments through other comprehensive income to financial assets and fair value through profit and loss (551 713 740)

Additions - 540 330 981

Disposals - (547 846 866)

Realised gain on disposal of available-for-sale investments - (1 995 419)

Unrealised gain on revaluation of available-for-sale investments - 12 865 592

Fair value at the end of the year - 551 713 740

FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSSEffect of reclassification of available-for-sale investments through other comprehensive income to financial assets and fair value through profit and loss 551 713 740 -

Additions 763 083 407 -

Disposals (867 011 530) -

Capitised interest 34 093 545

Realised loss on disposal of investments through profit and loss (4 775 135) -

Unrealised loss on revaluation of financial assets at fair value through profit and loss (16 278 686) -

Fair value at the end of the year 460 825 341 -

Non-current 460 825 341 551 713 740

The investments included above represent investments managed by:

Prescient 218 319 736 254 446 071

Coronation 230 816 698 279 747 808

Nedgroup collective investment scheme 11 688 907 17 519 861

460 825 341 551 713 740

2. AVAILABLE-FOR-SALE INVESTMENTS

45


2018 2017R R

Investments are summarised as follows:

- Bonds and debentures 77 765 505 54 177 654

- Money-market (cash and outstanding) 79 078 893 67 425 276

- Equities 95 561 837 134 969 472

- Collective investment scheme 174 377 107 263 728 833

- Pooled fund 34 042 000 31 412 505

460 825 341 551 713 740

The maturity profile of the bonds vary and are as follows (percentage of total fair value):

0 - 3 years 3.13% 1.30%

3 - 7 years 7.13% 6.27%

7 years+ 3.64% 2.57%

13.90% 10.14%

Refer to Note 11 for IFRS 7 disclosures.

2. AVAILABLE-FOR-SALE INVESTMENTS (continued)FINANCIALASSETSATFAIRVALUETHROUGHPROFITANDLOSS(continued)


3. OUTSTANDING CLAIMS PROVISION 2018 2017R R

NotcoveredbyrisktransferarrangementsProvision for outstanding claims 20 366 108 23 091 117

AnalysisofmovementsinoutstandingclaimsBalance at beginning of year 23 091 117 20 303 442

Payments in respect of prior year (24 458 220) (18 321 125)

(Under)/Over provision in the prior year (1 367 103) 1 982 317

(Over)/Under provision in respect of prior year written back (note 6) 1 367 103 (1 982 317)

Adjustment for current year (note 6) 20 366 108 23 091 117

Balance at end of year 20 366 108 23 091 117

ProcessusedtoprepareestimatesThe process used to determine the assumptions is intended to result in neutral estimates of the most likely or expected outcome. The sources of data used as inputs for the assumptions are internal, using detailed studies that are carried out monthly. There is more emphasis on current trends, and where in early years there is insufficient information to make a reliable best estimate of claims development, prudent assumptions are used. Each notified claim is assessed on a separate, case-by-case basis with due regard to the claim circumstances, information available from managed care: management services and historical evidence of the size of similar claims. The provisions are based on information currently available. However, the ultimate liabilities may vary as a result of subsequent developments. The impact of many of the items affecting the ultimate costs of the loss is difficult to estimate. The provision estimation difficulties are further complicated by claims complexity, volume of claims, the severity of claims, determining the occurrence date of claim and reporting lags.

The cost of outstanding claims is estimated using run-off triangles. Such methods extrapolate the development of paid and incurred claims, average cost per claims and ultimate claim numbers for each year based upon observed development of earlier years and expected loss ratios. Run-off triangles are used in situations where it takes time after the treatment date until the full extent of the claims to be paid is known. It is assumed that payments will emerge in a similar way in each service month. The proportional increase in the known cumulative payments from one development month to the next can then be used to calculate payments for future development months.


46

47


47

Processusedtoprepareestimates(continued)The method used is consistent with prior years and considered and observed historical claims development. To the extent that these methods use historical claims development information, they assume that the historical claims development pattern will occur again in the future. There are reasons why this may not be the case, which, insofar as they can be identified, have been allowed for by modifying the method. Such reasons include:

ff economic, legal, political and social trends (resulting in different than expected levels of inflation and/or minimum medical benefits to be provided);

ff changes in composition of members and their dependants; ff random fluctuations; andff legislative changes.

AssumptionsThe assumptions that have the greatest effect on the measurement of the outstanding claims provision are the expected percentages of claims settled after each of the first four months of the claims run-off period, before the claims turn stale.

SensitivityofoutstandingclaimsprovisionThe percentages used as assumptions are listed in the table below. The table also outlines the sensitivity of these percentages, and the impact on the Scheme’s liabilities if an incorrect assumption is used. Otherassumptionsff The actual demographics of the Scheme were used, including all membership

movements for the period.ff The effect of ageing of the population on the utilisation of health services is automatically

incorporated.ff Utilisation escalation incorporates the impact of HIV/AIDS.

The assumed percentages of claims outstanding at the end of the period are as follows:

2018 2017% %

Claims outstanding for services rendered in:

ff December 45.4% 43.4%

ff November 7.1% 12.4%

ff October 2.4% 2.3%

ff September 1.1% 0.9%

ff August and prior 0.2% 0.1%

3. OUTSTANDING CLAIMS PROVISION (continued)


Sensitivityanalysis 2018 2017The impact on the outstanding claims provision is set out below:

R R

Effect of a 1% change in assumptions 2 024 624 2 143 118



The Scheme believes that the liability for claims reported in the summarised statement of financial position is adequate. However, it recognises that the process of estimation is based upon certain variables and assumptions which could differ when claims arise.

4. RISK CONTRIBUTION INCOME 2018 2017R R

Risk contributions per registered rules 596 597 582 548 775 999

5. INVESTMENT INCOME

Interest income 29 597 729 29 045 259

- Cash and cash equivalents 264 913 339 184

- Interest income from financial assets fair value through profit and loss 29 332 816 28 706 075

Dividend income from investments at fair value through profit and loss 7 646 049 6 922 734

37 243 778 35 967 993

3. OUTSTANDING CLAIMS PROVISION (continued)

6. RISKS CLAIMS INCURREDClaimsincurredexcludingclaimsincurredinrespectofrisktransferarrangementCurrent year claims per registered rules 640 958 367 534 593 443

Movement in outstanding claims provision 21 733 210 21 108 800

Under/(Over) provision in the prior year (note 3) 1 367 102 (1 982 317)

Adjustment for the current year (note 3) 20 366 108 23 091 117

Risk claims incurred 662 691 577 555 702 243


With the implementation of IFRS 9, the Scheme re-classified their investments from available-for-sale in the prior year to at fair value through profit or loss, whereby the unrealised gains or losses are taken through profit or loss. Refer to the summarised statement of comprehensive income.

48

49


7.

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7. (DEFICIT)/SURPLUS FROM OPERATIONS PER BENEFIT OPTION (continued)

BasisofallocationsExcept for contribution income and claims, all other income and expenses are allocated according to membership at year-end.

8. RELATED PARTY DISCLOSURES

PartieswithsignificantinfluenceovertheSchemeMMI Health (Proprietary) Limited (MMI Health) has significant influence over the Scheme, as it provides financial and operational information on which policy decisions are based, but does not control the Scheme. MMI Health provides administration services.

South African Post Office (SAPO) State-owned Company Ltd is able to participate in operating and financial decisions, as they are able to appoint 50% of the Trustees. Managed care organisation, Metropolitan Health Risk Management (Pty) Ltd, a wholly-owned subsidiary of MMI Health, provides managed care services and has significant influence over the Scheme, but does not control the Scheme. NMG Consultants and Actuaries (Pty) Ltd has significant influence over the Scheme, as they provide operational information on which policy decisions are based, but does not control the Scheme. NMG Consultants and Actuaries (Pty) Ltd provide consulting and actuarial services and assisted with the contribution and benefits review for 2018. KeymanagementpersonnelandtheirclosefamilymembersKey management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Scheme. Key management personnel include the Board of Trustees (BOT), the Principal Officer and members of committees.

Close family members include family members of the BOT, Principal Officer and members of the committees.

52


TransactionsandbalanceswithrelatedpartiesThe breakdown below provides the total amount of transactions that have been entered into with related parties for the relevant financial year.

2018R

2017RStatementofcomprehensiveincome

Risk contributions received (key management personnel) 608 817 455 436

Risk claims incurred (key management personnel) 234 871 426 966

Administrator’s fees

- MMI Health (Pty) Ltd 27 970 050 26 037 210

Managed care fees

- Metropolitan Health Risk Management (Pty) Ltd 8 940 318 7 480 681

Actuarial fee (NMG Consultants and Actuaries (Pty) Ltd 711 565 690 242

Contribution subsidies (SAPO) 561 524 068 445 884 461

Principal Officer’s remuneration 776 008 -

Principal Officer’s assistant remuneration 107 798 -

Principal Officer’s office travelling, accommodation and conference expenses 97 121 48 337

Trustees' fees and expenses 1 440 929 774 443

Audit Committee fees 45 360 42 840

In 2017 the Principal Officer was remunerated by SAPO. In 2018 the Principal Officer was partly remunerated by the Scheme.

2018 2017Statementoffinancialposition R RMMI Health (Pty) Ltd

- Administrator's fees and cost recoveries payable 2 437 813 2 456 214

Metropolitan Health Risk Management (Pty) Ltd

- Managed care fees due 1 316 306 630 964

8. RELATED PARTY DISCLOSURES (continued)

53


Thetermsandconditionsoftherelatedpartytransactionswereasfollows:

Riskcontributionsreceived(keymanagementpersonnel) This constitutes the contributions paid by the related parties as members of the Scheme, in their individual capacities. All contributions were at the same terms as applicable to other members. Riskclaimsincurred(keymanagementpersonnel) This constitutes amounts claimed by the related parties, in their individual capacities as members of the Scheme. All claims were paid out in terms of the rules of the Scheme, as applicable to other members. AdministrationfeesandmanagedcarefeesThe administration agreement is in terms of the rules of the Scheme and in accordance with instructions given by the BOT. The duration of the agreement is three years, but subject to the right of either party to terminate the agreement by giving not less than three months’ notice. The outstanding balance bears no interest and is due within 30 days.

ActuarialfeesNMG Consultants & Actuaries (Pty) Ltd assisted with the contribution and benefits review for 2018.

TrusteefeesandexpensesThe Board approved that as from 1 June 2014, the Scheme pays the Trustees’ remuneration and reimbursive expenses at cost.

9. GUARANTEES AND COMMITMENTS

The Scheme has not issued any guarantees and has no commitments.

10. CONTINGENT ASSET

At 31 December 2018, the Scheme had pending motor vehicle accident recoveries submitted to the Road Accident Fund (RAF) for assessment. These recoveries will only be accounted for when an amount is virtually certain to be received from the RAF. The value of pending claims at year-end amounted to R5 830 440 (2017: R5 455 679).

During 2018, MMI Health’s Health Investigation Unit (HIU) conducted an investigation involving various service providers who claimed for services allegedly rendered to MEDiPOS

8. RELATED PARTY DISCLOSURES (continued)

54


Medical Scheme members in respect of mental health admissions. For the period June 2018 to December 2018, HIU placed numerous service providers’ claims on hold and activated block pay filters on their profiles in order to withhold payments to their practices. Letters were sent to all service providers requesting further information on the anomalies identified, but satisfactory responses were not received regarding the anomalies identified. Based on calculations conducted by HIU, 58 service providers were identified against whom anomalous claims could be offset against the withheld amounts, in terms of Section 59(3) of the Medical Schemes Act. This amount totals R5 930 279 for the year under review. HIU have communicated the intended offset to these providers and have received no objections.

11. FINANCIAL RISK MANAGEMENT

The Scheme is exposed to a range of financial risks through its financial assets, financial liabilities and insurance liabilities. In particular, the key financial risk is that the Scheme’s investment performance is not sufficient to maintain the solvency ratio, or that the Scheme should increase member contributions due to insufficient investment performance. The most significant components of this financial risk are interest rate risk, equity price risk and credit risk.

These risks arise from open positions in interest rate and equity risk products, both of which are exposed to general and specific market movements.

The following summary represents the major asset classifications held by the Scheme, which are exposed to the financial risks discussed below:

RestatedAssetallocationsummary 2018 2017

R RFinancial assets at fair value through profit and loss (note 2) 460 825 341 551 713 740

Cash and cash equivalents 325 408 692 359

Insurance and other receivables 48 388 548 44 256 556

509 539 297 596 662 655

FinancialriskmanagementstrategyandpolicyThe BOT appointed an Investment Committee to focus on the Scheme’s investment strategy, risk management and asset allocation. Risk management and investment decisions are made under the guidance and policies approved by the BOT. The Investment Committee assists the Board with formulating these policies.

10. CONTINGENT ASSET (continued)

55


Financialriskmanagementstrategyandpolicy(continued)

The Scheme’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potentially adverse effects on the financial performance of the investments that the Scheme holds to meet its obligations to its members.

The Investment Committee identifies, evaluates and economically hedges (where appropriate), financial risks associated with the Scheme’s investment portfolio. The Investment Committee recommends policy and considers mandates and procedures for overall risk management, covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and investing excess liquidity. The BOT, in consultation with the Audit and Risk Committee and the Investment Committee, approves all written policies.

The Scheme appointed professional asset management companies with proven track records to manage the Scheme’s investment portfolios.

Interest rate riskThe Scheme is exposed to interest rate risk, as it places funds at both fixed and floating interest rates. The risk is managed by maintaining an appropriate mix between fixed and floating rate placings.

The tables below summarise the Scheme’s exposure to interest rate risks. Included in the tables are the Scheme’s investments at carrying amounts, categorised by the earlier of contractual repricing or maturity dates.

As at 31December2018

0-3years

3-7years

7-12years

12+ years

Total

R R R R RFinancial assets at fair value throughprofit and loss 315 674 193 32 835 782 9 793 155 6 960 374 365 263 504

Cash and cash equivalents 325 408 - - - 325 408

315 999 601 32 835 782 9 793 155 6 960 374 365 588 912

11. FINANCIAL RISK MANAGEMENT (continued)

As at 31December2017(Restated)

0-3years

3-7years

7-12years

12+ years

Total

R R R R R Financial assets at fair value throughprofit and loss 369 520 505 33 483 933 8 564 078 5 175 752 416 744 268

Cash and cash equivalents 692 359 - - - 692 359

370 212 864 33 483 933 8 564 078 5 175 752 417 436 627

Sensitivity analysisThe sensitivity analysis for interest rate risk illustrates how changes in the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates at the reporting date.

The impact has been evaluated by looking at the change to surplus or deficit and the accumulated funds based on an increase/decrease of 1% in the market interest rates applicable at 31 December 2018, for each class of financial instrument with all other variables remaining constant as follows:

Sensitivityanalysistableat31December2018

Actual 2018 Interestratedecreasesby

1%

Interestrateincreasesby

1%R R R

Investments 365 263 504 2 674 488 (2 674 488)

Cash and cash equivalents 325 408 (3 254) 3 254

Accumulated funds at year-end 460 841 102 463 512 336 458 169 868

Sensitivityanalysistableat31December2017(Restated)

Actual 2017 Interestratedecreasesby

1%

Interestrateincreasesby

1%R R R

Investments 416 744 268 2 549 411 (2 549 411)

Cash and cash equivalents 692 359 (6 924) 6 924

Accumulated funds at year-end 525 198 742 527 566 030 522 831 453

56


Interest rate risk (continued)


57

Sensitivityanalysis(continued)

Thesensitivityanalysisisbasedonthefollowingassumptions:

ff changes in the market interest rates affect the interest income or expense of variable interest financial instruments; and

ff the financial assets and liablilities at 31 December 2018 remain until maturity or settlement without any action by the Scheme to alter the interest rate exposure.

Management monitors the reported interest rate movements on a monthly basis.

Liquidity riskPrudent liquidity risk management implies maintaining sufficient cash, marketable securities and the availability of funding through holding liquid cash positions with various financial institutions to ensure that the Scheme has the ability to fund its day-to-day operations.

At year-end, 2.3% (2017: 3.1%) of the Scheme’s assets were invested in cash and cash equivalent investments to ensure that the Scheme can meet its short-term commitments. The table below illustrates the liquidity position of the scheme.

At31December2018Category Less than

1 month Between1

and 3 months Between3

months and 1 year

Total

R R R R

Insurance liabilities 23 667 601 - - 23 667 601

Financial liabilities 4 664 486 - - 4 664 486

Outstanding claims provision 13 332 257 6 318 033 715 818 20 366 108

41 664 344 6 318 033 715 818 48 698 195

Cash and cash equivalents 325 408 - - 325 408

Deficit liquidity (48 372 787)



58


58

At31December2017(Restated)Category Less than

1 month Between1

and 3 months Between3months and

1year

Total

R R R R Insurance liabilities 15 886 824 - - 15 886 824

Financial liabilities 3 527 332 - - 3 527 332

Outstanding claims provision 17 513 220 4 766 302 811 595 23 091 117

36 927 376 4 766 302 811 595 42 505 273

Cash and cash equivalents 692 359 - - 692 359

Deficit liquidity (41 812 914)

Credit riskThe Scheme has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Key areas where the Scheme is exposed to credit risk are:

ff amounts due from an employer, members and service providers; andff interest due from financial institutions.

Asat31December2018Class Not past due Past due,

notimpaired Past due

andimpaired Total

R R R RInsurance receivables 48 069 531 223 973 803 424 49 096 928

Interest receivable 95 044 - - 95 044

11. FINANCIAL RISK MANAGEMENT (continued)Liquidity risk (continued)

The tables below illustrate the quality of the Scheme’s receivables in order to assess credit risk:

59


Asat31December2017Class Not past due Past due,

notimpaired Past due

andimpaired Total

R R R R Insurance receivables 43 936 746 188 109 858 619 44 983 474

Interest receivable 131 701 - - 131 701

The credit risk on cash and cash equivalents is limited because the counterparties are reputable financial institutions with high credit ratings.

Fitch National long-term rating

Financial institution 2018 2017 CreditratingR R 2018 2017

Standard Bank 325 408 685 653 BB+ AA

The Scheme has no significant concentration of credit risk, with exposure spread over a large number of counterparties and members.

The exposure to individual counterparties is also managed by other mechanisms, such as the right of offset, where a legally enforceable right exists.

Bonds

Financial institution 2018 2017 CreditratingR R 2018 2017

Coronation Fund Managers 64 852 294 59 899 220 not rated not rated

Prescient Investment Management 12 913 211 124 572 928 not rated not rated

Nedgroup Core Income Fund 1 488 745 1 746 316 not rated not rated

11. FINANCIAL RISK MANAGEMENT (continued)Credit risk (continued)

The Bonds are part of a pooled and collective scheme investment vehicle and are administered by Coronation Fund Managers (Pty) Ltd, Prescient Investment Management (Pty) Ltd and Nedgroup Investments (Pty) Ltd, which are not rated.

The tables below provide an age analysis of the receivables that are past due, but not yet impaired:

Asat31December2018Class 0-30days 30-60days 60-90days Total

R R R RInsurance receivables 126 882 73 034 19 657 219 573

Asat31December2017Class 0-30days 30-60days 60-90days Total

R R R RInsurance receivables 97 352 68 932 21 825 188 109

There are no indications at the reporting date that these debtors will not meet their payment obligations.

Management information reported to the Scheme includes details of provisions for impairment on receivables and subsequent write-offs. Below is an analysis of the receivables that were impaired:

Class 2018 2017R R

Insurance receivables 803 424 858 619

The amounts presented in the statement of financial position are net of impairment of receivables, estimated by the Scheme’s management based on prior experience and the current economic environment.


Credit risk (continued)


60

Market riskMarket risk is the inherent risk associated with the underlying counterparty or asset class. These inherent risks will influence the levels of income and/or capital appreciation achieved over time and therefore affect the Scheme income and reserve levels. The investment management process employed seeks to manage the market risk with a view of optimising the risk/reward profile of the Scheme, whilst remaining compliant with Annexure B of the Act, as amended.

Equity price riskThe Scheme is exposed to equity price risk as it invested funds in South African Equities. The Scheme’s equity portfolios are long-term investments and the funds invested in these portfolios are not needed in the short or medium term. This mitigates the risk for short-term fluctuations in the equity market. The Scheme appointed reputable asset managers with good track records in terms of performance.

Sensitivity analysisThe sensitivity analysis for equity price risk illustrates how changes in the fair value of future cash flows of a financial instrument will fluctuate because of changes in the equity market at the reporting date.

A decrease of 5% in the JSE all share index would result in a decrease in reserves of R3 937 641 (2017: R5 095 096). This full amount would be recognised in the Scheme’s revaluation reserve and will reflect as other comprehensive income in the statement of comprehensive income, but will not affect the Scheme’s solvency ratio. This sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice this is unlikely to occur, and changes in some of the assumptions may be correlated, for example the effect of interest rates on the equity market.

Management monitors the equity portfolio movements on a monthly basis and the Investment Committee has regular meetings to review the Scheme’s strategy and asset allocation. The Scheme uses the services of independent investment advisors to assist them in this function.

Fair value estimation The fair value of available-for-sale investments is based on quoted published prices at the reporting date.

The tables overleaf illustrate the fair values of financial assets by hierarchy level:



61

62


Asat31December2018 Level1 Level2 Level3R R R

Financial assets at fair value through profit and loss - Bonds and debentures 77 765 505 - - - Money-market (cash and outstandings) - 79 078 893 - Equities 95 561 837 - - - Collective investment scheme - 174 377 107 - - Pooled fund - 34 042 000 - Total 173 327 341 287 498 000 -

Asat31December2017 Level1 Level2 Level3 R R R

Available-for-sale-investments - Bonds and debentures 54 177 654 - - - Money-market (cash and outstandings) - 67 425 276 - Equities 134 969 472 - - - Collective investment scheme - 263 728 833 - - Pooled fund - 31 412 505 - Total 189 147 126 362 566 614 -

The hierarchy levels are defined as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. These are readily available in the market and are normally obtainable from multiple sources.

Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values. The fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate available to the Scheme for similar financial instruments.

Investmentinunconsolidatedstructures The asset managers invest the Scheme’s monies in reputable funds, which promise returns to the medical scheme. The Scheme views these funds as unconsolidated structured entities. The Scheme monitors the performance of the funds closely to ensure the Scheme earns high returns without unnecessary exposure to risk.


63



The Scheme has investments in certain pooled portfolios and collective investment schemes (the Funds) as listed in the table below. The Scheme’s maximum exposure to loss from its interests in the funds is limited to the total fair value of its investments in the funds.

Fund2018 2017

Fairvalue FairvalueR R

Coronation Medical Cash Plus Fund 34 042 000 31 412 505

Prescient Stable Income Fund (B3) 74 276 325 129 177 335

Prescient Equity Top 40 Fund (B3) - 39 803 555

Prescient Property Equity (B3) 6 461 238 -

Prescient Flexible Fixed Interest Fund (B3) 81 950 638 77 228 082

Nedgroup Investments Core Income Fund 11 688 907 17 519 861

208 419 108 295 141 338

CapitalriskmanagementThe Scheme is subject to the capital requirement imposed by Regulation 29(2) to the Act, as amended, which requires a minimum solvency ratio of 25% of accumulated funds expressed as a percentage of gross annual contributions. The Scheme manages its capital to ensure that it will be able to continue as a going concern. Based on the nature of the medical schemes industry, the assets are considered to be the capital of the Scheme. The Administrator ensures that on a quarterly basis, the Scheme complies with Annexure B of Regulation 30 of the Act. The current investment strategies are mandated with Coronation Fund Managers (Pty) Ltd, Prescient Investment Management (Pty) Ltd and Nedgroup Investments (Pty) Ltd. Compliance to the mandates are monitored by the BOT with the assistance of the Investment Committee. Capital adequacy risk is the risk that there may be insufficient reserves to provide for adverse variations on actual or expected future experience.

The Scheme’s main objective is to manage its capital in such a way that the annual contribution increase to members is minimised.

The accumulated funds ratio was 75.12% at 31 December 2018 and 95.70% at 31 December 2017. The accumulated funds ratio above compares favourably to the minimum prescribed accumulated funds ratio of 25%.

64


12. INSURANCE RISK MANAGEMENT

NATURE AND EXTENT OF RISKS ARISING FROM INSURANCE CONTRACTS

Principalfeaturesofthebenefitoptionsareasfollows:Option A: The plan offers a day-to-day benefit based on individual limits per family member.

It also offers unlimited major medical benefits.Option B: The plan offers day-to-day benefits based on individual limits per family member.

It also offers major medical benefits, which are limited to R2 251 400 per family.Option C: The plan offers limited day-to-day benefits. Major medical benefits are limited to

R900 560 per family.

RiskmanagementobjectivesandpoliciesformitigatinginsuranceriskThe primary insurance activity carried out by the Scheme assumes the risk of loss from members and their dependants that are directly subject to the risk. These risks relate to the health of the Scheme members. As such, the Scheme is exposed to the uncertainty surrounding the timing and severity of claims under the contract.

The Scheme manages its insurance risk through benefit limits and sub-limits, approval procedures for transactions that involve pricing guidelines, pre-authorisation, case management and service provider profiling. These methods for mitigating insurance risk are reviewed annually and amended for changes in the Act and/or changes in the Scheme’s ability to accept insurance risk.

The BOT assesses the necessity to enter into risk transfer arrangements with the assistance of the Scheme’s actuarial consultants.

The Scheme uses several methods to assess and monitor insurance risk exposures both for individual types of risks insured and overall risks. The Scheme analyses the distribution of claims per category of claims, number of beneficiaries per age group and the geographic distribution of members.

The principal risk is that the frequency and severity of claims is greater than expected. Insurance events are by their nature random and the actual number and size of events during any one year may vary from those estimated using established statistical techniques.

FrequencyandseverityofclaimsFor insurance contracts issued, climatic and seasonal changes, as well as the spread of pandemics, give rise to more frequent and severe claims.

65


SourceofuncertaintyintheestimationoffutureclaimspaymentsThe Scheme frequently re-rates Scheme benefits to ensure that the necessary underwriting surplus is maintained relative to the risk exposure. It is relatively easy to assess the future claim payments since most claims are lodged soon after year-end before the four month expiration of claims period comes into effect.

The Scheme’s strategy seeks diversity to ensure a balanced portfolio and is based on a large portfolio of similar risks over a number of years and, as such, it is believed that this reduces the variability of the outcome.

The strategy is set out in the annual review, which specifies the benefits to be provided.

The Scheme has the right to change the terms and conditions of the contract at any time with sufficient notice, with approval of the Registrar. Management information, including contribution income and claims ratios, target market and demographic split, is reviewed monthly.

ConcentrationofinsuranceriskThe tables overleaf summarise the concentration of insurance risk with reference to number of beneficiaries by age group.

12. INSURANCE RISK MANAGEMENT (continued)

NATURE AND EXTENT OF RISKS ARISING FROM INSURANCE CONTRACTS (continued)

66


2018 2017

Agegrouping(inyears)

Numberofbeneficiaries

Agegrouping(inyears)

Numberofbeneficiaries

< 26 9 618 < 26 9 567

26 - 35 2 749 26 - 35 2 747

36 - 50 7 583 36 - 50 7 528

51 - 59 3 915 51 - 59 3 708

> 60 3 500 > 60 3 605

Total 27 365 Total 27 155


NATURE AND EXTENT OF RISKS ARISING FROM INSURANCE CONTRACTS (continued)

Concentrationofinsurancerisk(continued)

67


12.

INSU

RAN

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RISK

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(con

tinue

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rela

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Den

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68



Concentration of insurance risk (continued)The strategy is reviewed annually and specifies the benefits to be provided as well as the contributions payable.

13. CRITICAL ACCOUNTING JUDGEMENTS AND AREAS OF KEY SOURCES OF ESTIMATION UNCERTAINTY

In the process of applying the Scheme’s accounting policies, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements.

A key assumption concerning the future that has a significant risk of causing a material adjustment to the carrying amounts of liabilities, is used to determine the provision for outstanding claims.

When arriving at this provision, it is assumed that the reporting and settlement trend of claims incurred but not reported will be similar to that of the previous financial period. The provision is calculated based on percentages derived from the previous financial period and is adjusted, if necessary, as the claims are reported and settled.

Although the assumption is considered critical, post-reporting date settlements against the provision have been monitored to ensure reasonability of the original provision.

14. EVENTS AFTER THE REPORTING DATE

No other material facts or circumstances have arisen between the date of the statement of financial position and the date of this report that affect the financial position or financial performance of the Scheme as reflected in these summarised financial statements.

15. NON-COMPLIANCE WITH THE MEDICAL SCHEMES ACT 131 OF 1998

The CMS stipulated, via Circular 11 of 2006, that all cases of non-compliance with the Act should be disclosed in the Annual Financial Statements. The following stipulations were not complied with during the year:

69



15.1 ContraventionofSection35(8)(c)oftheMedicalSchemesAct131of1998,as amended.

Nature and impactThe Scheme holds shares in MMI Holdings Ltd and Sanlam Ltd. This is in contravention of Section 35(8) of the Act, as the Scheme is not allowed to hold shares of the holding company of its Administrator or other administrators.

Causes of the non-complianceThe Scheme invests in a pooled product and does not have control over the underlying assets.

Corrective course of actionThe Scheme received an exemption from the CMS on 13 April 2018, valid for a period of 12 months, from complying with Section 35(8)(c) insofar as it relates to investments placed with asset managers who invest on behalf of the Scheme and where such investment choices are not influenced by the Scheme.

15.2 ContraventionofSection26(7)oftheMedicalSchemesAct131of1998,as amended

Nature and impactIn terms of Section 26(7) of the Act, all contributions shall be paid to a medical scheme not later than three days after payment thereof becoming due. An amount of R36 560 005 was still outstanding after it became due. This may pose a financial risk to the Scheme due to non-payment as well as a loss of interest on these amounts to the Scheme. Causes of the non-compliance Due to the financial position of SAPO, contributions have been received after three days of it becoming due. Certain pensioners also paid late due to unsuccessful debit order deductions. As a result, the Scheme is in contravention of Section 26(7). Corrective course of actionThe BOT has prioritised this matter and there are continuous engagements with the Post Office to ensure that contributions are received timeously. The Board will continue monitoring the payments until the issue is resolved. The Board resolved that disinvestments will be made as and when necessary from the Scheme’s investments in order to bridge any cash-flow shortfall that may arise, and that members as well as service providers, will not be prejudiced in any way.

70



15.3 ContraventionofSection33(2)oftheMedicalSchemesAct131of1998,as amended

Nature and impact In terms of Section 33(2) of the Act, each benefit option shall be self-supporting in terms of membership and financial performance and will be financially sound. As at the 31 December 2018, all three options were in a net healthcare deficit position, thereby contravening Section 33(2) of the Act.

Causes of the non-compliance Option A, which consists of pensioner members and Option B, which is the mid-range option and largest by membership, as well as Option C, which consists mainly of entry-level and low-income members, were all costed to incur net healthcare deficits in 2018. These deficits would be funded from the favourable reserve position of the Scheme as the contribution increases required to achieve net healthcare surpluses on these options were considered to be too onerous for members.

Option A’s results were ahead of budget whilst Option B and Option C’s results were worse than budgeted. As a result, the Scheme’s overall results were worse than budget. The driver of this adverse experience is as a result of a different member mix on the different options compared to budget, which resulted in lower than expected members and consequently contribution income on Option A, and higher than expected members and claims on Option B and Option C. The adverse claims experience was exacerbated by a substantial increase in-hospital admissions for mental health disease and excessive claims from allied health professionals in relation to these mental health admissions. Investigations and recovery initiatives are ongoing.

Nethealthcareresult Deficitfortheyear

Option A (8 066 200) (6 502 467)

Option B (80 257 931) (71 335 561)

Option C (18 296 773) (15 478 251)

(106 620 904) (93 316 279)

71


Corrective course of actionThe Trustees have noted the net healthcare deficits and will continue to monitor the performance of the Scheme and they will make appropriate interventions during the annual benefit review process together with corrective action to be taken to correct the performance in the ensuing three to five years.

15.4 ContraventionofSection36(10)oftheMedicalSchemesAct

Nature and impactIn terms of Section 36(10) of the Act, the Audit Committee must have a minimum of at least five members, of which the majority shall be independent members. The Audit Committee of the Scheme had a vacancy on the Audit Committee at year-end, which resulted in it being non-compliant with the minimum requirements of five members for the composition of an Audit Committee.

Causes for the failureThe structure of the Scheme’s Audit Committee is correct, but a vacancy existed at year-end for an independent member.

Corrective actionThe Board of Trustess ratified the appointment of a fifth independent member at a meeting held on 14 March 2019.


15.3 ContraventionofSection33(2)oftheMedicalSchemesAct131of1998,as amended(continued)

72


16.

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73


16.

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1 99

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74


17. RESTATEMENT OF CASH AND CASH EQUIVALENTSThere has been a prior year restatement of cash flow as the investment in the Nedgroup collective investment scheme has been restated from cash and cash equivalents to investments as it does not meet the definition of cash. The table below reflects the changes:

Statementoffinancialposition 2018 2017R R

AssetsNon-currentassets:Financial assets at fair value through profit and loss 11 688 907 -

Available-for-sale investments - 17 519 861

Currentassets:Cash and cash equivalents (11 688 907) (17 519 861)

Effectontotalassets - -

StatementofcashflowsPreviouslyreported

Restated values

Difference

CASH FLOW FROM OPERATING ACTIVITIESAdditions to financial assets at fair value through profit and loss - (415 659 802) 415 659 802

Proceeds on disposal of financial assets at fair value through profit and loss - 417 660 000 (417 660 000)

Interest received - 946 770 (946 770)

CASH FLOWS FROM INVESTING ACTIVITIESAdditions to financial assets at fair value through profit and loss (124 671 179) 292 104 693 (416 775 872)

Proceeds on disposal of financial assets at fair value through profit and loss 132 182 285 (285 477 715) 417 660 000

Interest received 29 065 725 28 118 955 946 770

Cash at the beginning of the year 18 212 220 692 359 (17 519 861)

Total cash at the end of the year 12 014 315 325 408 (11 688 907)

75


18. AUDITED FINANCIAL STATEMENTS

A full set of the audited financial statements can be obtained from the Scheme’s registered office or postal address, as follows: BusinessAddress PostalAddress497 Schubart Street P O Box 2087C|o Schubart and Jacob Mare Street Corporate ShopPretoria 00740002

76


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