SECURITY OF ASSETS - Invested with Alexander Forbes Investments Limited As at 30 November 2020
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SECURITY
OF ASSETS
Invested with Alexander Forbes Investments Limited
As at 30 November 2020
WE ARE A REGISTERED LONG-TERM INSURER
Alexander Forbes Investments Limited (Alexander Forbes other life insurers or banks.
Investments), a wholly-owned subsidiary of Alexander Forbes Limited We are registered with the Financial Sector Conduct Authority (FSCA)
(Alexander Forbes), is a leading provider of financial services in South as a financial services provider (FSP711) according to the
Africa. Financial Advisory and Intermediary Services Act 37 of 2002.
We are a long-term insurer, registered with the Prudential Authority We are licenced for:
(PA). Our life-insured licence allows for the pooling of assets. We Category I (advice and non-discretionary intermediated services)
chose the life-insured licence, because most of our clients are long- Category II (discretionary intermediated services)
term investors, making the legislation governing life offices more Category IIA (hedge fund financial services provider)
appropriate. We excluded mortality, morbidity and investment risk
from our licence. Where guarantees of capital or returns are a feature We are also certified as a section 13B administrator in terms of the
of an investment portfolio, the guarantees are fully underwritten by Pension Funds Act 24 of 1956.
WE ARE FINANCIALLY SOUND
Solvency Capital Requirement (SCR)
We are required to maintain assets meeting the prescribed capital adequacy requirements, as defined by the Prudential Standards (as set out
by the PA). The level of solvency of a company is assessed by comparing the amount and quality of resources available (as measured through
own funds) to cover risks (as estimated through the SCR). The SCR cover ratio is monitored to assess our solvency at any time and is our
regulatory capital required.
Alexander Forbes Investments Alexander Forbes Group Holdings Limited
500 3.5
R3.5
3.0 billion
400 R417.4 Surplus
million R69.2 million 2.5 Surplus
R2.1 billion
300 R348.2 2.0
million
200 This implies 1.5 This implies
a capital R1.4 a capital
cover ratio 1.0 billion cover ratio
100 of 1.2 of 2.5
0.5
0 0
Own funds SCR Own funds SCR
The Alexander Forbes board has set a capital adequacy target of 120% of SCR that it believes is prudent to mitigate against any foreseeable risks,
considering the company’s operations. Using the measures and interpretations under the Insurance Act 18 of 2017 and Prudential Standards
implemented during 2018, Alexander Forbes Investments has a surplus capital of R69.2 million as at 31 March 2020, which reflects a capital cover
ratio of 1.2 or 120%.
SCR calculation and reporting
Annually Bi-annually Quarterly
Regulatory Financial results and market Regulatory
return announcements submissions
Our annual SCR is reviewed and signed off by:
external auditors, PricewaterhouseCoopers
independent actuary, QED Actuaries & Consultants
The valuation of our financial soundness is completed annually and certifies that our funds exceed the capital adequacy requirements calculated
according to the guidelines of the Actuarial Society of South Africa. We are also required to submit quarterly statements to the FSCA that
include asset detail relative to client investments. In addition, we also annually provide the FSCA with an audited regulatory return (Annual Solo
Quantitative Reporting Template (2019)) containing a detailed analysis of the assets, liabilities and financial soundness of the company.
|2|
WE ARE ADEQUATELY CAPATILISED
Solvency and liquidity ratios
Solvency and liquidity tests are performed monthly on the financial position of Alexander Forbes Investments.
Indicates whether Indicates whether
a company’s a company’s
current assets Solvency Liquidity cashflow is
will be enough ratio ratio enough to meet
to meet its its short- and
obligations when
3.0 3.8 long-term
they become due liabilities
A company with solvency and liquidity ratios above 1 is generally
considered healthy.
Shareholder assets – Shareholder liabilities
Solvency ratio = Shareholder liabilities
Current assets – illiquid assets
Liquidity ratio = Current liabilities
OUR RISK MANAGEMENT AND GOVERNANCE PRACTICES ARE ADEQUATE
Own Risk and Solvency Assessment (ORSA) Unitisation valuation assessment
The PA requires all insurance companies to complete an ORSA All of Alexander Forbes Investments’ portfolios are priced daily.
as part of the Solvency Assessment and Management (SAM) Pricing, or unitising, portfolios daily ensures that all cashflows, be
regulatory framework that was developed to improve policyholder it contributions or expenses, can be accurately accounted for and
protection. The ORSA aims to investigate the adequacy of insurers’ included in the price of the portfolio at any time to ensure the most
risk management, as well as assess companies’ current and future accurate returns are allocated to investors. It also ensures there is
solvency under normal and severe stress scenarios. An ORSA is little or no time delay between the initiation of the transaction (such
performed and submitted annually, or as investment switches) and its completion once a price is struck.
when the risk profile of the insurer changes materially Without daily unitisation there are time delays that can result in
when so directed by the PA discrepancies in values as investors’ assets are exposed to daily
market fluctuations, which can be material on any given day or over
Alexander Forbes Investments completed the ORSA for the year a few days.
ended 31 March 2020 and submitted it to the PA within the required
timeframe. In addition, Alexander Forbes Investments conducted an Before sending its portfolio valuations through to Alexander Forbes
out-of-cycle ORSA in April 2020 to assess the potential impact and Investments each day, Maitland Financial Services (MFS) sources
risk to its business as a result of the current COVID-19 pandemic. all the static data it requires from our underlying asset managers.
This data includes closing instrument prices, trade files (purchases,
Both ORSAs found our risk management and governance practices sales and brokerage), custodian holdings, bank statements and
adequate, reflecting our ability to manage and contain risks in exchange control prices. MFS uses this data to value each underlying
relation to meeting our strategic objectives. In addition, both ORSAs asset manager portfolio according to standardised valuation
showed that Alexander Forbes Investments is profitable and has methodologies set out in the Alexander Forbes Investments Valuation
sufficient capital and solvency in the event of normal and severe Policy.
stress scenarios.
The daily valuations received from MFS are then added into
Asset Liability Management (ALM) Alexander Forbes Investments’ proprietary investment administration
system – System for Administration of Multi-Manager Investments
Clients hold investment-linked policies issued by Alexander Forbes (SAMMI) and data reporting management system – Unified Data
Investments and nominate investment portfolios that underlie the Warehouse (UDW). SAMMI caters for the daily unitisation, transacting
investment-linked policies. and rebalancing of all multi-management portfolios, while UDW takes
Clients own the insurance policies and Alexander Forbes Investments care of fund performance and regulatory reporting.
owns the assets and funds held within the investment portfolios. A
key control for any linked insurer is to ensure that the assets held in From March 2021, the existing process changes slightly in that MFS
the investment portfolios equal the liability that the company has to will no longer be responsible for sourcing the static data required
its clients. On a monthly basis we perform an Asset Liability Matching to calculate valuations on our underlying asset manager portfolios.
analysis that reconciles total assets (held for policyholders) to total MFS will receive the portfolio valuations directly from our underlying
liabilities of the company (underlying the investment-linked policies) asset managers and aggregate it into one consolidated valuation
from the various reporting and administration systems. report for onward distribution to Alexander Forbes Investments. This
change does not affect the existing back-office functions relating to
Internal Audit reviews the Asset Liability Matching process applied on investment accounting, trading and cashflow management. These
a cyclical basis. External Audit also reviews the process as part of its responsibilities remain with MFS.
annual statutory audit. No exceptions were found when reviewed as
part of the March 2020 year-end statutory audit. |3|
Enterprise risk management
Sound risk management is a component of the group’s strategic intent. It enhances our ability to perform against stated objectives. Risk
management is about creating value and ensuring we preserve that value for our stakeholders.
Accountability for Independent
2 3
We manage risk along oversight and control assurance
In addition to second-line
four lines of defence: and control functions .
(internal or
Independent audit and bespoke)
risk committees provide Provides assurance
objective oversight. Risks through internal and
are rigourously evaluated bespoke external audit
to ensure appropriate concerning the adequacy
mitigation through and effectiveness of
Accountability for frequent risk assessment risk management
1
risk management and report-back, governance and
continuing engagement internal control.
Management holds and monitoring of the
responsibility and environment.
accountability for managing
4
risks on a day-to-day
basis. Through operational
committees, management External
provides oversight on
strategy implementation, audit
performance measurement,
risk management, company
controls and governance
processes.
Governing bodies
The group’s board of directors is the highest governing body, ensuring that all companies within the group are led in an ethical and responsible
manner. It holds ultimate accountability for risk management. Senior management is responsible for developing and implementing the
company’s risk strategy and supporting risk management infrastructure.
Risk management is built into decision-making structures and processes at both company executive management and operational levels.
Decisions around risk mitigation strategies within our risk appetite measures are reviewed by independent parties – assessment of the robustness of
the measures includes stress tests to key variables and systemic shocks. We have contingency plans in place for unexpected or worst-case scenarios.
Oversight and decision-making committees at group, board and executive level
ALEXANDER FORBES GROUP BOARD OF DIRECTORS
Group Risk and Mergers and Social, Ethics & Nominations Remuneration
Audit Acquisitions Transformation Committee Committee
Committee Committee Committee
ALEXANDER FORBES INVESTMENTS BOARD OF DIRECTORS
Key Individuals (KI) Committee Governance functions
KI Committee Fee Committee
(2) (3)
Management Investment Independent Independent Independent Independent Independent Independent
Operations Operational
Risk Committee non- Regulatory Internal External
Committee Due Diligence Risk Control Actuarial
Committee and Sub- executive Compliance Audit Audit
(OPCO) Committee Function Function
(1) committees members Function Function Function
(2)
(2)
(1) Meets quarterly, (2) Meets monthly, (3) Meets at least quarterly
Group Risk and Audit Committee
The Group Audit and Risk Committee is independent of Alexander Forbes Investments and provides objective oversight and perform statutory
duties in line with section 94(7) of the Companies Act of 2018. The committee is made up of three independent non-executive directors, who are
appointed by the board. The chairperson of the committee is an independent, non-executive director of the Alexander Forbes Group board of
directors.
The committee meets at least quarterly and can invite skilled members of management, as deemed appropriate, and external parties to their
meetings. |4|
To succeed in their functions, the committee ensures that the respective role players maintain an effective risk management system that
includes strategies, policies and procedures for identifying, assessing, monitoring, managing and reporting all reasonably foreseeable
current and emerging material risks that the business may be exposed to. The committee also works to ensure the audit, risk, actuarial
and compliance control functions establish, implement and maintain appropriate mechanisms and activities to assist the board of
directors and managing executives in carrying out their respective responsibilities.
Key Individual (KI) Committee
Management Risk Committee
subcommittee of the Alexander Forbes Investments KI Committee
meets quarterly
chaired by the Chief Financial Officer
Purpose: This committee is designed to be a part of the organisation’s risk infrastructure and aims to provide effective risk and
assurance oversight across management objectives and responsibilities. The committee is used to engage the right people across the
organisation to ensure risk prioritisation and response, as well as effective risk management processes.
Investment Committee
subcommittee of the Alexander Forbes Investments KI Committee
meets monthly
chaired by the Chief Investment Officer
has representation from investment and non-investment team members and includes an external independent member
Purpose: Given that we apply a consistent philosophy and process across all our portfolios, it naturally follows that the decision-
making process be a committee-based one. A key advantage of this is that the skills of everyone is brought to bear on every portfolio.
The committee oversees our portfolios and is responsible for the investment outcome of our portfolios. It also has authority to
approve or reject all investment proposals. It typically focuses on material and strategic decisions. All material decisions require the
committee’s approval prior to implementation.
Private Market Governance Committee
subcommittee of the Investment Committee
meets periodically
chaired by the Chief Financial Officer
includes an external independent member
Purpose: The committee critically reviews proposals submitted by the investment team with respect to approval of private market
allocations.
Operations Committee (Opco)
subcommittee of the Alexander Forbes Investments KI Committee
meets monthly
chaired by the Head: Investment Operations
Purpose: The committee is constituted in terms of best practice corporate governance principles to assist and support management
in fulfilling their oversight responsibilities with regard to the operational processes and execution of the business and the governance
structure that supports it.
Operational Due Diligence (ODD) Committee
subcommittee of the Alexander Forbes Investments KI Committee
meets every second month at a minimum or whenever a new portfolio or asset manager review is initiated, and on an ad hoc
basis, as required
chaired by the Head of Operational Due Diligence
comprises members from legal, risk and compliance, operations, investments and technical solutions
Purpose: Its key objective is to provide sign-off before investment is made into any new portfolio or with a new underlying asset
manager (for the multi-managed investment portfolios). A detailed analysis of the new portfolio, particularly a review of the portfolio
structure, legal structure and asset manager’s operational risks, is performed. If serious risks or inappropriate portfolio or legal
structures are identified, it reports its concern to the Investment Committee and recommends not to invest in the portfolio. This takes
place before assets are allocated to said portfolio or asset manager. We undertake operational due diligence reviews of all underlying
asset managers of the multi-managed portfolios annually. The review concentrates on changes to portfolio administration, portfolio
structure and any legislative or regulatory changes in the portfolio’s jurisdiction. This ensures that the correct corporate governance
and necessary financial licences and insurance are in place for the continued running of portfolios.
|5|External parties’ assurance
Internal audit External audit Head of Actuarial
provided by provided by Function
Alexander Forbes
Group Internal Audit
Reviews integrity of governance, Expresses audit opinion on annual Expresses an opinion on SCR
risk management and internal financial statements and fulfils annually and signs off regulatory
controls over financial and reporting requirements reports. Completes independent
operational transactions. Reviews assessment of our financial
all processes on a cyclical basis soundness yearly, in accordance
with the Financial Soundness
Reports findings directly to Standards for Insurers.
the Audit Committee
Operational assurances
STRATE segregated depository accounts Having segregated depository accounts with Strate increases
security to clients by providing us with an independent source of
We hold assets within the investment portfolios, in its own name. information on instruments held within portfolios. This provides
The scrip of these assets is held within segregated depository additional security to holding assets in that assets are not pooled
accounts with Strate, South Africa’s Central Securities Depository. within a nominee company but are separately identifiable.
It is an FSCA-licenced financial market infrastructure that owns
technology to securely hold equities, bonds and money market The Strate scrip holdings are reconciled daily by our custodian
securities, in electronic form, so that buyers and sellers can FirstRand Bank Limited (acting through RMB Custody and Trustee
exchange ownership of these securities once they are successfully Services) and monthly to the underlying asset manager holdings. All
traded. differences are queried and resolved.
Reconciliation of assets
Listed assets
Cash recons performed daily
Prove Scrip recons performed monthly Parties
Daily instrument pricing validation at
existence agree instrument level
of assets SAMMI
Underlying
asset
on value of External auditor’s validation – re-perform
manager assets the valuation of all assets at year-end
>Proving the existence of listed assets >Agreeing on the value of the listed assets
Cash reconciliations between the custodian and SAMMI, and Daily instrument pricing validation
between SAMMI and the underlying asset manager, are performed Daily pricing is performed at an instrument level with interdependent
daily. daily validations. The daily process involves the following:
receiving trading files from the various underlying asset managers,
Scrip reconciliations between the custodian and SAMMI, and SAMMI as well as scrip records inclusive of any cash holdings
and the underlying asset manager, are performed monthly. obtaining the latest price of the instruments held by each asset
manager
The assets we hold are verified by our appointed custodian receiving a full market value file containing the price and detail of
FirstRand Bank Limited (acting through RMB Custody and Trustee each security per asset manager portfolio
Services). scrutinising any breaches to determine if the difference resulted
from price or trade-related issues
The verification forms part of the annual audit process and is
where errors are found, we temporarily estimate the value
covered and signed off in the annual financial statements.
we consult with the asset manager to determine the remedial
action to ensure the value is then repaired
Once all values have been scrubbed and verified, they are approved in
the system and rolled up to price the building blocks and investable
products.
External auditor’s validation
As part of our year-end statutory audit, our external auditor
reperforms the valuation of all assets as at our year-end date.
|6|Unlisted assets (private markets) Offshore assets
Unlisted assets are generally held in regulated vehicles such as We invest offshore asset allocations in Mercer portfolios, which in
en commandite partnerships that are subjected to an annual turn are invested into regulated pooled funds in Ireland, governed
audit held via other insurers’ balance sheets. Where the assets by UCITS, European Union legislation. This is the equivalent
are accessed via insurer pools, these are subject to the insurer’s of South Africa’s CISCA legislation. In addition, Mercer has an
annual audit processes as well as Alexander Forbes Investments’ unqualified ISAE3402 Type 2 (International Operational Process
due diligence framework (research, operational due diligence and Assurance Standard), which is performed annually. The last review
investment due diligence). was as at December 2018. State Street is Mercer’s trustee and
custodian, and KPMG is the external auditor.
WE ARE SUFFICIENTLY COVERED
Insurance
Category Level of cover
Professional Indemnity cover
Limit of indemnity R2 billion for any one claim or loss in the annual aggregate
(first R90 million funded through an Alexander Forbes group cell
captive arrangement)
Excess R1.5 million for each and every claim
Combined Commercial Crime cover
Limit of indemnity R400 million for any one claim or loss and in the annual
aggregate
Expiry date
Excess Africa: R1 500 000 for each and every claim
Other: GBP100 000 for each and every claim
Directors’ and Officers’ Liability cover
Limit of indemnity R1 billion for any one claim or loss
31 March 2021 Excess R14 million for each and every claim
Cybercrime Insurance cover
Limit of indemnity R200 million for each loss and in the aggregate per policy for all
losses as a combined limit or sub-limits applicable
Excess R1.5 million for each and every loss or 12 hours for Network
Interruption. No excess applicable to First Response for 72 hours
Why we believe we have enough cover
The total insurance cover at group level is R2 billion, with the first R90 million held in the group’s captive insurer. We believe this level of
cover is more than sufficient, for the following reasons:
▪ The business model is one of a linked insurer, meaning every policyholder liability is matched with an underlying policyholder asset.
There is no underwriting exposure. The company’s real business risk is primarily operational.
▪ A sizeable amount in capital is held on Alexander Forbes Investments’ balance sheet, which increases as assets under management
increase. Capital is calculated in terms of legislation.
▪ The operational risk management process mitigates errors and omissions, and the actual error rate is low.
▪ Insurance brokers reassess the level of cover required annually , relative to our inherent business, industry risks, and control
environment.
▪ The level of cover in place is well above the minimum amount prescribed by FAIS and the Solvency Assessment and Management
(SAM) regulatory framework.
Insurance cover of the appointed custodian and underlying asset managers
The custodian and underlying asset managers that we use have their own personal indemnity insurance cover. As part of the operational
due diligence we conduct on them each year, they are required to provide to us detailed proof of adequate cover and appropriate
insurance. The adequacy of the cover is reviewed in terms of the assets under their management.
The portfolio management agreement we have with asset managers holds them liable in the event of fraud and/or negligence. The
custody agreement holds the appointed custodian liable in the event of fraud and/or negligence.
|7|WE ARE PREPARED AND RESPONSIVE
Business Continuity Plan (BCP)
As part of the PA requirements, we have a Business Continuity Management Policy framework in place, which is board approved. Alexander
Forbes adheres to the PA’s Standard GOI 3.2 and aligns with the Good Practice Guideline (GPG) Standards of 2018 as good business practice.
The following testing types are considered:
a business impact analysis is performed at least annually, or when major changes occur
BCPs are in place for all business units and these are tested at least annually
Disaster Recovery Plan (DRP)
Our DRP is incorporated into the Alexander Forbes Group Information Security Policy. We have access to the group’s extensive countrywide
infrastructure for BCP purposes. This plan is designed around different levels of disaster tolerance. Alexander Forbes Group IT has defined a
disaster recovery strategy and has drafted service recovery instruction documents for all critical applications.
Cybersecurity
We take the protection of our clients’ information seriously. This is in line with our commitment to comply with legislation such as the
Protection of Personal Information Act, when the compliance and reporting obligations take effect.
Alexander Forbes has a robust cybersecurity risk framework which has been designed to be responsive to environmental change. As a
result, we have strengthened our framework to respond to the shift because of COVID-19 and the country-specific lockdown regulations.
Key pillars in our cyber framework during the lockdown include:
1. Client data
Access to client data is provided only to employees who need the data for business purposes and is enforced through user groups and
unique user profiles. Robust password standards and password reset policies are vigorously enforced with regular independent access
audits.
2. Multifactor authentication
Alexander Forbes employees access the various applications through a secure virtual private network (VPN) connection using
multifactor authentication (MFA). MFA is in place as a standard for remote access users across all laptops, desktops, mobile devices
and tablets that access our environment.
3. Encryption
Hard drives are encrypted in all laptops and all desktops. This is standard practice and is part of the initial setup and configuration
of end-user computing devices. The encryption is monitored and reported on by McAfee, an end-user antivirus and protection
application. USBs on desktops and laptops have been disabled so that data cannot be transferred.
4. Heightened awareness campaigns
Employee awareness and education on cyber risk continues. We have amplified campaigns with specific focus on COVID-related
phishing attacks and the need to remain vigilant to suspicious emails.
5. Red and blue team testing
We have subjected our environment to independent, specialised red and blue team testing to identify any weaknesses or
opportunities to strengthen our cybersecurity posture. Red teams are offensive security professionals who are experts in attacking
systems and breaking into defences. Blue teams are defensive security professionals responsible for maintaining internal network
defences against all cyberattacks and threats.
6. Monitoring and detecting cyberactivity
We use several tools and resources to prevent, detect and monitor cyberactivity in terms of the organisation’s infrastructure.
7. Security Operations Centre (SOC)
Our internal environmental monitoring is further strengthened through a best-practice service, the Security Operations Centre (SOC).
The SOC houses a dedicated and highly specialised information security team responsible for monitoring and analysing Alexander
Forbes’s security posture on an ongoing basis. The SOC team’s mandate is to detect, analyse and respond to cybersecurity incidents
using a combination of technology solutions and a strong set of processes. The SOC employees work closely with our organisational
incident response team to ensure security issues are addressed quickly and effectively upon discovery to mitigate risk, prevent
reputational risks and ensure protection of sensitive data.
Alexander Forbes’s cybersecurity risk framework aims to ensure that cyber risks are identified and mitigated timeously and contributes to
securing the financial well-being of our clients.
For more information on our BCP, DRP and cybersecurity, refer to the Operational Due Diligence document.
|8|CONTACT DETAILS
Alexander Forbes Investments
Telephone number: +27 (0)11 505 6000
Postal address: PO Box 786055, Sandton 2146
Email address: afinvestments@aforbes.com
Complaints
If you are unhappy with any aspect of our service or products, please let us know as soon as possible through one of the following
channels:
Email: afinvestcontactcentre@aforbes.com
Telephone: Please address all complaints to our Contact Centre at 0860 333 316
Physical address: Visit us at Alexander Forbes Investments
115 West Street, Sandown 2196
Mail: Complaints Management
Head Compliance Department
PO Box 786055
Sandton
2146
Our COMPLAINTS POLICY and COMPLAINTS HANDLING PROCEDURE documents are available on our website. Alternatively, you can
send written complaints and supporting documents to:
Mail: The Compliance Officer
Alexander Forbes Investments
PO Box 786055
Sandton
2146
Email: zzAFInvestcompliance@aforbes.com
Disclaimer
Alexander Forbes Investments Limited is a licensed financial services provider, in terms of section 8 of the Financial Advisory and
Intermediary Services Act 37 of 2002, as amended, FAIS licence number 711. This information is not advice, as defined and contemplated
in the Financial Advisory and Intermediary Services Act 37 of 2002, as amended.
The value of a portfolio can go down, as well as up, as a result of changes in the value of the underlying investments, or of currency
movement. An investor may not recoup the full amount invested. All policies issued or underwritten by Alexander Forbes Investments
are linked policies, under which no guarantees are issued. The policy benefits are determined solely on the value of the assets, or
categories of assets, to which the policies are linked.
Past performance is not necessarily an indication of future performance. Forecasts and examples are for illustrative purposes only and
are not guaranteed to occur. Any projections contained in the information are estimates only and are not guaranteed to occur. Such
projections are subject to market influences and contingent on matters outside the control of Alexander Forbes Investments, so may not
be realised in the future.
Please be advised that there may be supervised representatives.
Company registration number: 1997/000595/06
Pension Fund Administrator number: 24/217
Insurer number: 10/10/1/155
Postal address: PO Box 786055, Sandton 2146
Physical address: 115 West Street, Sandown 2196
Telephone number: +27 (0) 11 505 6000
The complaints policy and conflict of interest management policy can be found on the Alexander Forbes Investments
website: www.alexanderforbesinvestments.co.za.
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