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NOTICE IS HEREBY GIVEN THAT THE SEVENTY-SEVENTH ANNUAL GENERAL MEETING OF BP MEDICAL AID SOCIETY WILL BE HELD ON FRIDAY, 23 MAY 2014, AT 10:00 IN THE PROGRESSIVE AND INNOVATION MEETING ROOMS, BP WATERFRONT, PORSTWOOD RIDGE, DOCK ROAD, V&A WATERFRONT, CAPE TOWN.

AGENDA

1. Opening and welcome 2. Apologies 3. To adopt the Minutes of the Annual General Meeting held on Thursday, 23 May 2013 4. To adopt the Annual Report of the Chairperson of the Board for the year ended 31 December 2013 5. To adopt the Annual Financial Statements for the year ended 31 December 2013 6. To note the member-elected and employer-appointed Trustees for the ensuing year 7. To note the composition of the Disputes Committee for the ensuing year 8. To note the appointment of the Auditors for the ensuing year 9. To report back on matters raised by members at the 2013 Annual General Meeting 10. To transact any other business of which notice was given to the Principal Officer by 16 May 2014 By order of the Board

ILSE HARTLIEF

PRINCIPAL OFFICER

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BP MEDICAL AID SOCIETY CHAIRPERSON’S REPORT FOR THE YEAR 2013

The Annual Financial Statements reveal that 2013 was an exceptional year for our Society, bucking the industry trend as far as claims experience went. The impact of this on members was a 7.7% contribution increase – one of the lowest in the industry – which will be effective from 1 April 2014 to 31 March 2015. The Board of Trustees commends valued members, service providers, administrators, managed care providers, consultants and benefactors, as well as serving members of committees, for your role in contributing to these favourable results, which will certainly enhance the future sustainability of our Society. Taking the pulse

Our actuaries advise that the low increase was possible because of the following reasons:

1. Quite remarkably, there were no high-cost cases for continuation members in 2013! A high-cost case is defined as a case in which a single member’s total claims exceed R500 000 in a benefit year. In 2012 there were eight such cases. The effect of this was a hugely positive R6 million reduction in the claims costs for our Society.

2. There was an overall 12.1% and 7.1% decrease in budgeted claims costs for continuation and active members respectively.

3. Oncology claims decreased.

4. Members claimed less, generally speaking. These factors enabled the Society’s:

- reserves to grow from R75 030 884 (2012) to R88 799 345; and - accumulated funds ratio to move from 99.14% (2012) to 110.96%. Prescribing the right medicine and contra-indications

In deciding upon any benefit improvements and in setting contribution increases, and thus setting the budget for any particular benefit year, the Board of Trustees is mindful of the fact that our Society:

1. has reserves well above the statutory minimum of 25%, which for strategic reasons and due to the factors mentioned below should not fall below 70%;

2. has a significantly higher-than-average age for principal members (59) and total beneficiaries -– (43), and a high prevalence of chronic disease - around 33% of members suffer from one or more chronic diseases;

3. has a continuation membership of 58%; 4. is, because of its size (at 31 December 2013: principal members – 1 996; total beneficiaries – 4 264) more

exposed to the risks associated with: - the sudden onset of ill health;

- major medical events requiring hospitalisation; - incidents of trauma involving surgery and thereafter rehabilitation; - neo-natal cases; and

- the seasonality of claims, measured against past claims experience; 5. is also exposed to the vagaries related to the unpredictability and impact of high-cost cases in any benefit

year; 6. ought to manage the reserves in the best interest of members through the introduction of possible benefit

enhancements and/or lower contribution increases; 7. should ensure that members are protected from the risk of the use of surplus reserve funds to enhance

benefits or lower contribution increases, which could result in what for some schemes has been ‘an actuarial death spiral’; and

8. is required to be prudent in maximising returns on investments while adhering to the regulations that have been prescribed for medical schemes and at the same time preserving capital.

Alexander Forbes, in their capacity as consulting actuaries, continue to provide exceptional advice, service and support to the Society. This is backed up by their analyses of real and historical claims experience, thereby enabling the Trustees to, among others, annually decide on:

- appropriate benefits and benefit enhancements;

- how medical-related inflation will affect increases to benefits and contributions; and - how to achieve the Society’s strategic target of achieving an overall surplus before investment income.

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BP MEDICAL AID SOCIETY CHAIRPERSON’S REPORT FOR THE YEAR 2013 (CONTINUED)

For 2014 a cushion of 2.5% was built into the budget to allow for possible future dental benefit enhancements and an increase in continuation member claims. In doing so the Trustees have also periodically evaluated the Society’s benefits and contributions against comparable benefit options of leading open schemes in the medical scheme industry. Environmental influences

The healthcare industry continues to face external challenges, the most important of which are:

1. the move towards the introduction of a National Health Insurance system, which is now in a pilot phase, and possible future implications;

2. the competition commission market inquiry into the healthcare industry (headed by former chief justice Sandile Ngcobo), which will look at the high cost of private healthcare and make recommendations with regard thereto;

3. the State’s commitment to deliver on new infrastructure, as well as the upgrade and refurbishment of existing public facilities, which would be able to compete for custom;

4. the general shortage of healthcare professionals, specifically in rural areas; 5. the ineffective leadership and management of public sector facilities, as well as a lack of staff commitment

and delivery; 6. the continuing need for the determination of a fair basis for setting the price of healthcare services, so as to

ensure:

- the sustainability of the private healthcare sector, one of South Africa’s priceless assets; - the retention, rather than the flight, of our significant professional skills and experience; - affordable, equitable and appropriate access to healthcare services for all South Africans across both

the private and more competitive public sectors; 7. the regulatory emphasis on good governance and the protection of members, through:

- the application of the principles of King III – Code on Corporate Governance; - ensuring that Trustees are fit and proper to carry out their fiduciary duties and responsibilities;

- the introduction of individual trustee and committee performance evaluation and assessment processes;

- legislation such the Protection of Personal Information Act and the Consumer Protection Act; and - considerations based on guidelines, such as treating customers fairly

8. the decrease in the number of registered medical schemes and an increasing trend for amalgamations. Strategic objectives and highlights

At this point in time the Board of Trustees, either directly or through the various committees or sub-committees appointed by it, had achieved the following objectives for 2013:

- the introduction of more effective member communication through newsflashes and SMS technology; - the introduction of a comprehensive maternity benefit, vaccination programme for infants, post-

hospitalisation rehabilitation benefit and a review of the dental benefit; - the development of the vision, values and mission statements under our code, which sets out the Society’s

guiding principles for the future; - a review of the administration and managed health provider agreements;

- a revision of the investment policy; - the continued seeking and forging of meaningful relationships with all stakeholders; and - to curtail meeting proceedings through the introduction of more focused discussions and more meaningful

rules for engagement. The following are the principal objectives that have been identified for 2014:

- Introduce a new employee/member induction training module relating to the Society with the support of BP. - Develop a comprehensive preventative health strategy and, flowing from this, possibly redesign the

preventive health benefit.

- Provide support for the independent actuarial evaluation of the BP Medical Aid Society’s value proposition by comparing the Society to other comparable medical schemes in the industry.

- Promote member health and wellness through the adoption of a more holistic and integrated approach involving the BP Wellness Programme and Multiply.

- Complete the exploratory investigation into the possible introduction of a specialist network. - Investigate the burden of disease and chronic disease prevalence facing the Society with a view to

developing a more comprehensive approach to the management of members.

- Identify and/or clarify the respective roles and responsibilities of Trustees and members of the committees and sub-committees.

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BP MEDICAL AID SOCIETY CHAIRPERSON’S REPORT FOR THE YEAR 2013 (CONTINUED)

Board, committee and sub-committee member changes

Although there were no Trustee elections in 2013, the following changes to the composition of the Board of Trustees and, in consequence, to the various committees and sub-committees took place:

- On 31 March Bebe Oyegun and Betina de Araujo, who were BP (employer) appointed Trustees, resigned from the Board.

- Bahijah Hashim and Patricia Dourans were appointed by BP to take their places as Trustees with effect from 1 April and 1 May respectively.

Patricia, who had returned to BP from a BP United Kingdom assignment, accepted positions on the Audit Committee and the Risk Sub-Committee, resuming her role as Chairperson of the latter. To fill the vacancies caused by Bebe’s resignation, Bahijah duly accepted a position on the Legal Compliance and Contractual Sub-Committee and Solly Molekwa the position of Chairperson of the Communications Sub-Committee. With the resignation of Russel Glass from the Investment Sub-Committee, I was appointed to fill the gap pending the appointment of someone suitable and willing to take up such a position. A final note of deep appreciation

It is customary to express our gratitude and heartfelt appreciation to so many persons and entities associated with the Society. Thus do we on behalf of all our members express our grateful thanks to:

- our 2013 Trustees – Albert Myburgh, Colin McClelland, Bebe Oyegun, Betina de Araujo, Vusi Mbedu, Solly Molekwa, Patricia Dourans and Bahijah Hashim for their dedicated and engaging commitment to Society affairs;

- our Principal Officer, Ilse Hartlief, who continues to be that consistently persevering and quiet strength behind the wheel, as she contributes to and influences the successful outcome of trustee and committee debate. In all she does she has a deep desire and continuous commitment to promote and protect members’ interests; it has been said before but needs to be repeated - Ilse has excellent communication skills; with these she combines her empathy and understanding, as well as high ethical standards, to meet all stakeholder needs as she ensures that all the governance-related issues are appropriately dealt with;

- the members of our Society for all they have done to assist in managing their health and wellness, as well as their own disease burdens and episodes of acute sickness in the best interest of all members;

- our Medical Advisor, Dr Shuaib Manjra, for his dedicated, continued passion, dedication and commitment, as well as his clinical guidance and wisdom as Chairperson of the Clinical Sub-Committee;

- the members of our various Committees and Sub-Committees – Audit, Clinical, Risk, Legal Compliance and Contractual, Investment, Operations, Communications and Disputes;

- our service providers:

Metropolitan Health (MH), our Administrator – led by Pamela Botha as Fund Manager and supported by Noxolo Macwili in her capacity as minute secretary;

Alexander Forbes, our healthcare consultants – with Casper de Vries an absolute star performer; he continues to add significant value and comfort to the Trustees in all he commits to and delivers on, especially the benefit and contribution review process and other ad hoc requests, such as the investment policy review;

Metropolitan Health Risk Management (MHRM), our managed healthcare providers;

the Mediclinic and Life Healthcare hospital groups, Dis-Chem, Clicks directmedicines, ER24 and Preferred Provider Negotiators, our preferred and designated service providers (DSPs);

Ernst & Young Inc, our external Auditors – in the team led by Pierre du Plessis and supported by Althea Groenewald and Janine Horn;

- most importantly our major benefactor as sponsoring employer, BP Southern Africa (Pty) Ltd, for:

the company-appointed Trustees, the Medical Advisor and the Principal Officer;

BP’s continued commitment to meeting the costs relating to the employment of these people while engaged in the affairs of our Society;

very generous financial support, through: o the employment-linked subsidies provided to members, whether active or continuation; o the continuing financial commitment relating to the additional subsidy for continuation members

and the payment of HIV & AIDS-related costs. John E Bush

Chairperson

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BP MEDICAL AID SOCIETY ANNUAL FINANCIAL STATEMENTS for the year ended 31 December 2013

STATEMENT OF RESPONSIBILITY BY THE BOARD OF TRUSTEES

The Trustees are responsible for the preparation, integrity and fair presentation of the Annual Financial Statements of the BP Medical Aid Society (the Society). The Annual Financial Statements presented on pages 18 to 47 have been prepared in accordance with International Financial Reporting Standards (IFRS) and include amounts based on judgments and estimates made by management under the guidance and oversight of the Trustees. The Trustees consider that in preparing the Annual Financial Statements they have used the most appropriate accounting policies, consistently applied and supported by reasonable and prudent judgments and estimates. The Trustees are satisfied that the information contained in the Annual Financial Statements fairly presents the results of operations for the year, the cash flow and the financial position of the Society at year-end. The Trustees are also responsible for the preparation of the other information included in the annual report and are responsible for both its accuracy and its consistency with the financial statements. The Trustees have responsibility for ensuring that accounting records are kept. The accounting records should disclose with reasonable accuracy the financial position of the Society, which enables the Trustees to ensure that the Annual Financial Statements comply with the relevant legislation. The Society operated in a well-established control environment, which is well documented and regularly reviewed. This incorporates risk management and internal control procedures, which are designed to provide reasonable, but not absolute, assurance that the assets are safeguarded and the risks facing the business are being controlled. The going concern basis has been adopted in preparing the Annual Financial Statements. The Trustees have no reason to believe that the Society will not be a going concern in the foreseeable future, based on forecasts and available cash resources. These Annual Financial Statements support the viability of the Society. The Society's external Auditors, Ernst & Young Inc, audited the financial statements in terms of International Standards on Auditing and their report is presented on page 5. The financial statements were approved by the Board of Trustees on 15 April 2014 and are signed on its behalf by:

J Bush

Chairperson

C McClelland

Trustee

I Hartlief

Principal Officer 15 April 2014

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STATEMENT OF CORPORATE GOVERNANCE BY THE BOARD OF TRUSTEES

The BP Medical Aid Society is committed to the principles and practice of fairness, openness, integrity and accountability in all dealings with its stakeholders. The Fund conducts its affairs according to ethical values. The Trustees of the Fund are appointed or elected by the participating employers or the members of the Fund respectively. The Trustees recognise the need to conduct the business of the Fund in accordance with the principles of the King Code of Corporate Practices and Conduct (‘King III’). BOARD OF TRUSTEES

The Trustees meet regularly and monitor the performance of the Administrator. They address a range of key issues and ensure that discussion of items of policy, strategy and performance is critical, informed and constructive. All Trustees have access to the advice and services of the Principal Officer and, where appropriate, the Board may seek independent professional advice at the expense of the Society. INTERNAL CONTROLS

The Administrator of the Society maintains internal controls and systems designed to provide reasonable assurance as to the integrity, adequacy and reliability of the financial statements and to safeguard, verify and maintain accountability for the Society's assets. Such controls are based on established policies and procedures and are implemented by trained personnel with the appropriate segregation of duties. No event or item has come to the attention of the Board of Trustees that indicates any material breakdown in the functioning of the key internal controls and systems during the year under review.

J Bush

Chairperson

C McClelland

Trustee

I Hartlief

Principal Officer 15 April 2014

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REPORT OF THE INDEPENDENT AUDITOR TO THE TRUSTEES OF BP MEDICAL AID SOCIETY

Report on the financial statements

We have audited the financial statements of BP Medical Aid Society as set out on pages 18 to 47, which comprise the Statement of Financial Position as at 31 December 2013, and the Statement of Comprehensive Income, Statement of Changes in Funds and Reserves and Statement of Cash Flows for the period then ended, a summary of significant accounting policies and other explanatory information. Trustees’ responsibility for the financial statements BP Medical Aid Society’s Trustees are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Medical Schemes Act, 131 of 1998, as amended, and for such internal control as the Trustees determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the Auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the Auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Trustees, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of BP Medical Aid Society as at 31 December 2013, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and in the manner required by the Medical Schemes Act, 131 of 1998, as amended.

Report on other legal and regulatory requirements

As required by the Council for Medical Schemes, we draw your attention to note 23, instances of non-compliance with the Medical Schemes Act, 131 of 1998, as amended.

Other reports required by the Medical Schemes Act As part of our audit of the financial statements for the year ended 31 December 2013, we have read the Trustees’ Report for the purpose of identifying whether there are material inconsistencies between this report and the audited financial statements. This report is the responsibility of the respective preparers. Based on reading this report we have not identified material inconsistencies between the report and the audited financial statements. However, we have not audited this report and accordingly do not express an opinion on the report.

Ernst & Young Inc

Director – Pierre du Plessis Registered Auditor Chartered Accountant (SA)

15 April 2014 Ernst & Young House 35 Lower Long Street Cape Town

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BP MEDICAL AID SOCIETY REPORT OF THE BOARD OF TRUSTEES

The Board of Trustees hereby presents its report for the year ended 31 December 2013. Registration number: 1237

1. MANAGEMENT

1.1 BOARD OF TRUSTEES

The following persons served on the Board of Trustees during the year under review: Employer appointed

S Molekwa B Hashim Appointed: 1 April 2013 P Dourans Appointed: 1 May 2013 E Oyegun Resigned: 31 March 2013 B de Araujo Resigned: 31 March 2013 Member elected

J Bush Chairperson A Myburgh C McClelland Trade Union Representative

V Mbedu 1.2 PRINCIPAL OFFICER

I Hartlief

BP Waterfront PO Box 6006 Dock Road Roggebaai Portswood Ridge 8012 V&A Waterfront 8002

1.3 SECRETARY

N Macwili

1.4 REGISTERED OFFICE ADDRESS AND POSTAL ADDRESS

BP Waterfront PO Box 6006 Dock Road Roggebaai Portswood Ridge 8012 V&A Waterfront 8002 Country of registration and domicile: South Africa

1.5 MEDICAL SCHEME ADMINISTRATOR

Metropolitan Health Corporate (Pty) Ltd

Town Square PO Box 4313 61 St George’s Mall Cape Town Cape Town 8000 8001 Accreditation number: 17

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BP MEDICAL AID SOCIETY REPORT OF THE BOARD OF TRUSTEES (CONTINUED)

1. MANAGEMENT (CONTINUED)

1.6 INVESTMENT MANAGERS

Investment Solutions

1 Inanda Greens Office Park PO Box 786055 54 Wierda Road West Sandton Wierda Valley 2146 2196 Service provider number: 711

1.7 AUDITOR

Ernst & Young Inc

Ernst & Young House PO Box 656 35 Lower Long Street Cape Town Cape Town 8000 8001

1.8 ACTUARIAL CONSULTANTS

Alexander Forbes Health (Pty) Ltd

40 Dorp Street PO Box 700 Stellenbosch Stellenbosch 7600 7599

2. DESCRIPTION OF THE MEDICAL SCHEME

The BP Medical Aid Society (the Society) is a not-for-profit restricted membership scheme registered in terms of the Medical Schemes Act. Membership of the Society is open to all employees of BP Southern Africa (Pty) Ltd, former employees (subject to qualifying conditions), and employees of any other associated employer to whom membership has been extended and to the dependants of such employees. 2.1 BENEFIT OPTIONS WITHIN THE SOCIETY

The Society offers only one plan with no options.

2.2 SAVINGS PLAN

There is no savings plan.

2.3 RISK TRANSFER ARRANGEMENTS

The Society entered into an agreement with Preferred Provider Negotiators (Pty) Ltd (PPN) from January 2005, whereby PPN provides optometric services through a network of contracted providers to the beneficiaries on behalf of the Society. The Society entered into an agreement with ER24 from 1 June 2012, whereby ER24 provides emergency transport for beneficiaries on behalf of the Society.

2.4 OPERATING ENVIRONMENT

There have been no significant changes in the Society's operating environment.

3. INVESTMENT STRATEGY

The Society's investment objective is to achieve the benchmark return of CPI + 4% on its investments. The investment strategy takes into consideration constraints imposed by legislation as well as those imposed by the Board of Trustees. The Investment Committee meets regularly to ensure that the Society remains liquid, to review the performance of the asset manager, and to ensure compliance with the regulations of the Medical Scheme Act.

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3. INVESTMENT STRATEGY (CONTINUED)

The Trustees have agreed to a benchmark over a rolling 36-month period with the Society's asset manager in terms of performance. In addition the asset manager will avoid the loss of capital in any one year. The structure of the investment portfolio allows for separate disclosure of asset management fees. The underlying assets in the Investment Solutions portfolio consist of bonds and debentures, equities, listed property and cash. This strategy is reviewed regularly, taking into consideration compliance with the Medical Schemes Act, the risk and returns of the various investment instruments and the surplus of funds available.

4. MANAGEMENT OF INSURANCE RISK

The primary insurance activity carried out by the Society assumes the risk of loss from members and their dependants who are directly subject to the risk. This risk relates to the health of the Society's members. As such the Society is exposed to the uncertainty surrounding the timing and severity of claims under the contract between the Society and its members. The Society also has exposure to market risk through its insurance and investment activities. The Society manages its insurance risk through benefit limits and sub-limits, approval procedures for transactions that involve pricing guidelines, pre-authorisation and case management, as well as the monitoring of emerging issues. The Society uses several methods to assess and monitor insurance risk exposures both for individual types of risks insured and overall risks. The theory of probability is applied to the pricing and provisioning for a portfolio of insurance contracts. 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.

5. REVIEW OF THE ACCOUNTING PERIOD’S ACTIVITIES

5.1 OPERATIONAL STATISTICS

2013 2012

Number of members at year-end 1 996 2 018

Average number of members for the year 2 004 2 090

Average number of beneficiaries for the year 4 306 4 580

Number of beneficiaries at year-end 4 264 4 353

Proportion of dependants at year-end 1.15 1.19

Average age of beneficiaries 43 43

Continuation member ratio 57% 58%

Average contributions per member per month (R) 3 328 3 018

Average contributions per beneficiary per month (R) 1 549 1 377

Average claims incurred per member per month (R) 3 507 3 385

Average claims incurred per beneficiary per month (R) 1 632 1 545

Average administration costs per member per month (R) 177 164

Average managed care: Management services per member per month (R) 78 74

Average accumulated funds per member at 31 December (R) 44 311 35 900

Relevant healthcare expenditure as a percentage of contributions 105.4% 112.2%

Managed care: Management services as a percentage of contributions 2.4% 2.5%

Administration expenses as a percentage of contributions 5.3% 5.4%

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

5.1 OPERATIONAL STATISTICS (CONTINUED)

2013 2012

Amounts paid to Administrator (R) 4 664 431 4 593 299

- Administration fees 2 778 618 2 725 776

- Managed care fees (refer to note 10) 1 885 813 1 867 523

Relevant healthcare expenditure per beneficiary per month (R) 1 632 1 545

Non-healthcare expenditure per beneficiary per month (R) 83 79

Return on investments as a percentage of investments 8.2% 8.5%

5.2 RESULTS OF OPERATIONS

The results of the Society's operations for the year under review and financial position at 31 December 2013 are set out in the Annual Financial Statements. The Trustees believe that no further clarification is required.

5.3 ACCUMULATED FUNDS RATIO 2013 2012

R R

The accumulated funds ratio is calculated on the following basis:

Total accumulated funds per the Statement of Financial Position 88 799 345 75 030 884

Annual contributions 80 030 672 75 683 528

Accumulated funds ratios:

Accumulated funds/annual contributions x 100% 110.96% 99.14%

5.4 REVALUATION RESERVE

The revaluation reserve in the Statement of Financial Position reflects the unrealised gains/losses on the Society's investment portfolio in the Investment Solutions portfolio.

5.5 OUTSTANDING CLAIMS

Movements on the outstanding claims provision are set out in note 7 to the Annual Financial Statements. There have been no unusual movements that the Trustees believe should be brought to the attention of the members of the Society.

6. EVENTS FOLLOWING THE REPORTING DATE

There have been no events that have occurred subsequent to the end of the accounting period that affect the Annual Financial Statements and which the Trustees consider should be brought to the attention of the members.

7. CONTINUING FINANCIAL COMMITMENT FROM EMPLOYER

BP Southern Africa (Pty) Ltd (BPSA) agreed to pay additional amounts to assist in funding the shortfall arising from the ageing membership. These additional amounts are reflected as a continuing financial commitment, as provided for in the agreement between the Society and BPSA dated 22 October 2002. The continued sustainability of the Society is clearly dependent on the continuing financial commitment.

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8. FIDELITY COVER

The Society's Trustees are covered under a Marsh (Pty) Ltd policy underwritten by Camargue Underwriting Managers. On 31 December 2013 the value of the fidelity cover was R10 000 000 (2012: R10 000 000).

9. ACTUARIAL SERVICES

The Society's actuaries, Alexander Forbes Health (Pty) Ltd, have been consulted in the determination of the contribution and benefit levels.

10. INVESTMENTS IN AND LOANS TO EMPLOYERS OF MEMBERS OF THE SOCIETY AND OTHER

RELATED PARTIES

The Society holds no investments in, and has made no loans to, any participating employers of the Society's members. Refer to note 16 of the Annual Financial Statements for other related party transactions.

11. AUDIT COMMITTEE

A representative Audit Committee was appointed and has five members of whom two are members of the Board of Trustees. At year-end the Audit Committee comprises: Adv D Mitchell (Independent Chairperson), Ms P Dourans (Trustee), Mr N Harris (Independent member), Ms N Mbulawa (Independent member) and Mr C McClelland (Trustee). Ms I Hartlief attends meetings in her capacity as the Principal Officer. The Committee met on three occasions during the course of the year, as follows:

- 2 April 2013; - 27 August 2013; and - 29 October 2013. The Administrator and the external Auditors attend all Committee meetings and have unrestricted access to the Chairperson of the Committee. In accordance with the provisions of the Medical Schemes Act, the primary responsibility of the Committee is to assist the Board of Trustees in carrying out its duties relating to the Society's accounting policies, internal control systems and financial reporting practices. The external Auditors formally report to the Committee on critical findings arising from audit activities.

12. INVESTMENT SUB-COMMITTEE

An Investment Sub-Committee was established and is mandated by the Board of Trustees by means of written terms of reference as to its membership, authority and duties. This Sub-Committee has four members.

At year-end the Sub-Committee comprises: Mr C McClelland (Chairperson), Mr A Myburgh, Mr J Bush and Mr Q Fourie (Independent member). Ms I Hartlief attends meetings in her capacity as the Principal Officer.

The Sub-Committee met on four occasions during the course of the year, as follows:

- 19 February 2013; - 14 May 2013; - 23 July 2013; and

- 15 October 2013.

The primary responsibility of the Sub-Committee is to assist the Board of Trustees in carrying out its duties relating to the investment strategy of the Society.

13. LEGAL, COMPLIANCE AND CONTRACTUAL SUB-COMMITTEE

A Legal, Compliance and Contractual Sub-Committee was established and is mandated by the Board of Trustees by means of written terms of reference as to its membership, authority and duties. This Sub-Committee has four members.

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13. LEGAL, COMPLIANCE AND CONTRACTUAL SUB-COMMITTEE (CONTINUED)

At year-end the Sub-Committee comprises: Mr A Myburgh (Chairperson), Mr J Bush, Ms B Hashim and Ms D Stoffberg (Independent member). Ms I Hartlief attends meetings in her capacity as the Principal Officer.


- 11 February 2013; - 23 April 2013;

- 2 August 2013; and - 5 November 2013.

The primary responsibility of the Sub-Committee is to assist the Board of Trustees in carrying out its duties relating to legal, compliance and contractual matters of the Society.

14. COMMUNICATIONS SUB-COMMITTEE

A Communications Sub-Committee was established and is mandated by the Board of Trustees by means of written terms of reference as to its membership, authority and duties. This Sub-Committee has four members.

At year-end the Sub-Committee comprises: Dr S Molekwa (Chairperson), Mr V Mbedu, Mr C McClelland and Ms K Byamugisha (Independent member). Ms I Hartlief attends meetings in her capacity as the Principal Officer.


- 5 March 2013;

- 4 June 2013; - 3 September 2013; and - 19 November 2013.

The primary responsibility of the Sub-Committee is to assist the Board of Trustees in carrying out its duties relating to the communication to members of the Society.

15. CLINICAL SUB-COMMITTEE

A Clinical Sub-Committee was established and is mandated by the Board of Trustees by means of written terms of reference as to its membership, authority and duties. This Sub-Committee has four members.

At year-end the Sub-Committee comprises: Dr S Manjra (Chairperson and Medical Advisor), Mr J Bush, Dr S Molekwa and Mr A Myburgh. Ms I Hartlief attends meetings in her capacity as the Principal Officer. The Sub-Committee met on four occasions during the course of the year, as follows:

- 26 February 2013; - 20 May 2013;

- 5 August 2013; and - 8 October 2013. The primary responsibility of the Sub-Committee is to assist the Board of Trustees in carrying out its duties relating to clinical matters.

16. OPERATIONS SUB-COMMITTEE

An Operations Sub-Committee was established and is mandated by the Board of Trustees by means of written terms of reference as to its membership, authority and duties. This Sub-Committee has two members. At year-end the Sub-Committee comprises: Mr J Bush (Chairperson) and Ms B Hashim. Ms I Hartlief attends meetings in her capacity as the Principal Officer.

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16. OPERATIONS SUB-COMMITTEE (CONTINUED)

The Committee was not required to meet during the course of the year. The primary responsibility of the Sub-Committee is to assist the Board of Trustees in carrying out its duty relating to operational matters of the Society.

17. RISK SUB-COMMITTEE

A Risk Sub-Committee was established and is mandated by the Board of Trustees by means of written terms of reference as to its membership, authority and duties. This Sub-Committee has two members. At year-end the Sub-Committee comprises: Ms P Dourans (Chairperson), Mr J Bush and Mr S Samsodien (Independent member). Ms I Hartlief attends meetings in her capacity as the Principal Officer. The Sub-Committee met on two occasions during the course of the year, as follows:

- 20 March 2013; and - 22 October 2013. The primary responsibility of the Sub-Committee is to assist the Board of Trustees in carrying out its duties in managing risk in the Society.

18. DISPUTES COMMITTEE

A Disputes Committee was established and is mandated by the Board of Trustees by means of written terms of reference as to its membership, authority and duties. This Committee has three members. The Committee comprises: Mr A Ngubo (Chairperson), Mr C Germeshuys and Ms I Juhnke. The primary responsibility of the Sub-Committee is to assist the Board of Trustees in carrying out its duties in respect of disputes. The Committee was not required to meet during the course of the year.

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19. TRUSTEE MEETING ATTENDANCE

The following schedule sets out Board of Trustee meeting attendances, as well as by members of the Board and Sub-Committees. Trustee remuneration is disclosed in note 11.1 to the Annual Financial Statements.

Trustee/Sub-Committee member

Board meetings Audit Committee Investment Sub-

Committee

Legal, Compliance and Contractual Sub-

Committee

Communications Sub-Committee

Clinical Sub-Committee

Risk Sub-Committee

A B A B A B A B A B A B A B

J Bush 6 6 1 1 1 1 4 3 4 4 2 2

K Byamigusha 3 1

B Colyn (resigned 31 March 2013)

1 0

B de Araujo (resigned 31 March 2013)

1 1

P Dourans (appointed 1 May 2013)

4 4 2 2 1 1

R Glass (resigned 29 September 2013)

3 2

N Harris 3 3

I Hartlief (Principal Officer) 6 6 3 3 5 5 4 4 3 3 4 4 2 2

B Hashim (appointed 1 April 2013)

4 3 1 0

S Manjra (Medical Advisor) 6 5 4 4

N Mbulawa (appointed 1 April 2013)

2 2

V Mbedu 6 5 3 1

C McClelland 6 6 3 2 5 5 3 3

D Mitchell 3 3

S Molekwa 6 6 3 3 4 4

A Myburgh 6 6 5 4 4 4 4 4

E Oyegun (resigned 31 March 2013)

1 1

S Samsodien 2 2

D Stoffberg 4 4

A - total possible number of meetings could have attended B - actual number of meetings attended

16


20. NON-COMPLIANCE MATTERS

20.1 CONTRAVENTION OF SECTION 26(7) OF THE MEDICAL SCHEMES ACT

Nature and impact

In terms of Section 26(7) of the Medical Schemes Act, contributions should be received in accordance with the rules of the Society. The rules indicate that contributions should be received no later than three days after they become due. During 2013, there were no instances where contributions at an employer group level were received later than three days after the due date. As at 31 December 2013, there were contribution debtors outstanding for more than 30 days to the amount of R71 074 (2012: R43 148). This amount represents less than 0.09% of the total contributions received during the year, but the delay in receipt is in contravention of Section 26(7) of the Medical Schemes Act. Causes for the failure

The contribution debtors at year-end are outstanding largely due to membership changes after the initial contributions were raised. These discrepancies were communicated to the employers and pension administrators and were paid in the following months. Corrective action

The Society continually strives to have all membership changes updated before the following contribution run. Due to the nature of the membership movement and the communication process between the employers and pension administrators on the one hand and the Administrator on the other, this is not always possible.


Nature and impact

In terms of the Medical Schemes Act and specifically Section 59(2) it is a requirement that claims should be paid within 30 days of receipt thereof. The contravention of the Act could lead to service providers no longer providing services needed by the Society. Causes for the failure

Claims were not paid within the 30-day statutory timeframe for the following reasons: delays from clinical interventions; claims processing backlogs; and claims payments specifically requested to be placed on hold by members dissatisfied with their service providers. It is an operational requirement that valid claims are processed and the validation process requires forensic and clinical interventions that may delay the payment of claims beyond the statutory timeframe of 30 days. Corrective action

The Society has acknowledged that there will always be claims that are not processed within the 30-day statutory timeframe, as there are claims that require extensive investigation that results in the settlement of claims after 30 days. The Society will, however, enhance the review of the pending claims report to ensure that long outstanding claims are prioritised.

20.3 CONTRAVENTION OF SECTION 28 OF THE MEDICAL SCHEMES ACT

Nature and impact

According to Section 28 of the Medical Schemes Act: No person shall – (a) be a member of more than one medical scheme; (b) be admitted as a dependent of – (i) more than one member of the particular medical scheme; or (ii) members of the different medical schemes; or (c) claim or accept benefits in respect of himself or herself or any dependant from any medical scheme other than the medical scheme he or she is a member of. During 2013 there was an instance where a beneficiary had dual active membership of two schemes administered by the Administrator.

17


20. NON-COMPLIANCE MATTERS (CONTINUED)

20.3 CONTRAVENTION OF SECTION 28 OF THE MEDICAL SCHEMES ACT (CONTINUED)

Causes for the failure

The Administrator regularly checks for members with dual membership across medical schemes under their administration. However, the Administrator’s dual membership report did not flag the particular beneficiary as being dual-registered. No action was taken by the Administrator to update the member's records. Corrective action

The administration system flags the loading of a beneficiary if the ID number already exists on the system. A weekly dual membership report identifying duplicate beneficiaries across the schemes administered by the Administrator is generated and reviewed on a weekly basis. The Administrator is in the process of enhancing the dual membership report.

20.4 CONTRAVENTION OF REGULATION 8 OF THE MEDICAL SCHEMES ACT

Nature and impact

In terms of the Regulation the Society must pay in full (without co-payment or the use of deductibles) the diagnosis, treatment and care costs of the prescribed minimum benefit (PMB) conditions. During 2013 there was one PMB acute medicine claim that was settled at 80% of the cost and one pathology claim that was not settled in full. Causes for the failure

The initial acute medicine claim was processed at 80% of cost, as it was not approved as chronic medication. A correction was not effected subsequently, after the chronic medication had been approved, as there was no automated process to correct the initial processing of the medicine from acute to chronic. The pathology claim was not paid in full because the provider used a non-specific ICD-10 code when lodging the claim (which is not a PMB ICD-10 code). The tariff code used by the provider is a PMB code which was approved as part of the member’s care plan. The claim line should thus have been settled in full. Corrective action

A new process has been implemented between the Claims Department and the Medicine Risk Management Programme whereby all acute medicine claims that have subsequently been approved as chronic will be reprocessed retrospectively. With effect from 1 July 2013, if the tariff code used by the service provider is on the Society’s PMB care plan, those claims will be processed as per the PMB care plan.

18

BP MEDICAL AID SOCIETY STATEMENT OF FINANCIAL POSITION as at 31 December 2013

2013 2012

Notes R R

Non-current assets 51 585 110 35 096 499

Available-for-sale investments 3 51 585 110 35 096 499

Current assets 47 491 916 47 706 392

Trade and other receivables 4 682 332 1 149 951

Available-for-sale investments 3 24 033 775 28 311 094

Cash and cash equivalents 5 22 775 809 18 245 347

Total assets 99 077 026 82 802 891

FUNDS AND LIABILITIES

Members' funds 94 139 555 77 323 168

Accumulated funds 88 799 345 75 030 884

Revaluation reserve: Available-for-sale investments 5 340 210 2 292 284

Current liabilities 4 937 471 5 479 723

Trade and other payables 6 474 364 2 381 366

Outstanding claims provision 7 4 463 107 3 098 357

Total funds and liabilities 99 077 026 82 802 891

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BP MEDICAL AID SOCIETY STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2013

2013 2012

Notes R R

Contribution income 8 80 030 672 75 683 528

Relevant healthcare expenditure (84 346 576) (84 888 581)

Net claims incurred (84 792 392) (84 880 744)

Claims incurred 9 (84 792 392) (84 885 912)

Third-party claims recoveries - 5 168

Net income/(expense) on risk transfer arrangements 9

445 816 (7 837)

Risk transfer arrangement fees/premiums paid (1 797 442) (1 511 749)

Recoveries from risk transfer arrangements 2 243 258 1 503 912

Gross healthcare result (4 315 904) (9 205 053)

Managed care: Management services 10 (1 885 813) (1 867 523)

Administration expenses 11 (4 267 642) (4 114 069)

Net impairment gain/(loss) 12 8 731 (70 021)

Net healthcare result (10 460 628) (15 256 666)

Other income 24 502 063 23 449 221

Investment income 13 4 243 066 3 865 100

Continuing financial commitment from employer 14 20 256 832 19 576 734

Stale cheques written back 14 2 165 7 387

Other expenditure

Asset management fees 3 (272 974) (306 970)

Net surplus for the year 13 768 461 7 885 585

Other comprehensive income

Fair value adjustment on available-for-sale investments 3

3 047 926 2 594 816

Total comprehensive income for the year 16 816 387 10 480 401

20

BP MEDICAL AID SOCIETY STATEMENT OF CHANGES IN FUNDS AND RESERVES for the year ended 31 December 2013

2013 2012

R R

Accumulated funds

Balance at beginning of year 75 030 884 67 145 299

Net surplus for the year 13 768 461 7 885 585

Balance at end of the year 88 799 345 75 030 884

Revaluation reserve: Available-for-sale investments

Balance at beginning of year 2 292 284 (302 532)

Unrealised gain on remeasurement of fair value adjustment on available-for-sale investments 3 047 926 2 594 816

Balance at end of the year 5 340 210 2 292 284

Members' funds 94 139 555 77 323 168

21

BP MEDICAL AID SOCIETY STATEMENT OF CASH FLOWS for the year ended 31 December 2013

2013 2012

Notes R R

Surplus for the year

13 768 461

7 885 585

Investment income - interest 13 (3 543 484)

(3 493 021)

- dividends 13 (699 582)

(372 079)

Asset management fees 3 272 974

306 970

Cash flows from operations before working capital changes

9 798 369

4 327 455

Working capital changes

- Decrease in trade and other receivables

467 619

140 513

- Increase in outstanding claims provision

1 364 750

355 748

- Decrease in trade and other payables

(1 907 002)

(684 792)

Net cash inflows from operating activities

9 723 736

4 138 924

CASH FLOWS FROM INVESTING ACTIVITIES

Capitalised interest and dividends 3 (3 436 340)

(3 284 241)

Additions to available-for-sale investments 3 (6 000 000)

-

Investment income - interest 13 3 543 484

3 493 021

- dividends 13 699 582

372 079

Net cash inflows from investing activities

(5 193 274)

580 859

NET INCREASE IN CASH AND CASH EQUIVALENTS

4 530 462

4 719 783

Cash and cash equivalents at beginning of the year 5 18 245 347

13 525 564

CASH AND CASH EQUIVALENTS AT END OF THE YEAR 5 22 775 809

18 245 347

22

BP MEDICAL AID SOCIETY NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 31 December 2013

1. PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of the Annual Financial Statements, as set out below, are in accordance with International Financial Reporting Standards (IFRS) and Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), in the manner required by the Medical Schemes Act. The accounting policies adopted are consistent with those of the previous financial year, except as otherwise stated. Refer to note 2 for amendments to standards in issue, but not yet effective. 1.1 BASIS OF PREPARATION

The financial statements are prepared in accordance with International Financial Reporting Standards on a going concern and a historical cost basis, except for available-for-sale investments, which are carried at fair value. All monetary information and figures presented in these financial statements are stated in South African rand.

1.2 FINANCIAL INSTRUMENTS

Financial assets and liabilities are initially recognised on the Society's Statement of Financial Position when it becomes a party to the contractual provisions of the instrument. Initial measurement

Financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets recorded at fair value through surplus or deficit. Available-for-sale investments

Investments intended to be held for an indefinite period of time, which may be sold in response to needs in liquidity or changes in market conditions, are classified as available for sale; these are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the reporting date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. All purchases and sales of investments are recognised on the trade date, which is the date that the Society commits to purchase or sell the asset. Cost of purchases includes transaction costs. Available-for-sale investments are subsequently carried at fair value. Unrealised gains and losses arising from changes in the fair value of the available-for-sale investments are included in the revaluation reserve and are reflected as other comprehensive income in the Statement of Comprehensive Income. Once the available-for-sale investment is sold, the realised fair value gain or loss on the changes in the fair value of the available-for-sale investment is included in surplus or deficit. The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market prices at the reporting date. Trade and other receivables

Trade and other receivables are measured on initial recognition at fair value, plus directly attributable transaction costs, and are subsequently measured at amortised cost, using the effective interest rate method, less impairment. An appropriate allowance for estimated irrecoverable amounts is recognised in surplus or deficit when there is objective evidence that the asset is impaired. Objective evidence would include the probability of insolvency or significant financial difficulties of the debtor. This allowance is measured as the difference between the asset's carrying amount and the present value of the estimated future cash flow, as discounted at the effective interest rate compounded at initial recognition.

23

BP MEDICAL AID SOCIETY NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 31 December 2013 (continued)

1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

1.2 FINANCIAL INSTRUMENTS (CONTINUED)

Trade and other receivables (continued)

The carrying amount of the asset is reduced by use of an allowance account. Permanent impairments are written off to surplus or deficit when identified. Short duration receivables with no stated interest rate are measured at original invoice amount unless the effect of imputing interest would be significant. Trade and other receivables are classified in the loans and receivables category of the Society's financial instruments. Cash and cash equivalents

Cash and cash equivalents comprises cash on hand, deposits held on call with banks and other short-term liquid investments that are readily convertible within three months to a known amount of cash and are subject to an insignificant risk of change in value. Cash and cash equivalents are subsequently measured at amortised cost. Cash and cash equivalents are classified in the loans and receivables category of the Society's financial instruments. Financial liabilities

Financial liabilities are initially measured at fair value, plus in the case of loans and borrowings, directly attributable transaction costs, and are subsequently measured at amortised cost, using the effective interest rate method. The only financial liabilities held by the Society are loans and borrowings comprising trade and other payables. Offsetting of financial instruments

Where a currently legally enforceable right of offset exists for recognised financial assets and financial liabilities, and there is an intention to settle the liability and realise the asset simultaneously or to settle on a net basis, all related financial effects are offset.

1.3 DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES

Financial assets

A financial asset is derecognised when:

- the rights to receive cash flows from the asset have expired; - the Society retains the rights to receive cash flows from the asset, but has assumed an obligation

to pay them in full without material delay to a third party under a pass-through arrangement; or - the Society has transferred its rights to receive cash flows from the asset and either (a) has

transferred substantially all risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but transferred control of the asset.

Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.

1.4 IMPAIRMENT LOSSES

The carrying amounts of the Society's assets are reviewed at each reporting date to determine whether there is any indication of impairment. Objective evidence, which would indicate an impairment, would include significant or prolonged decline in the fair value of the investment below its cost. If any such indication exists, the asset's recoverable amount is estimated.

24



1.4 IMPAIRMENT LOSSES (CONTINUED)

‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. When there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in surplus or deficit – is removed from other comprehensive income and recognised in surplus or deficit. Impairment losses on equity investments are not reversed through surplus or deficit; increases in their fair value after impairment are recognised directly in other comprehensive income. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in surplus or deficit. Calculation of recoverable amount

When a decline in the fair value of an available-for-sale financial asset has been recognised directly in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in other comprehensive income is removed from other comprehensive income and recognised in surplus or deficit even though the financial asset has not been derecognised. The amount of the cumulative loss that is recognised in surplus or deficit is the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in surplus or deficit. The recoverable amount of the Society's receivables carried at amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e. the effective interest rate computed at initial recognition of these financial assets). Receivables with a short duration are not discounted. Reversals of impairment

An impairment loss in respect of a receivable carried at amortised cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. An impairment loss recognised as a loss with regard to an investment in an equity instrument classified as available for sale is not reversed through surplus or deficit. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in surplus or deficit, the impairment loss shall be reversed, with the amount of the reversal recognised in surplus or deficit. Impairment losses are recognised directly against the financial asset and not through an allowance account.

1.5 PROVISIONS

Provisions are recognised when the Society has a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Where the effect of discounting to present value is material, provisions are adjusted to reflect the time value of money. Outstanding claims

Claims outstanding comprise provisions for the Society’s estimate of the ultimate cost of settling all claims incurred, but not yet reported at the reporting date and related internal and external claims handling expenses. Claims outstanding are determined as accurately as possible based on a number of factors, which include previous experience in claims patterns, claims settlement patterns, changes in the nature and number of members according to gender and age, trends in claims frequency, changes in the claims processing cycle, and variations in the nature and average cost incurred per claim. The Society does not discount its provision for outstanding claims on the basis that claims must be submitted within four months of the medical event.

25



1.6 INSURANCE CONTRACTS

Contracts under which the Society accepts significant insurance risk from another party (the member) by agreeing to compensate the member or other beneficiary if a specified uncertain future event (the insured event) adversely affects the member or other beneficiary are classified as insurance contracts. The contracts issued compensate the Society's members for healthcare expenses incurred.

1.7 CONTRIBUTIONS

Contributions are received monthly and are brought into account on an accrual basis when their collection in terms of the insurance contract is reasonably certain. The earned portion of contributions received is recognised as revenue. Contributions are earned from the date of attachment risk, over the indemnity period on a straight-line basis.

1.8 RELEVANT HEALTHCARE EXPENDITURE

Relevant healthcare expenditure consists of net claims incurred and net income or expense from risk transfer arrangements. Claims incurred

Gross claims incurred comprise the total estimated cost of all claims arising from healthcare events that have occurred in the year and for which the Society is responsible, whether or not reported by the end of the year. Net claims incurred comprise:

- claims submitted and accrued for services rendered during the year; - claims for services rendered during the previous year not included in the outstanding claims

provisions for that year;

- claims settled in terms of risk transfer arrangements; and - movement in the outstanding claims provision. Claims incurred relating to risk transfer arrangements are calculated by applying an inflation adjusted Society rate to the different categories of services provided by the capitation provider. Anticipated recoveries under risk transfer arrangements are disclosed separately as assets and are assessed in a manner similar to the assessment of the outstanding claims provision and claims reported not yet paid.

1.9 LIABILITIES AND RELATED ASSETS UNDER LIABILITY ADEQUACY TEST

The liability for insurance contracts is tested for adequacy by discounting current estimates of all future contractual cash flows and comparing this amount to the carrying value of the liability net of any related assets. Where a shortfall is identified, an additional provision is made and the Society recognises the deficiency in surplus or deficit for the year.

1.10 RISK TRANSFER ARRANGEMENTS

Risk transfer premiums are recognised as an expense over the indemnity period on a straight-line basis. Risk transfer premiums and benefits reimbursed are presented in the Statement of Comprehensive Income and the Statement of Financial Position on a gross basis. Only contracts that give rise to a significant transfer of insurance risk are accounted for as insurance. Amounts recoverable under such contracts are recognised in the same year as the related claim. Assets relating to risk transfer arrangements include balances due under risk transfer arrangements for outstanding claims provisions and claims reported not yet paid. Amounts recoverable under risk transfer arrangements are estimated in a manner consistent with the outstanding claims provisions, claims reported not yet paid and settled claims associated with the risk transfer arrangement.

26



1.10 RISK TRANSFER ARRANGEMENTS (CONTINUED)

Amounts recoverable under risk transfer arrangements are assessed for impairment at the reporting date. Such assets are deemed impaired if there is objective evidence, as a result of an event that occurred after its initial recognition, that the Society may not recover all amounts due and that the event has a reliably measurable impact on the amounts that the Society will receive under the risk transfer arrangement.

1.11 MANAGED CARE: MANAGEMENT SERVICES EXPENSES

These expenses represent internal expenditure and the amounts paid or payable to the third-party Administrator, related parties and other third parties for managing the utilisation, costs and quality of healthcare services provided to the members of the Society.

1.12 REIMBURSEMENTS FROM THE ROAD ACCIDENT FUND (RAF)

The Society grants assistance to its members in defraying expenditure incurred in connection with the rendering of any relevant health service. Such expenditure may be in connection with a claim that is also made to the RAF, administered in terms of the Road Accident Fund Act No 56 of 1996. If the member is reimbursed by the RAF, they are obliged contractually to refund that payment to the Society to the extent that they have already been compensated. A reimbursement from the RAF is a possible asset that arises from claims submitted to the RAF. Its existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Society. The contingent assets are assessed continually to ensure that developments are appropriately reflected in the financial statements. If it has become virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognised in the financial statements of the period in which the change occurs. If an inflow of economic benefits has become probable, the Society discloses the contingent asset. Amounts received in respect of reimbursements from the RAF are recognised as part of net claims incurred in the surplus and deficit.

1.13 INVESTMENT INCOME

Interest and dividend income

Interest is recognised on a yield to maturity basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Society. Dividend income is recognised when the right to receive payments is established.

1.14 FUNCTIONAL AND PRESENTATION CURRENCY

Items included in the financial statements are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to the entity (“the functional currency”). The financial statements are presented in South African rand (“the presentation currency”), which is the functional currency of the Society.

1.15 TAXATION

The Society is registered under the Medical Schemes Act. It therefore falls within the definition of a benefit fund, as defined in the Income Tax Act. The receipts and accruals of the Society are exempt from taxation under Section 10(1)(d) of the Income Tax Act.

1.16 CONTINUING FINANCIAL COMMITMENT

BP Southern Africa (Pty) Ltd (BPSA) agreed to pay additional amounts to assist in funding the shortfall arising from the ageing membership and HIV & AIDS. This amount is disclosed under other income in the Statement of Comprehensive Income.

27


2. NEW STANDARDS AND AMENDMENTS TO STANDARDS

2.1 NEW AND AMENDED STANDARDS EFFECTIVE THIS PERIOD

IAS 1 Financial Statement Presentation

The amendment clarified that:

- Comparative information in respect of the previous period (the required comparative information) forms part of a complete set of financial statements; and

- The required comparative information includes comparatives for all amounts presented in the current period. An entity may present additional comparative information for periods before the required comparative period, as long as it is prepared in accordance with IFRS. All accompanying notes and disclosures must be provided.

This amendment had no financial or disclosure impact on the Society. IFRS 13 Fair Value Measurement

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS. Application of IFRS 13 has not materially impacted the fair value measurements of the Society. IFRS 7 Financial Instruments: Offsetting Financial Assets and Financial Liabilities

These amendments require an entity to disclose information about rights to set off and related arrangements. The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entity's financial position. The amendments had no impact on the Society’s financial position or performance. New standards, and amendments to existing standards, not yet effective for the period under review

At the date of authorisation of these financial statements, the following standard, which is relevant to the Society, was in issue but not yet effective, and has not been early adopted in the financial statements:

IFRS 9 Financial Instruments: Classification and Measurement

The standard, as issued, reflects the first phase of the IASB's work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities, as defined therein. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Society’s financial assets. The Society will quantify the effect once the future phases have been issued, to present a comprehensive picture. The standard is effective for annual periods beginning on or after 1 January 2018. IAS 32 Offsetting Financial Assets and Financial Liabilities

The IASB issued an amendment to clarify the meaning of ‘currently has a legally enforceable right to set off the recognised amounts’ (IAS 32.42(a)). This means that the right of set off:

- must not be contingent on a future event; and

- must be legally enforceable in all of the following circumstances:

the normal course of business;

the event of default; and

the event of insolvency or bankruptcy of the entity and all of the counterparties. The standard is effective for annual periods beginning on or after 1 January 2014. The Society intends to adopt the above amendment on its effective date. The application of the amendment on future financial reporting periods will not have a significant impact on the Society's reported results, financial position and cash flows.

28


3. AVAILABLE-FOR-SALE INVESTMENTS 2013 2012

R R

Fair value at the beginning of the year 63 407 593 57 835 506

Capitalised interest and dividends 3 436 340 3 284 241

Asset management fees (272 974) (306 970)

Unrealised gain on available-for-sale investments 3 047 926 2 594 816

Deposit 6 000 000 -

Fair value at the end of the year 75 618 885 63 407 593

Non-current assets 51 585 110 35 096 499

Current assets 24 033 775 28 311 094

75 618 885 63 407 593

The investment is unitised and is part of a pooled portfolio through a linked policy of insurance, where the underlying assets are owned by the insurer.

Bonds and debentures 33 043 575 22 415 106

Listed property 4 208 672 2 302 316

Equities with primary listing on the JSE 14 332 863 10 379 077

Local cash 24 033 775 28 311 094

75 618 885 63 407 593

The investment has no fixed maturity. The fair value of the investment is based on the market value as at 31 December 2013. A register of investments is available for inspection at the registered office of the Society.

4. TRADE AND OTHER RECEIVABLES

Insurance receivables 555 740 1 114 224

Contributions outstanding 251 508 807 360

Amounts owing by members and service providers 14 221 98 873

Income receivable - HIV & AIDS 290 011 207 991

Less:

Provision for impairment losses on insurance receivables (23 869) (84 881)

Balance at the beginning of the year (84 881) (28 720)

Provision made during the year 8 732 (70 021)

Amounts reversed during the year 52 280 13 860

Other receivables 71 008 50 738

Interest receivable 71 008 50 738

Risk transfer arrangements 79 453 69 870

Share of outstanding claims provision 79 453 69 870

682 332 1 149 951

29


4. TRADE AND OTHER RECEIVABLES (CONTINUED)

Ageing of insurance receivables – 2013

Current 30 days 60 days 90 days 120

days + TOTAL

Contribution debt 112 234 49 106 57 666 12 007 20 495 251 508

Member and provider debt 1 342 231 9 273 - 3 374 14 221

Income receivable - HIV & AIDS 290 011 - - - - 290 011

403 587 49 337 66 939 12 007 23 869 555 740

Ageing of insurance receivables – 2012

Current 30 days 60 days 90 days 120

days + TOTAL

Contribution debt 764 212 11 083 2 367 2 569 27 129 807 360

Member and provider debt 7 599 30 165 36 4 524 56 549 98 873

Income receivable - HIV & AIDS 207 991 - - - - 207 991

979 802 41 248 2 403 7 093 83 678 1 114 224

Analysis of movements in respect of risk transfer arrangements

2013 2012

R R

Balance at the beginning of the year 69 870 46 499

Payment in respect of prior year (69 870) (46 499)

Under provision in prior year - -

Adjustments for current year 79 453 69 870

Balance at end of year 79 453 69 870

The carrying amounts of trade and other receivables approximate their fair values due to the short-term maturities of these assets. Contribution debtors, as well as member and provider debtors, are periodically tested for impairment. Contribution debtors largely relate to continuation member group and are made up of both member debtors and employer debtors and receivable from both the members and employers. Collection of arrears is as per the debt collection mandate. Interest receivable and risk transfer receivables are of a current nature and are settled within 30 days. Income receivable for HIV & AIDS relates to a contractual reimbursement for HIV & AIDS-related costs incurred by the Society for all members who are registered on the HIV YourLife Programme. The reimbursement is made by the employer (BPSA) on a quarterly basis.

5. CASH AND CASH EQUIVALENTS

Call accounts 18 285 000 15 775 000

Current accounts 4 490 809 2 470 347

Cash and cash equivalents per cash flow statement 22 775 809 18 245 347

The weighted average effective interest rate on short-term bank deposits was 4.36% (2012: 4.32%). At 31 December the carrying amounts of cash and cash equivalents approximate their fair values due to the short-term maturities of these assets.

30


6. TRADE AND OTHER PAYABLES

2013 2012

R R

Insurance liabilities

Reported claims not yet paid - 1 934 815

Debtors with credit balances 5 924 22 739

Financial liabilities

Accrued expenses 170 074 165 522

Stale cheques 36 442 19 430

Provision for audit fees 261 924 238 860

474 364 2 381 366

At 31 December the carrying amounts of trade and other payables approximate their fair values due to the short-term maturities of these liabilities.

7. OUTSTANDING CLAIMS PROVISION

Not covered by risk transfer arrangements

Provision for outstanding claims 4 383 654 3 028 487

Analysis of movements in outstanding claims

Balance at beginning of year 3 028 487 2 696 110

Payments in respect of prior year (3 146 909) (2 240 896)

(Under)/Over provision in the prior year (118 422) 455 214

Under/(Over) provision in respect of prior year written back 118 422 (455 214)

Adjustment for current year 4 383 654 3 028 487

Provision at end of year (note 9) 4 383 654 3 028 487

Covered by risk transfer arrangements

Provision for outstanding claims for PPN and ER24 79 453 69 870

Analysis of movements in outstanding claims

Balance at beginning of year 69 870 46 499

Payments in respect of prior year (69 870) (46 499)

Over provision in the prior year - -

Adjustment for current year 79 453 69 870

Provision at end of year (note 9) 79 453 69 870

Total outstanding claims provision 4 463 107 3 098 357

Process used to determine the assumptions

The 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 earlier years there was insufficient information to make a reliable best estimate of claims development, prudent assumptions are used.

31


7. OUTSTANDING CLAIMS PROVISION (CONTINUED)

Process used to determine the assumptions (continued)

Each notified claim is assessed on a separate, case-by-case basis with due regard to the claim circumstances, information available from managed care: healthcare 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 is difficult to estimate. The provision estimation difficulties also differ by category of claims (i.e. in hospital and chronic condition benefits) due to differences in the underlying insurance contract, claim complexity, the volume of claims, the individual severity of claims, determining the occurrence date of a claim and reporting lags. The cost of outstanding claims is estimated using statistical methods. Such methods extrapolate the development of paid and incurred claims, average cost per claims and ultimate claim numbers for each benefit year based upon observed development of earlier years and expected loss ratios. Past trends 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. The actual method used is consistent with prior years, and considers categories of claims 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 methods. Such reasons include:

- changes in processes that affect the development/recording of claims paid and incurred (such as changes in claims reserving procedures);

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

- changes in the composition of members and their dependants and random fluctuations, including the impact of large losses.

Assumptions

The 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. The percentages used as assumptions are listed in the table below. The table also outlines the sensitivity of these percentages and the impact on the Society's liabilities if an incorrect assumption is used. Other assumptions

- The actual demographics of the Society were used, including all membership movements for the period.

- The effect of ageing of the population on the utilisation of health services is automatically incorporated. The assumed percentages of claims outstanding at the end of the period: Claims outstanding for services rendered in:

2013 2012

% %

December 13 10

November 5 4

October 4 2

September 1 1

August and prior 1 1

32


7. OUTSTANDING CLAIMS PROVISION (CONTINUED)

Other assumptions (continued)

The impact of the sensitivity of these percentages are set out below:

2013 2012

R R

Effect of a 1% increase in change in assumptions 366 579 345 551

Effect of a 2% increase in change in assumptions 741 283 698 199

Effect of a 3% increase in change in assumptions 1 124 157 1 058 404

The Society believes that the liability for claims reported in the Statement of Financial Position is adequate. However, it recognises that the process of estimation is based upon certain variables and assumptions that could differ when claims arise.

8. CONTRIBUTION INCOME

Contributions 80 030 672 75 683 528

9. RELEVANT HEALTHCARE EXPENDITURE

Claims incurred, excluding claims incurred in respect of risk transfer arrangements

Current year claims 78 128 180 80 959 291

Movement in outstanding claims provision 4 502 076 2 573 273

Under/(Over) provision in prior year (note 7) 118 422 (455 214)

Adjustment for current year (note 7) 4 383 654 3 028 487

82 630 256 83 532 564

Less:

Discounts received on claims (81 122) (150 564)

Claims incurred excluding claims incurred in respect of risk transfer arrangements (note 21) 82 549 134 83 382 000

Claims incurred in respect of risk transfer arrangements

Current year claims 2 163 805 1 434 042

Movement in outstanding claims provision 79 453 69 870

Adjustment for current year (note 7) 79 453 69 870

2 243 258 1 503 912

Claims incurred in surplus and deficit 84 792 392 84 885 912

Net (income)/expense on risk transfer arrangements

Premiums/fees paid 1 797 442 1 511 749

Recoveries (2 243 258) (1 503 912)

Net (income)/expense in surplus and deficit (445 816) 7 837

33


9. RELEVANT HEALTHCARE EXPENDITURE (CONTINUED)

The Society entered into a risk transfer agreement with Preferred Provider Negotiators (Pty) Ltd (PPN) in January 2005, whereby PPN provides optometric services through a network of contracted providers to the beneficiaries on behalf of the Society. Claims received in respect of optometric services rendered by participating and non-participating providers are processed and paid by PPN. The Society pays a fixed fee in respect thereof. The Society entered into an agreement with ER24 on 1 June 2012, whereby ER24 provides emergency transport for beneficiaries on behalf of the Society. The Society pays a fixed fee in respect thereof.

2013 2012

10. MANAGED CARE: MANAGEMENT SERVICES R R

Hospital Risk Management Programme 356 678 349 605

Medicine Risk Management Programme 268 468 266 503

Disease Risk Management Programme 352 100 349 605

HIV YourLife Programme 134 594 133 538

Oncology Programme 66 937 66 482

Prescribed Minimum Benefits Programme 117 460 116 631

Maternity Programme 66 937 66 482

Eldercare Programme 100 925 100 010

Electronic Benefit Management 217 946 216 354

General Practitioner (GP) Network 203 768 202 313

1 885 813 1 867 523

11. ADMINISTRATION EXPENSES Trustees/Committee members’ remuneration and related costs (note 11.1) 315 970 291 925

Administrator's fees 2 778 618 2 725 776

Council for Medical Schemes - levies 53 548 53 470

Audit fees - current year audit services 333 714 320 514

Fidelity cover 15 000 16 500

Consulting fees - Alexander Forbes 354 962 334 230

Bank charges 73 944 71 297

Board of Healthcare Funders subscriptions 18 667 17 936

Telephone 28 422 28 427

Printing and postage 128 330 166 221

Travelling and entertainment 29 576 41 261

Multiply Wellness Rewards Programme 136 891 46 512

4 267 642 4 114 069

34


11. ADMINISTRATION EXPENSES (CONTINUED)

11.1 Trustees/Committee members' remuneration and related costs

Services as

Trustee

Travelling and accommoda-

tion

Committee attendance

Total

31 December 2013 R R R R

Mr J Bush 84 513 - - 84 513

Mr V Mbedu - 38 066 - 38 066

Mr C McClelland 67 610 - - 67 610

Adv D Mitchell - - 32 600 32 600

Dr S Molekwa - 25 571 - 25 571

Mr A Myburgh 67 610 - - 67 610

219 733 63 637 32 600 315 970

31 December 2012

Mr J Bush 77 415 - - 77 415

Mr J Mahlo - 10 585 - 10 585

Mr M Manson-Smith 26 035 - - 26 035

Mr V Mbedu - 14 081 - 14 081

Mr C McClelland 64 015 - - 64 015

Adv D Mitchell - - 43 450 43 450

Mr A Myburgh 37 980 - - 37 980

Ms E Oyegun - 15 364 - 15 364

Mr K Warnett - - 3 000 3 000

205 445 40 030 46 450 291 925

12. NET IMPAIRMENT LOSSES 2013 2012

R R

Trade and other receivables

Contributions that are not collectable (39 154) 1 451

Movement in provision 6 634 1 451

Written off (45 788) -

Members' and service providers' portions that are not recoverable 38 954 (83 880)

Movement in provision 54 377 (57 612)

Written off (15 423) (26 268)

Less:

Previous impairment losses recovered 8 931 12 408

8 731 (70 021)

35


2013 2012

13. INVESTMENT INCOME R R

Available-for-sale financial assets - interest income 2 736 758 2 912 162

Available-for-sale financial assets - dividend income 699 582 372 079

Cash and cash equivalents - interest income 806 726 580 859

4 243 066 3 865 100

14. OTHER OPERATING INCOME

Continuing financial commitment from employer

Continuation members 19 233 144 18 270 493

HIV & AIDS 1 023 688 1 306 241

20 256 832 19 576 734

Stale cheques older than three years written back 2 165 7 387

2 165 7 387

15. EVENTS POST THE REPORTING DATE

There have been no material events that have occurred subsequent to the end of the accounting period that affect the financial report.

16. RELATED PARTY TRANSACTIONS

Related party relationships

Parties with significant influence over the Society

The employer, BP Southern Africa (Pty) Ltd, has significant influence over the Society, as it has a continuing financial commitment to the Society and also appoints three Trustees, but does not control the Society. The Administrator, Metropolitan Health Corporate (Pty) Ltd, has significant influence over the Society, as it provides financial and operational information on which policy decisions are based, but does not control the Society. The managed care organisation, Metropolitan Health Risk Management (Pty) Ltd, a wholly owned subsidiary of Metropolitan Health Corporate (Pty) Ltd, has significant influence over the Society as managed care provider, but does not control the Society. The provider of actuarial and consulting services, Alexander Forbes Health (Pty) Ltd has significant influence over the Society, as it provides financial and operational information on which policy decisions are based, but does not control the Society. Key management personnel and their close family members

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Society. Key management personnel include the Board of Trustees, the Principal Officer and members of sub-committees. Close family members include dependants of the Board of Trustees, Principal Officer and members of the sub-committees. Transactions with related parties

Statement of Comprehensive Income

Gross contributions received (key personnel) 451 646 564 615

36


16. RELATED PARTY TRANSACTIONS (CONTINUED)

2013 2012

Transactions with related parties (continued) R R

Claims incurred (key personnel) 312 703 311 083

Continuing financial commitment from employer 19 233 144 18 270 493

HIV & AIDS refund from employer 1 023 688 1 306 241

Administration fees paid to Metropolitan Health Corporate 2 778 618 2 725 776

Managed care fees paid to Metropolitan Health Risk Management 1 885 813 1 867 523

Consulting fees paid to Alexander Forbes Health 354 962 334 230

Statement of Financial Position

Reimbursement of travelling and printing costs payable to Metropolitan Health Corporate 38 297 11 020

Consulting fees payable to Alexander Forbes Health 30 484 28 677

Compensation to key management personnel

Short-term benefits 283 370 245 475

The terms and conditions of the related party transactions were as follows:

Contributions received (key personnel)

This constitutes the contributions paid by related parties as members of the Society, in their individual capacities. All contributions were on the same terms as applicable to other members. Claims incurred (key personnel)

This constitutes amounts claimed by related parties, in their individual capacities as members of the Society. All claims were paid out in terms of the rules of the Society, as applicable to other members. Administration fees

The administration agreement is in terms of the rules of the Society and in accordance with instructions given by the Board of Trustees. The duration of the agreement is indefinite, but subject to the right of either party to terminate the agreement by giving not less than six months’ notice. Managed care fees

The managed care agreement is in terms of the rules of the Society and in accordance with instructions given by the Board of Trustees. The duration of the agreement is indefinite, but subject to the right of either party to terminate the agreement by giving not less than three months’ notice.

17. GUARANTEES AND COMMITMENTS

The Society has not given or received any guarantees or commitments as at 31 December 2013.

18. CONTINGENT ASSET

As at 31 December 2013 the Society had pending claims submitted to the Road Accident Fund (RAF) for assessment. This will only be accounted for when an amount is certain to be received from the RAF. The value at year-end amounted to R834 223 (2012: R868 407).

19. CONTINGENT LIABILITIES

There were no potential liabilities contingent on the outcome of litigation, claims, guarantees, suretyships or the like at 31 December 2013.

37


20. FINANCIAL RISK MANAGEMENT REPORT

The Society 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 Society's investment performance is not sufficient to maintain the current reserve ratio, or that the Society may have to increase member contributions due to insufficient investment performance. The most important components of these financial risks 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 risks that the Society primarily faces due to the nature of its investments and liabilities are interest rate risk and equity price risk. The Board of Trustees appointed an investment committee to focus on the Society's investment strategy, risk management and asset allocation. Risk management and investment decisions are made under the guidance and policies approved by the Board of Trustees. The Audit, Investment and Risk Committees assist the Board with the formulation of these policies. The Society'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, which the Society holds to meet its obligations to its members. The following summary represents the major asset classifications held by the Society, which is exposed to the financial risks, as discussed:

Asset allocation summary 2013 2012

R R

Available-for-sale investments (note 3) 75 618 885 63 407 593

Cash and cash equivalents (note 5) 22 775 809 18 245 347

Trade and other receivables (note 4) 682 332 1 149 951

99 077 026 82 802 891

Risk management and investment decisions are carried out by the Board of Trustees. The Board of Trustees identifies and evaluates risks associated with the Society's investment portfolio, with the assistance of the Investment Committee. The Society appointed a professional asset management company (Investment Solutions) with an established track record to manage the Society's investment portfolio, these investments are held via a linked policy of insurance. The approach of the asset manager is to construct a portfolio of diversified asset classes in order to obtain an optimal risk/return mix. The strategy is to focus on strategic asset allocation rather than on timing the market. This will mitigate the risk of volatile markets. LIQUIDITY RISK

Liquidity risk is the risk that the Society may be in a position where it cannot settle claims and other obligations as they fall due. This could occur when the Society's assets are tied up in investments that cannot be readily converted into cash. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities through liquid holding cash positions with various financial institutions. This ensures that the Society has the ability to fund its day-to-day operations. At year-end 23.1% (2012: 22.3%) of the Society's assets were invested in cash products to ensure that the Society can meet its short-term liabilities. The table below illustrates the prudent liquidity position of the Society:

38


20. FINANCIAL RISK MANAGEMENT REPORT (CONTINUED)

LIQUIDITY RISK (CONTINUED)

As at 31 December 2013

Category Total Less than 1

month

Between 1 and 3

months

Between 3 months and

1 year Over 1 year

R R R R R

Trade and other payables 474 364 474 364 - - -

Outstanding claims provision 4 463 107 2 748 535 1 144 634 569 938 -

4 937 471

Cash and cash equivalents 22 775 809 22 775 809 - - -

Available-for-sale investments 75 618 885 24 033 775 - - 51 585 110

98 394 694

Excess liquidity 93 457 223

As at 31 December 2012

Category Total Less than 1

month

Between 1 and 3

months

Between 3 months and

1 year Over 1 year

R R R R R

Trade and other payables 2 381 366 2 381 366 - - -

Outstanding claims provision 3 098 357 2 130 157 548 183 420 017 -

5 479 723

Cash and cash equivalents 18 245 347 18 245 347 - - -

Available-for-sale investments 63 407 593 28 311 094 - - 35 096 499

81 652 940

Excess liquidity 76 173 217

CREDIT RISK

The Society 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 Society is exposed to credit risk are:

- Amounts due from members and service providers; and - Interest and capital due from financial institutions. Impairment of financial assets

The Society assesses, at each reporting date, whether there is objective evidence that contribution debtors are impaired. An impairment exists if one or more events that has occurred since the initial recognition of the debtors (an incurred ‘loss event’), has an impact on the estimated future cash flows from the debtors that can be reliably estimated. The Society adheres to debt management practice notes to assess the impairment of claims debtors and contributions debtors. The practice notes detail debt collection procedures and write-off requirements requiring the Board of Trustees’ approval.

39



CREDIT RISK (CONTINUED)

The table below illustrates the quality of the Society's receivables in order to assess the credit risk:

As at 31 December 2013 R R R R

Class Fully

performing Past due Impaired Total

Insurance receivables 403 587 128 284 23 869 555 740

Interest receivables 71 008 - - 71 008


Class Fully

performing Past due Impaired Total

Insurance receivables 979 802 49 541 84 881 1 114 224

Interest receivables 50 738 - - 50 738

The table below provides an age analysis of the credit that is past due, but not yet impaired:


Class 30 - 60 days 60 - 90 days 90 - 120

days Total



Class 30 - 60 days 60 - 90 days 90 - 120

days Total


The table below illustrates the quality of the Society's cash and cash equivalents. Fitch National Long-Term Rating

Financial institution 2013 2012 Credit rating

R R 2013 2012

Standard Bank 22 775 809 18 245 347 AA BBB

The credit risk on liquid funds is limited because the counter party is a financial institution with a high credit rating. The exposure to individual counterparties is also managed by other mechanisms, such as the right of offset, where a legally enforceable right exists. Management information reported to the Society includes details of provisions for impairment on receivables and subsequent write-offs. The table below provides an analysis of the receivables that were impaired:

2013 2012

R R

Insurance receivables 23 869 84 881

40



MARKET RISK

The Society has exposure to market risk, which is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market price risk comprises three types of risk: currency risk, interest rate risk and other price risks, which includes equity price risk. Currency risk

The Society is not exposed to foreign exchange risk arising from its investment in the Investment Solutions portfolio. At 31 December 2013 and 31 December 2012 the Society had no exposure to offshore cash. The Trustees manage this risk by ensuring that the asset manager complies with the Regulations of the Act. The maximum exposure to foreign cash is 10% of assets available for investment. Interest rate risk

The Society 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 within market expectations. The table below summarises the Society's exposure to interest rate risks. Included in the table are the Society's investments at carrying amounts, categorised by the earlier of contractual repricing or maturity dates.

2013 Up to 1 month

1 - 3 months

3 -12 months

1 - 5 years Total

R R R R R

Cash and cash equivalents 22 775 809 - - - 22 775 809

Available-for-sale investments

- Bonds and debentures - - - 33 043 575 33 043 575

- Cash 24 033 775 - - - 24 033 775

Total 46 809 584 - - 33 043 575 79 853 159

The cash and cash equivalents are subject to floating interest rates, linked to the repo rate. Bond investments are subject to fixed interest rates. The cash portion in the available-for-sale investment contains exposure to floating interest rates and exposure to fixed interest rates.

2012 Up to 1 month

1 - 3 months

3 -12 months

1 - 5 years Total

R R R R R

Cash and cash equivalents 18 245 347 - - - 18 245 347


- Bonds and debentures - - - 22 415 106 22 415 106

- Cash 28 311 094 - - - 28 311 094

Total 46 556 441 - - 22 415 106 68 971 547

Sensitivity analysis

The 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. A decrease in 100 basis points in interest yields for a full year would result in an increase in reserves and other comprehensive income of R816 684 (2012: R570 668). An increase in 100 basis points in interest yields for a full year would result in a decrease in reserves and other comprehensive income of R816 684 (2012: decrease of R570 668).

41



MARKET RISK (CONTINUED)

Interest rate risk (continued)

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. Equity price risk

The Society is exposed to equity price risk, as it invested funds in South African Equities through an asset manager. The Society's equity portfolio is a long-term investment and the funds invested in this portfolio are not needed in the short to medium term. This mitigates the risk for short-term fluctuations in the equity market. The Society appointed a reputable asset manager with a good track record in terms of performance. The Society is also exposed to equity price risk, as the asset manager deals in equities via derivative trading. The equity investment strategy is to protect capital by limiting any loss in exposed capital. This is achieved by hedging exposures with other derivative instruments. The equity price risk is thus limited by strategic actions by the asset manager. Sensitivity analysis

The 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. An increase of 5% in the JSE All Share Index would result in an increase in reserves of R1 249 935 (2012: R790 502). This full amount would be recognised in the Society's revaluation reserve and will not affect the Society's reserve ratio. The Society's sensitivity to equity prices has not changed significantly from the prior year. 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. The Trustees monitor the equity portfolio movements on a regular basis and the Investment Committee has regular meetings to review the Society's strategy and asset allocation. Risk management of the investment portfolio

The asset manager's approach is to construct a portfolio of diversified asset classes, after determining the long-term relationship or correlation of these asset classes, in order to obtain an optimal risk/return mix. The asset manager uses strategic asset allocation rather than market timing strategies to manage risk. Quantitative analysts ensure appropriate risk exposure. Fair value estimation

The fair value of publicly traded financial instruments and available-for-sale investments is based on quoted market prices at the reporting date. The table below provides the carrying amounts of financial assets and liabilities per category:

2013 2012

R R

Available-for-sale investments 75 618 885 63 407 593

Cash and cash equivalents 22 775 809 18 245 347

Trade and other receivables 682 332 1 149 951

- Insurance receivables 531 870 1 029 343

- Other receivables 71 008 50 738

- Risk transfer arrangements 79 453 69 870

Trade and other payables (474 364) (2 381 366)

The carrying amounts of these financial assets and liabilities approximate their fair values.

42



Fair value estimation (continued)

The fair value of available-for-sale investments is based on quoted bid-market prices at the year-end date. The table below illustrates the fair values of financial assets by hierarchy level.

As at 31 December 2013 Level 1 Level 2 Level 3 Reclassifica-

tion

R R R R


Bonds and debentures 33 043 575 - - -

Property 4 208 672 - - -

Equities with primary listing on the JSE 14 332 863 - - -

Local cash 24 033 775 - - -

Total 75 618 885 - - -

As at 31 December 2012 Level 1 Level 2 Level 3 Reclassifica-

tion

R R R R


Bonds and debentures 22 415 106 - - -

Property 2 302 316 - - -

Equities with primary listing on the JSE 10 379 077 - - -

Local cash 28 311 094 - - -

Total 63 407 593 - - -

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 in 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 Society for similar financial instruments. CAPITAL MANAGEMENT

The Society's objective is to manage its capital in such a way that the annual contribution increase to members is as low as possible. The Society therefore decided to use some of its investment income to fund any possible deficit that might occur as a result of operational losses. Capital adequacy risk is the risk that there may be insufficient reserves to provide for adverse variations on actual and future experience. The accumulated funds ratio was 110.96% at 31 December 2013 and 99.14% at 31 December 2012 and compares favourably to the accumulated funds ratio of 25%, as prescribed by the Medical Schemes Act.

43


21. INSURANCE RISK MANAGEMENT

NATURE AND EXTENT OF RISKS ARISING FROM INSURANCE CONTRACTS

The Society issues contracts that transfer insurance risk. This section summarises these risks and the way the Society manages them.

Insurance risk - description of benefits

- In-hospital benefits cover all costs incurred by members while they are in hospital to receive pre-authorised treatment for certain medical conditions.

- Chronic medication benefits cover the cost of certain prescribed medicines consumed by members for chronic conditions/diseases, such as high blood pressure, cholesterol and asthma.

- Day-to-day benefits cover the cost of out-of-hospital medical attention (subject to certain sub-limits), such as visits to general practitioners and dentists, as well as prescribed non-chronic condition medicines.

- The treatment of prescribed minimum benefits are covered at cost.

Risk management objectives and policies for mitigating insurance risk

The primary insurance activity carried out by the Society 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 Society's members. As such the Society is exposed to the uncertainty surrounding the timing and severity of claims under the contract. The Society also has exposure to market risk through its insurance and investment activities.

The Board of Trustees has developed and approved documented policies and practices for the acceptance and management of insurance risk to which the Society is exposed. Reference has also been made to the requirements of the Medical Scheme Act in compiling the insurance risk management policy. These policies are reviewed annually and the benefit option provided to members is structured to fall within the acceptable insurance risk levels specified. The Board of Trustees also determines the policy for entering into risk transfer arrangements. The annual business plan is structured around the insurance risk management policy.

The Society manages its insurance risk through benefit limits and sub-limits, approval procedures for transactions that involve pricing guidelines, pre-authorisation and case management, as well as the monitoring of emerging issues. Certain risks are mitigated by entering into a risk transfer arrangement.

The Society uses several methods to assess and monitor insurance risk exposures, both for individual types of risks insured and overall risks. These methods include analysing detailed claims information with the assistance of the Society's actuarial consultants.

The Trustees also appointed a managed care provider to focus on specific areas where the Society is exposed to insurance risk. These managed care programmes include the following:

- HIV YourLife Programme;

- Hospital Management Programme; - Medicine Risk Management Programme; - Electronic Benefit Management Programme;

- Disease Risk Management Programme; - Prescribed Minimum Benefits Programme; - Oncology Programme;

- Maternity Programme; - Eldercare Programme; and - General Practitioner (GP) Network.

The theory of probability is applied to the pricing and provisioning for a portfolio of insurance contracts. 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. 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.

44


21. INSURANCE RISK MANAGEMENT (CONTINUED)

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

Risk management objectives and policies for mitigating insurance risk (continued)

The Society has developed its insurance underwriting strategy to diversify the type of insurance risk accepted and within each of these categories to achieve a sufficient large population of risks to reduce the variability of the expected outcome. Frequency and severity of claims

For insurance contracts issued, climatic and seasonal changes, as well as the spread of pandemics, give rise to more frequent and severe claims. Source of uncertainty in the estimation of future claims payments

The Society reviews the contributions and benefits annually 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 the large majority is lodged soon after year end before the four month expiration of claims period comes into effect. All the contracts are annual in nature and the Society has the right to change the terms and conditions of the contracts at renewal. Management information, including contribution income and claims ratios, target market and demographic split, is reviewed monthly. The insurance risk management strategy is set out in the annual business plan, which specifies the benefits to be provided. Management information, including contribution income and claims ratios is reviewed monthly. Concentration of insurance risk

The following table summarises the concentration of insurance risk, with reference to the number of beneficiaries by age group.

2013 2012

Age grouping (in years)

Total Age grouping

(in years) Total

< 25 1 254 < 25 1 303

25 - 34 359 25 - 34 351

35 - 49 757 35 - 49 772

50 - 65 808 50 - 65 838

> 65 1 086 > 65 1 089

Total 4 264 Total 4 353

The following table summarises the concentration of insurance risk, with reference to the carrying amount of the insurance claims incurred, by age group and in relation to the type of risk covered/benefits provided.

2013

Age grouping

General practition-

ers

Medical specialists

Dentistry Medicines Hospital Other Optometry Total

R R R R R R R R

< 25 905 372 1 776 970 495 715 1 392 130 2 739 894 481 612 - 7 791 693

25 - 34 409 574 1 075 730 138 933 728 002 1 329 578 187 686 - 3 869 503

35 - 49 857 244 3 060 212 464 271 2 505 471 3 704 514 1 420 735 - 12 012 447

50 - 65 978 720 5 077 008 712 099 4 783 510 4 783 478 906 325 - 17 241 140

> 65 1 535 669 12 188 156 869 857 8 716 756 15 761 186 2 562 727 - 41 634 351

PPN - - - - - - 1 770 279 1 770 279

ER - - - - - 472 979 - 472 979

Total 4 686 579 23 178 076 2 680 875 18 125 869 28 318 650 5 559 085 1 770 279 84 792 392

45


21. INSURANCE RISK MANAGEMENT (CONTINUED)

Concentration of insurance risk (continued)

2012

Age grouping

General practition-

ers

Medical specialists

Dentistry Medicines Hospital Other Optometry Total

R R R R R R R R

< 25 944 307 1 521 549 607 558 1 460 285 2 199 137 390 470 - 7 123 306

25 – 34 389 902 1 084 622 183 007 788 169 1 327 149 292 836 - 4 065 685

35 – 49 915 843 2 938 189 547 237 2 518 366 3 118 696 814 560 - 10 852 891

50 – 65 898 017 5 933 800 707 028 5 231 794 6 115 663 831 218 - 19 717 520

> 65 1 350 356 11 337 204 766 206 8 590 428 16 373 367 3 205 037 - 41 622 598

PPN - - - - - - 1 283 809 1 283 809

ER - - - - - 220 103 - 220 103

Total 4 498 425 22 815 364 2 811 036 18 589 042 29 134 012 5 754 224 1 283 809 84 885 912

The insurance risk management strategy is reviewed annually and specifies the benefits to be provided, as well as the contribution payable. Claims development

Claims development tables are not presented, since the uncertainty regarding the amount and timing of claims payments are typically resolved within one year. Risk transfer arrangements

The Society entered into capitation agreements with an optical service provider and an emergency transport provider. However, the Society remains liable to its members with respect to these services, should the capitation provider fail to meet its obligation. The amount of each risk retained depends on the Society's evaluation of the specific risk, subject in certain circumstances to maximum limits on the basis of characteristics of coverage. According to the terms of the risk transfer arrangements, the third party agrees to reimburse the ceded amount in the event the claim is paid. According to the terms of the capitation agreement, the supplier provides certain minimum benefits to all Society members, as and when required by the members. When selecting a capitation provider, the Society considers its relative security. The security of the capitation provider is assessed from public rating information and from internal investigations, such as considering capital adequacy, solvency, capacity and appropriate resources.

22. CRITICAL ACCOUNTING JUDGEMENTS AND AREAS OF KEY SOURCES OF ESTIMATION

UNCERTAINTY

In the process of applying the Society'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, which has a significant risk of causing a material adjustment to the carrying amounts of liabilities in the next financial year, is that used to determine the provision for outstanding claims (refer note 7). 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 as the claims are reported and settled. Although the assumption is considered critical, after year-end settlements against the provision have been monitored to ensure reasonability of the original provision.

46


23. NON-COMPLIANCE MATTERS


Nature and impact

In terms of Section 26(7) of the Medical Schemes Act, contributions should be received in accordance with the rules of the Society. The rules indicate that contributions should be received no later than three days after they become due. During 2013, there were no instances where contributions at an employer group level were received later than three days after the due date. As at 31 December 2013, there were contribution debtors outstanding for more than 30 days to the amount of R71 074 (2012: R43 148). This amount represents less than 0.09% of the total contributions received during the year, but the delay in receipt is in contravention of Section 26(7) of the Medical Schemes Act. Causes for the failure

The contribution debtors at year-end are outstanding largely due to membership changes after the initial contributions were raised. These discrepancies were communicated to the employers and pension administrators and were paid in the following months. Corrective action

The Society continually strives to have all membership changes updated before the following contribution run. Due to the nature of the membership movement and the communication process between the employers and pension administrators on the one hand and the Administrator on the other, this is not always possible.


Nature and impact

In terms of the Medical Schemes Act and specifically Section 59(2) it is a requirement that claims should be paid within 30 days of receipt thereof. The contravention of the Act could lead to service providers no longer providing services needed by the Society. Causes for the failure

Claims were not paid within the 30-day statutory timeframe for the following reasons: delays from clinical interventions; claims processing backlogs; and claims payments specifically requested to be placed on hold by members dissatisfied with their service providers. It is an operational requirement that valid claims are processed and the validation process requires forensic and clinical interventions that may delay the payment of claims beyond the statutory timeframe of 30 days. Corrective action

The Society has acknowledged that there will always be claims that are not processed within the 30-day statutory timeframe, as there are claims that require extensive investigation that results in the settlement of claims after 30 days. The Society will, however, enhance the review of the pending claims report to ensure that long outstanding claims are prioritised.

23.3 CONTRAVENTION OF SECTION 28 OF THE MEDICAL SCHEMES ACT

Nature and impact

According to Section 28 of the Medical Schemes Act: No person shall – (a) be a member of more than one medical scheme; (b) be admitted as a dependent of – (i) more than one member of the particular medical scheme; or (ii) members of the different medical schemes; or (c) claim or accept benefits in respect of himself or herself or any dependant from any medical scheme other than the medical scheme he or she is a member of. During 2013 there was an instance where a beneficiary had dual active membership of two schemes administered by the Administrator.

47


23. NON-COMPLIANCE MATTERS (CONTINUED)

23.3 CONTRAVENTION OF SECTION 28 OF THE MEDICAL SCHEMES ACT (CONTINUED)

Causes for the failure

The Administrator regularly checks for members with dual membership across medical schemes under their administration. However, the Administrator’s dual membership report did not flag the particular beneficiary as being dual-registered. No action was taken by the Administrator to update the member's records. Corrective action

The administration system flags the loading of a beneficiary if the ID number already exists on the system. A weekly dual membership report identifying duplicate beneficiaries across the schemes administered by the Administrator is generated and reviewed on a weekly basis. The Administrator is in the process of enhancing the dual membership report.

23.4 CONTRAVENTION OF REGULATION 8 OF THE MEDICAL SCHEMES ACT

Nature and impact

In terms of the Regulation the Society must pay in full (without co-payment or the use of deductibles) the diagnosis, treatment and care costs of the prescribed minimum benefit (PMB) conditions. During 2013 there was one PMB acute medicine claim that was settled at 80% of the cost and one pathology claim that was not settled in full. Causes for the failure

The initial acute medicine claim was processed at 80% of cost, as it was not approved as chronic medication. A correction was not effected subsequently, after the chronic medication had been approved, as there was no automated process to correct the initial processing of the medicine from acute to chronic. The pathology claim was not paid in full because the provider used a non-specific ICD-10 code when lodging the claim (which is not a PMB ICD-10 code). The tariff code used by the provider is a PMB code which was approved as part of the member’s care plan. The claim line should thus have been settled in full. Corrective action

A new process has been implemented between the Claims Department and the Medicine Risk Management Programme whereby all acute medicine claims that have subsequently been approved as chronic will be reprocessed retrospectively. With effect from 1 July 2013, if the tariff code used by the service provider is on the Society’s PMB Care Plan, those claims will be processed as per the PMB Care Plan.

notice is hereby given that the seventy-seventh …20140422100255 am... · - the continued seeking...

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