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Corporate Governance

Our Approach to Risk Management

Statement of Responsibility

Certificate by Company Secretary

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Accounting Policies

Notes to Financial Statements

Guardrisk Life LimitedRegistration no. 1999/013922/06

Annual financial statementsfor the year ended 31 March 2005

The reports and statements set out herewith comprise the annual financial statements presented to the members.

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Guardrisk Life Limited ("Guardrisk") is committed to the highest standards of corporate governance as embodied in the 2002 King Report on Corporate Governance.

In keeping with its commitment to Corporate Governance and safeguarding the interests of stakeholders, the Board is taking steps to maintain mechanisms and policies appropriate to the company's business to ensure compliance with the Code of Corporate Practices and Conduct as contained in the 2002 King report.

The Board

The directors bring together a wealth of diverse experience from the insurance and financial services environment. The chairperson and the chief executive provide leadership and guidance to the Board to encourage optimum input from the directors and proper deliberation of all matters requiring Board approval.

Board Composition

The Board currently comprises of seven non-executive directors and three executive directors. The Board is considered to be effective in size and composition.

Chairperson and Chief executive

The chairperson of the board is a non-executive member and the role of the chairperson is separated from that of the chief executive.

Audit committee

Made up of three non-executive directors and three executive directors. The chairperson of the committee is a non-executive director. Both the internal and external auditors have unrestricted access to the audit committee. The audit committee meets at least twice a year. The meetings are attended by the external auditors and invitees as considered appropriate by the chairperson.

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The committee is responsible for reviewing the financial statements and accounting policies, the effectiveness of the management information and internal control systems, compliance with statutory and regulatory requirements, interim and final reports, the effectiveness of the internal audit function, external audit plan and the findings on the internal and external audits.

Internal audit functionThe company has an independent internal audit function with a charter approved by the Audit Committee and the Board. The Board has assured itself that there is sufficient segregation between the external and internal audit functions to ensure that the independence of the two functions is not impaired. Internal audit reports to the Audit Committee and has unrestricted access to the chairperson of the Audit Committee and the non-executive chairperson of the company.

The scope of the internal audit function is to review the reliability and integrity of financial and operating functions, the systems of internal control and risk management, the means of safeguarding assets, the efficient management of the company’s resources and the effective conduct of its operations. Corrective actions are taken to address control deficiencies and other opportunities for improving the system as they are identified.

The Board, operating through its audit committee, provides oversight of the financial reporting process. The company maintains a system of internal control over financial reporting and over safeguarding of assets against unauthorised acquisition, use or disposal, which is designed to provide reasonable assurance regarding the preparation of reliable financial statements, the safeguarding of the company's assets, compliance with laws and regulations and effective financial risk management within the company. The system includes a documented organisational structure and division of responsibility as well as established policies and procedures to foster a strong ethical climate, which is communicated throughout the company. There are inherent limitations in the effectiveness of any system of internal control including the possibility of human error and the circumvention or overriding of controls.

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Accordingly, even an effective internal control system can provide only a reasonable assurance with respect to financial statement preparation and the safeguarding of assets.

During the period under review, no material breakdown has occurred in the company's internal control system.

The Board: is satisfied with the effectiveness of the company's internal controls; has no reason to believe that the company will not operate as a going concern for the next financial year; has no reason to believe that there has been any material non-adherence to the company's ethical

standards.

Investment strategy committee

The chairperson is a non-executive director. The committee carefully reviews all investments on the basis of total asset security and minimised credit risk to Guardrisk. Interest rate risk is minimised by holding a large proportion of assets in money market instruments. Industry specialists as well as our panel of investment managers are invited to the investment committee by the chairperson.

Remuneration committee

All Guardrisk remuneration decisions are approved by a delegated authority from the Alexander Forbes remuneration committee. The chairperson is a non-executive director. Remuneration structures are based on independent market surveys and professional input from trusted market sources. The purpose of this committee is to ensure that executive directors and senior management are remunerated appropriately and to review the remuneration scales, including incentives and share schemes as well as conditions of employment.

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In addition, management ensures that the organisation is appropriately staffed in terms of skill levels and demographic representation and is able to meet the challenges of the future. The committee identifies and reviews the appointment of new directors and performance of all directors and considers succession planning in respect of all senior management.

Risk committee

The Risk committee considers both underwriting and counter party exposures in order to minimise risks of non-performance on portfolios as well as to clarify risk obligations with clients. The committee deals with specialised risks related to life insurance business being conducted by the company. Furthermore, the committee reviews the appropriateness and viability of major product development initiatives to confirm regulatory, legal, tax and accounting standards. Individuals with specialised industry and product knowledge are members of this committee and are also being co-opted on an ongoing basis. The committee reports directly to the board. This committee comprises of two executive and three non-executive directors and independent specialists.

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Our risk management programme focuses primarily on the integrity of our underwriting programmes and the management of investment risk. Our structure is rigorously examined by professional advisors to new clients, regular internal audits and independent rating programmes. During the year, Guardrisk Life subjected itself to an independent rating assessment by international rating agency, Global Credit Rating. A financial strength rating of A+ was achieved.

Prudent evaluation of risk retention

We carefully evaluate all retentions of risks in terms of statistical and underwriting disciplines, as well as specific and limited board mandates for each insurance programme. In this way we maintain the security of our cell insurance structure, which enables us to provide comprehensive insurance solutions to meet our clients' needs.

Enterprise Wide Risk Management

Taking measured risks in the pursuit of growing our business has always been at the heart of Guardrisk’s success. In a rapidly changing environment the effective management of risk is central to our continued growth.

Our objective within Guardrisk is to entrench risk management into the day to day business activities whereby each division:

understands the risk events that may prevent it from achieving its objectives; has identified the risk mitigating controls in place and has assessed their efficiency; and has formulated a plan wherever additional action is required.

We are confident that effective risk management will provide greater certainty for our clients, shareholders, staff, suppliers and the community in which we operate.

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Statement of Responsibility by the Board of Directors for the year ended 31 March 2005

The directors are responsible for the preparation, integrity and fair presentation of the annual financial statements of Guardrisk Life Limited. The financial statements presented herewith have been prepared in accordance with Statements of Generally Accepted Accounting Practice in South Africa and include amounts based on judgements and estimates made by management. The directors also prepared the other information included in the annual report and are responsible for both its accuracy and its consistency with the financial statements.

The directors are also responsible for the company's system of internal financial controls. These are designed to provide reasonable, but not absolute assurance as to the reliability of the financial statements, and to adequately safeguard, verify and maintain accountability of assets, and to prevent and detect misstatement and loss. Nothing has come to the attention of the directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review.

The going concern basis has been adopted in preparing the financial statements. The directors have no reason to believe that the company will not be a going concern in the foreseeable future based on forecasts and available cash resources. The viability of the company is supported by the financial statements.

The financial statements have been audited by the independent accounting firm, PricewaterhouseCoopers Inc., which was given unrestricted access to all financial records and related data, including minutes of all meetings of shareholders, the board of directors and committees of the board. The directors believe that all representations made to the independent auditors during their audit were valid and appropriate.

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The audit report of PricewaterhouseCoopers Inc. is presented herewith.

The financial statements were approved by the board of directors on 16 May 2005 and are signed on its behalf by:

PL HEINAMANN SH SCHOEMAN

Chairperson Managing Director

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In terms of section 268G(d) of the South African Companies Act of 1973, as amended, I certify that in respect of the year ended 31 March 2005, the company has lodged with the Registrar of Companies all returns that are required of a public company in terms of the Act and that all such returns are true, correct and up to date.

JE SALVADO

Company Secretary

16 May 2005

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Report of the Independent Auditors for the year ended 31 March 2005We have audited the annual financial statements of Guardrisk Life Limited set out herewith for the year ended 31 March 2005. These financial statements are the responsibility of the directors of the company. Our responsibility is to express an opinion on these financial statements based on our audit.

ScopeWe conducted our audit in accordance with statements of South African Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement.

An audit includes: examining, on a test basis, evidence supporting the amounts and disclosures included in the financial

statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation.

We believe that our audit provides a reasonable basis for our opinion.

Audit opinionIn our opinion, these annual financial statements fairly present, in all material respects, the financial position of the company at 31 March 2005, and results of its operations and cash flows for the year then ended in accordance with South African Statements of Generally Accepted Accounting Practice and in the manner required by the Companies Act of 1973, in South Africa.

PricewaterhouseCoopers Inc.Chartered Accountants (SA) JOHANNESBURGRegistered Accountants and Auditors 16 May 2005

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1. Statement of Assets, Liabilities, Excess Assets and Capital Requirements at 31 March 2005

Actuarial Balance Sheet as at 31 March 2005

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2005R’000

2004R’000

Net assetsNet policy liabilitiesExcess of assets over liabilities

754,733697,096

57,637

770,974709,741

61,233

Both the net assets and policy liabilities above have been reduced by an amount for reassurance, thus showing figures net of reassurance. The amounts deducted for reassurance were R82.326 million (2004: R54.639 million).

Represented by: Shareholders' Interest Shareholders' capital Share premium Retained Income - ordinary shareholders‘L’ ordinary shareholders and policyholders

Capital adequacy requirement

CAR Cover

57,63710,000

5,9898,127

33,521

21,219

2.7x

61,23310,001

4,41315,48431,335

19,493

3.1x

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I hereby certify that: the actuarial valuation of Guardrisk Life Limited at 31 March 2005 as summarised above

has been conducted in accordance with the requirements of the Long-term Insurance Act, 1998 and the Actuarial Society of South Africa's Professional Guidance note 104;

this Statutory Actuary's report has been produced in accordance with the Actuarial Society of South Africa's professional guidance note 103;

my Statutory Actuary's report, read together with the Annual Financial Statement, fairly presents the financial position of the company; and

the company was financially sound as at the valuation date, and in my opinion is likely to remain financially sound for the foreseeable future.

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2. Composition of policy liabilitiesThe policy liabilities of Guardrisk Life Limited have the following composition:

Credit LifeGroup life, assistance and disabilityAnnuities in paymentTotal

34750

100

23959

100

2005 2004

Proportion of total (%)

3. Valuation basis of assetsThe assets are valued at balance sheet values i.e. at carrying values which approximate the fair values as described in the notes to the Annual Financial Statements.

4. Valuation basis of policy liabilitiesThe valuation was performed using the Financial Soundness Valuation method and was conducted in accordance with the Long-term Insurance Act, 1998 and Professional Guidance note 104 of the Actuarial Society of South Africa.

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Assumptions regarding the future were on a best estimate basis plus further allowance for statutory planned margins. Appropriate allowance has been made for the expected impact of AIDS by increasing the assumptions for mortality and morbidity in line with current industry models. A gross discount rate of 8.8% has been used for calculating reserves in respect of post retirement health liabilities and other annuities in payment, while a gross interest rate of 6.8% was used for credit life liabilities. The 8.8% is based on long-term gilt rates, and 6.8% being the investment return assumed for cash. Both of these rates are before the adjustment for 1st tier margins. The basis of taxation of long-term insurers applicable as at 31 March 2005 has been allowed for. No investigations have been performed into the experience of the cells in respect of mortality or other risks underwritten as the experience is very small.

Renewal expenses incurred in the operation of the cells are often incurred by 3rd parties and not paid by the cell. Expenses have been allowed for in some cells by calculating the present value of future expected expenses to be incurred. An inflation rate of 6.3% has been assumed before 1st tier margins are included. This is derived as 2.5% less than the gilt rate of 8.8%. Bonus has been allowed for with-profit annuities consistent with the investment return assumption.

For credit life business, policy liabilities were determined as the present value of expected future outgo.

For monthly premium group life business, the liability was taken as an appropriate IBNR reserve.

For the annuities in payment and post-retirement health business, the liability was taken to be the present value of the annuity cash flows less the present value of future premium payments. In addition, a bonus smoothing reserve was also held to ensure that the liability was increased to match the underlying assets.

One cell has a 2nd tier margin where negative reserves are eliminated. In addition, the Guardrisk Life fees exceed expenses, but these future excesses have been discounted resulting in a 2nd tier margin. In total these two 2nd tier margins are R144.7 million.

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5. Capital adequacy requirementThe capital adequacy requirement is calculated to determine whether the excess of assets over liabilities is sufficient to provide for the possibility of actual future experience departing negatively from the assumptions made in calculating the policy liabilities and against fluctuations in the value of assets. The level of departure or fluctuation allowed for is as required by the Long-term Insurance Act, 1998. The capital adequacy requirement is calculated as if each cell was a separate insurer and then accumulated for all cells. The surplus is 2.7 times the capital adequacy requirement.

For the resilience CAR component, the following fall in assets has been assumed:

Equities 30%Property 15%Fixed Interest 15%

In calculating the CAR, we have assumed the management action that the bonus smoothing reserve can be used to offset the fluctuating CAR item. The bonus smoothing reserve remaining after the removal of the fluctuation CAR item is used to absorb a fall in market values. In addition, further management action is assumed, as future bonuses will be under declared over the next three years. These actions reduce the CAR by R17 million.

I certify that the off-setting management actions assumed above have been approved by specific resolutions by the board of directors. I am also satisfied that these actions will be taken if the corresponding risks were to materialise.

The CAR has been based on the ordinary capital adequacy requirement as this exceeds the termination adequacy requirement. The OCAR is backed 89% by cash assets, 8% by equities and 3% by fixed interest instruments.

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6. Individual cell surpluses

The surplus of any cell is not available to meet the solvency requirements (including capital adequacy requirement) of other cells. An alternative measure of the extent to which the capital adequacy requirement is covered can be obtained by excluding the excess of assets over liabilities (including capital adequacy requirements), for all cells where this surplus is positive, from the total excess of assets over liabilities shown in the actuarial balance sheet. The total of these surpluses amounted to R25.9 million at the valuation date. Excluding these surpluses from the excess of assets over liabilities in the actuarial balance sheet results in the capital adequacy requirement being covered 1.5 times.

7. Material changes in valuation basis since previous report

For the credit life business, the gross discount rate was reduced to 6.8% from 7.7%, consistent with yields based on the market value of assets. A tax 2nd tier margin was introduced this financial year resulting in a transfer from shareholder’s funds to policyholder liabilities.

8. Reconciliation with Income Statement

(Decrease) / Increase in excess of assets over liabilities

- Increase in share capital during the year

+ Dividend paid and provided during the year

+ Reclassification of policyholder liability to equity

Earnings for the year on Financial Soundness basis

- Increase in excess retained in policyholders' fund

Earnings per Income Statement

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(3,596)

(1,575)

10,042

8

4,879

0

4,879

1,550

(2,153)

16,305

0

15,702

0

15,702

2005R’000

2004R’000

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The earnings for the year on the financial soundness basis comprised of :

Investment income on free assets

Capital Appreciation on free assets

Changes to valuation basis and assumptions

Balance of earnings for the year

Total

9. Alterations, notes and qualifications

The actuarial assumptions will be reviewed from time to time to reflect changes in experience and/or expectations.

MJ Harrison FFA FASSA

Statutory Actuary

16 May 2005Sta

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3,769

1,006

(11,544)

11,648

4,879

6,195

1,015

(81)

8,573

15,702

2005R’000

2004R’000

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The directors present their report which forms part of the audited financial statements of the company for the year ended 31 March 2005.

Principal activities and review of the business

Guardrisk Life is South Africa's first cell captive long-term insurer. Guardrisk Life is licensed to underwrite assistance, disability, fund, health, life policies and sinking fund policies (i.e. endowments).

The company offers the following structured insurance and risk financing solutions:

Cell captive: Cell captives allow clients to purchase an equity stake (or a "cell") in the promoting company which undertakes the professional management of the cell including underwriting, reinsurance, claims management, actuarial and statistical analyses, investment and accounting services. The terms and conditions of the cell are governed by the "L" shareholders agreement.

Promoter policies: A structure to provide entry-level insurance cover for smaller schemes.

Both the level of business development and the overall financial position at the end of the year were satisfactory and the directors expect that the present level of insurance activity will continue for the foreseeable future.

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Key figures have been highlighted below:

Total assets

Gross premium written - insurance contracts

Gross premium written - investment contracts

Investment income

Income before tax

Results

Gross premium income reduction of 7% in the income statement was caused by a reduction in single premium business. Net claims increased by 7% due to increased claims volumes. Investment income increased by 12% and funds under management decreased by 2% which was acceptable in a declining interest rate environment. Income before tax has increased due to the reduction in administration expenses and the increase in investment income.

Dividends

Dividends to ordinary shareholder

Declared to ordinary shareholder on 23 July 2004 and paid on 27 July 2005

Dividends to "L" ordinary shareholders

Declared and paid to 031 “L” ordinary shareholder on 28 May 2004

Declared and paid to 006 “L” ordinary shareholder on 28 February 2005

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866,569

311,565

8,463

66,827

9,739

856,589

336,178

29,403

59,649

20,007

2005R’000

2004R’000

3,689,000

1,602,869

4,750,000

6,352,869

R

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Share capital The authorised share capital remained unchanged during the year. Details of changes in the issued share capital are provided in Notes 5 and 6 to the financial statements. Changes are generally due to new cells being opened or redemptions when cells are closed.

Post balance sheet events There have been no major events subsequent to year end.

Holding company The company is controlled by Guardrisk Holdings Limited (incorporated in South Africa) which owns 100% of the company's ordinary shares. The ultimate parent of the company is Alexander Forbes Limited a company incorporated in South Africa.

Directors and secretaryThe following were the directors of the company who remained unchanged during the year:

SH Schoeman (managing director) * L Vorwerg (executive) *AG Jordaan (executive) *PL Heinamann (non-executive & chairperson)TRT Bohlmann (non-executive) *BL McClatchie (non-executive) *MKE Nkeli (non-executive)GM Nzau (non-executive)T Pauw (non-executive)JH Vickers (non-executive) * * Audit committee attendee

JE Salvado (company secretary)

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Registered office and postal address

Physical office: Postal address:

Alexander Forbes Place P O Box 786015

Fourth Floor, 90 Rivonia Road, Sandton

Sandton 2146

2196

Company secretary

Registered office: Postal address:

Alexander Forbes Limited P O Box 787240

Alexander Forbes Place Sandown

61 Katherine Street 2146

Sandown

2196

Public Officer

AG Jordaan

Auditors

PricewaterhouseCoopers Inc. will continue in office in accordance with section 270(2) of the Companies Act.

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Balance Sheet as at 31 March 2005

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ASSETS

Non-current assets

Equipment

Purchased and developed computer software

Financial assets

Deferred tax asset

Reinsurers’ share of unmatured liabilities

Current assets

Reinsurers’ share of outstanding claims

Receivables and prepayments

Current tax asset

Accrued premium

Cash and cash equivalents

Due by reinsurers

Total assets

1.1

1.2

2

3

7.1

4

813,363

160

17

730,755

105

82,326

53,206

5,176

4,181

6,931

23,650

12,178

1,090

866,569

771,721

0

121

716,891

70

54,639

84,868

3,989

15,661

6,282

18,744

40,192

0

856,589

Notes 2005R’000

2004R’000

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EQUITY & LIABILITIES

Interest of ordinary shareholder

Share capital

Retained earnings

Interest of "L" ordinary shareholders and policyholders

"L" Ordinary share capital and premium

"L" Ordinary shareholders and policyholders interest

Total shareholders and policyholders interest

Non-current liabilities

Policyholders liabilities under insurance contracts

Policyholders liabilities under investment contracts

Current liabilities

Gross outstanding claims

Trade and other payables

Current tax liabilities

Total equity and liabilities

5

5, 6

7.1

7.2

18,127

10,000

8,127

39,510

5,989

33,521

57,637

779,422

666,978

112,444

29,510

18,364

10,783

363

866,569

25,484

10,000

15,484

35,749

4,414

31,335

61,233

764,380

527,913

236,467

30,976

17,619

12,144

1,213

856,589

Notes 2005R’000

2004R’000

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IncomeGross premiums writtenOutward reinsurance premiumsNet premiums written

Policyholder benefitsRecoveries from reinsurersNet policyholder benefits

Net commissionAdministration expenses

Investment return

Fair value adjustment to policyholder liabilities under investment contractsGross transfer to policyholder liabilities under insurance contractsReinsurers’ portion of transfer to policyholder liabilities under insurance contractsProfit before taxationTaxationNet profit for the year

8

9

7.2

7.1

7.1

10

311,565(75,244)236,321

181,439(38,188)143,251

10,65728,77353,64066,827

120,467

(15,171)

(123,244)

27,6879,739

(4,860)4,879

336,178(87,276)248,902

180,072(46,805)133,267

6,82134,73774,07759,649

133,726

(8,719)

(90,903)

(14,097)20,007(4,305)15,702

Notes 2005R’000

2004R’000

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tStatement of Changes in Shareholders’ Equity and Policyholders’ Interest for the year ended 31 March 2005

Balance at 1 April 2003

Issue of shares

Dividends paid

Net profit for the year

Balance at 31 March 2004

Transfer to “L” shareholders interest

Issue of shares

Dividends paid



STATEMENT OF CHANGES IN ORDINARY SHAREHOLDER’S EQUITY

10,000

0

0

0

0

10,000

0

10,000

0

0

0

0

10,000

0

0

0

0

0

0

0

0

0

0

0

0

0

13,171

2,313

0

(5,475)

7,788

15,484

(6,624)

8,860

(733)

0

(3,689)

2,956

8,127

23,171

2,313

0

(5,475)

7,788

25,484

(6,624)

18,860

(733)

0

(3,689)

2,956

18,127

Share Premium

R’000

Retained earnings

R’000TotalR’000

Share capital R’000

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Accounting Policies

Notes to Financial

Statements

Ch

an

ge

s in

Eq

uit

y &

Po

licy

ho

lde

rs’ I

nte

res

t

Restated balance at 1 April 2003

Issue of shares

Dividends paid



Transfer of policyholder liabilities to equity

Transfer from ordinary shareholders equity

Issue of shares

Dividends paid



STATEMENT OF CHANGES IN “L” SHAREHOLDERS’ AND POLICYHOLDERS’ INTEREST

1

0

0

0

0

1

0

0

0

1

0

0

0

0

1

2,260

2,153

2,153

0

0

4,413

0

0

0

4,413

1,575

1,575

0

0

5,988

34,251

(2,916)

0

(10,830)

7,914

31,335

6,616

(8)

6,624

37,951

(4,430)

0

(6,353)

1,923

33,521

36,512

(763)

2,153

(10,830)

7,914

35,749

6,616

(8)

6,624

42,365

(2,855)

1,575

(6,353)

1,923

39,510

Share Premium

R’000

Retained earnings

R’000TotalR’000

Share capital R’000

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Ca

sh

Flo

w S

tate

men

tCash Flow Statement for the year ended 31 March 2005

Cash flows from operating activities

Cash generated from operations

Cash (outflow) / inflow on investment contracts

Investment income

Dividends paid

Taxation paid

Net cash (outflow) / inflow from operating activities

Cash flows from investing activities

Net purchase of investments

Purchase of equipment

Proceeds on disposal of investments

Net cash outflow from investing activities

Cash flows from financing activities

Proceeds from issue of shares

Net cash inflow from financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

13

14

15

4

57,465

(123,381)

55,110

(10,042)

(6,394)

(27,242)

(11,036)

(200)

8,889

(2,347)

1,575

1,575

(28,014)

40,192

12,178

140,301

620

63,460

(16,305)

(21,108)

166,968

(257,653)

0

366

(257,287)

2,153

2,153

(88,166)

128,358

40,192

Notes 2005R’000

2004R’000

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BASIS OF PREPARATIONThe financial statements of the company has been prepared in accordance with and comply with South African Statements of Generally Accepted Accounting Practice and the Companies Act of 1973, as amended in South Africa.

Such preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates.

The financial statements have been prepared under the historical cost basis, as modified by the revaluation of certain categories of financial instruments and liabilities under insurance contracts.

CHANGES IN ACCOUNTING POLICIESThe accounting policies used in preparing the financial statements are set out below and are consistent with those of the previous year except for:

the early adoption of accounting for share option costs in accordance with the new accounting standard AC 139 (IFRS 2); and

the mandatory adoption of the new accounting standards AC 128 (IAS 36) on impairment of assets and AC 129 (IAS 38) on intangible assets.

Adoption of Accounting for Share Option Costs in accordance with AC 139 (IFRS 2)Accounting standard AC 139 (IFRS 2) requires the costs of share options granted to employees to be valued at date of grant and expensed through the income statement by way of a charge spread over the vesting period of the options. This standard has been adopted in the current year.

Previously, share option costs were not expensed through the income statement.

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CHANGES IN ACCOUNTING POLICIESAdoption of AC 128 (IAS 36) on Impairment of Assets and AC 129 (IAS 38) on Intangible AssetsAccounting standards AC 128 (IAS 36) and AC 129 (IAS 38) are required to be adopted with effect from 31 March 2003. AC 128 prescribes the procedures to apply in assessing the recoverable amount of all assets and calculating and accounting for any impairment losses. AC 129 prescribes the measurement and recognition of intangible assets, including those arising from business combinations.

In accordance with the transitional provisions of accounting standards AC 128 and AC 129, the company has elected to implement these accounting standards with effect from 1 April 2004. Where applicable, comparative figures have been restated prospectively from this date.

The effect of the adoption of these standards is as follows:- Computer software has been classified as an intangible asset and amortised accordingly.

INSURANCE CONTRACTSCertain policyholder contracts are classified in the financial statements at fair value, with changes in fair value being accounted for in the income statement. These contracts are disclosed on the balance sheet as "Policyholder liabilities under investment contracts". The premiums and benefit payments relating to these investment contracts have been excluded from the income statement and accounted for directly as part of the liability. Fees earned from these contracts are disclosed separately.

All policyholder contracts that transfer significant insurance risk are classified as insurance contracts. These contracts are valued in terms of the Financial Soundness Valuation (FSV) basis contained in PGN 104 issued by the Actuarial Society of South Africa and are reflected as "Policyholder liabilities under insurance contracts".

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The Companies statutory actuary calculates the Company's liabilities under insurance contracts and investment contracts annually at the balance sheet date in accordance with prevailing legislation, Generally Accepted Actuarial Standards in South Africa and South African Statements of Generally Accepted Accounting Practice as appropriate. The transfers to policyholder liabilities reflected in the notes on the financial statements represent the increase or decrease in liabilities, including provisions for policyholders' bonuses, net adjustments to policyholders' bonus stabilisation reserves, and net adjustments to margins held within the policyholder liabilities.

Basis of accounting for insurance activities Premium income is recognised in the month to which the premium relates with reinsurance premiums

being recognised at the same time as the related insurance premiums; Net premiums written relate to business written during the year, together with any differences between

booked premiums for prior years and those previously recognised, and include estimates of premiums due but not yet receivable or notified to the company, less an allowance for cancellations;

Acquisition costs, which include commission and other related expenses, are recognised in the period in which they are incurred;

Commission payments and receipts are taken to income or expense as incurred; Policyholder benefits are recognised when incurred. Reinsurance recoveries are recognised in the same

accounting period in which the related benefit is recognised Claims outstanding represent the ultimate cost of settling all claims arising from events which have

occurred up to the balance sheet date, less any amounts paid in respect of those claims.

EQUIPMENT

Equipment is stated at historic cost less accumulated depreciation and any recognised impairment loss. Equipment is depreciated on a straight line basis writing down the cost to the residual value of the asset over their expected useful life.

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The depreciation charge is reflected in administration expenses in the income statement.

The expected useful lives applied are:

Furniture and fittings 5 years

Office equipment 3 years

Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Profits and losses on disposal are determined by reference to their carrying amount at the date of disposal and are reflected together with other capital gains and losses in a separate line item in the notes to the income statement. The carrying amounts of equipment are reviewed on an annual basis. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount and a capital loss is reported in the income statement.

Subsequent costs are included in the asset’s carrying amount only when it is probable that future economic benefits associated with the items will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the income statement when incurred.

INTANGIBLE ASSETS

Intangible assets are stated at historic cost less accumulated amortisation and any recognised impairment loss. Intangible assets are recognised if it is probable that future economic benefits will flow to the company from the assets and the costs of the assets can be reliably measured. Intangible assets are amortised on a straight line basis writing down the cost over their expected useful life. The amortisation charge is included in administration expenses in the income statement.

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The carrying amounts of intangible assets are reviewed on an annual basis or sooner if there is an indication of impairment. Where the carrying amount of an intangible asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount, with the impairment being recognised as a capital loss in the income statement when incurred.

Purchased and developed computer software Purchased computer software and the direct costs associated with the customisation and installation thereof are capitalised and amortised over its expected useful life of up to three years.

Purchased computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful life of up to two years.

Costs associated with developing computer software programmes are recognised as an operating expense when incurred. However, costs that are directly associated with an identifiable and unique product, which will be controlled by the company and have a probable benefit exceeding the costs beyond one year, are recognised as intangible assets.

Expenditure which enhances and extends the benefits of computer software programmes beyond their original specifications and lives is recognised as a capital improvement and added to the original cost of the software. Computer software development costs recognised as intangible assets are amortised over their expected useful lives of three years.

Other intangible assetsThe company does not attribute value to internally developed trademarks, patents and similar rights and assets. Costs incurred on trademarks, patents and similar rights and assets are recognised as an administration expense when incurred. Expenditure on the development and marketing of the Guardrisk brand is similarly expensed as incurred.

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IMPAIRMENT OF ASSETSAssets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Such indicators include changes in technology, market, economic, legal and operating environments.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds it’s recoverable amount. The recoverable amount is measured using the higher of the fair value less costs to sell and the value-in-use. Value-in-use is the present value of projected cash flows covering the remaining useful life of the asset. An impairment charge is recognised as a capital loss in the income statement immediately unless the relevant asset is carried at a revalued amount, in which case the impairment charge is treated as a revaluation decrease.

A previously recognised impairment loss is reversed through the income statement if the recoverable amount increases as a result of a change in estimates used to determine the recoverable amount, but not to an amount higher than the carrying amount that would have been determined (net of depreciation or amortisation) had no impairment loss been recognised in prior years. If the relevant asset is carried at a revalued amount, the reversal of the impairment loss is treated as a revaluation increase.

OPERATING LEASESLeases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives or benefits received from the lessor) are charged to the income statement on a straight line basis over the period of the lease.

When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

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RECEIVABLES

Trade receivables are carried at original invoice amount less an estimate made for impairment based on a review of all outstanding amounts at year end, which is the undiscounted fair value of the consideration receivable. A provision for impairment of trade receivables is established when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows discounted at the market rate of interest for similar borrowers. The amount of the provision is recognised as a charge in the income statement.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand, balances with banks. Cash and cash equivalents are carried at cost which is deemed to be fair value and are shown in current assets on the balance sheet.

FINANCIAL INSTRUMENTS

Financial instruments as reflected in the balance sheet include all financial assets and financial liabilities, including derivative instruments, but exclude equipment, purchased and developed computer software, deferred taxation, taxation payable and assets and liabilities under insurance contracts.

Financial Assets

Initial recognition

Financial assets are initially recognised at cost, including transaction costs, when the related contractual rights or obligations exist. Financial assets are recognised using trade date accounting, that is the assets are recorded at the price on the date on which the trade is concluded.

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At inception, management determines the appropriate classification of financial assets as follows: ‘Loans and receivables’ are financial assets with fixed or determinable payments that are not

quoted in an active market. They arise when the company provides money or services directly to a debtor with no intention of trading the receivable.

‘Held-to-maturity’ financial assets are all financial assets with fixed or determinable payments and fixed maturity where there is both the intent and ability to hold to maturity.

‘Fair value through profit or loss’ financial assets are those financial assets that are either classified as ‘held for trade’ (ie. held for short term profit taking) or designated as such upon initial recognition.

All other financial assets are designated as ‘available-for-sale’ financial assets.

Subsequent recognition and measurementSubsequent to initial recognition, financial assets classified as ‘held-for-trade’, ‘fair-value through profit or loss’ or ‘available-for-sale’ are remeasured at fair value, while financial assets classified as ‘loans and receivables’ or ‘held-to-maturity’ are remeasured at amortised cost, less any provision for impairment.

Gains and losses arising on the change in fair value of financial assets classified as ‘available-for-sale’ are recognised in non-distributable reserves in the statement of changes in equity, unless the asset is disposed of or impaired, at which time the cumulative gain or loss is recognised in the income statement.

All gains and losses arising on the change in fair value, disposal or impairment of all other categories of financial assets are recognised in the income statement on valuation or disposal date.

Financial assets are derecognised when the control over the contractual rights that comprise the asset are lost and the substantial risks and benefits associated with the asset are transferred. This occurs when the rights are realised, expire or are surrendered.

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Fair valueFair values are based on regulated exchange quoted ruling bid prices at the close of business on the last day of trading on or before the balance sheet date. If a quoted bid price is not available for dated instruments, the fair value is determined using pricing models or discounted cash flow techniques. Fair values for unquoted equity instruments are estimated using applicable fair value models. Where discounted cash flow techniques are used estimated future cash flows are based on management’s best estimates and the discount rate is a market related rate at the balance sheet date for an instrument with similar terms and conditions. Where pricing models are used, inputs are based on market related measures at the balance sheet date. Any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured is stated at its cost, including transaction costs, less any provisions for impairment.

Short-term receivables are carried at original invoice amount less any estimate for impairment.

Financial LiabilitiesInitial recognitionAll financial liabilities under investment contracts that are matched to policyholder assets are initially recognised and subsequently remeasured to the same values as the corresponding linked assets, which is at fair value.

Insurance contracts of life insurance operations are initially valued and subsequently remeasured in terms of the Financial Soundness Valuation basis contained in PGN 104 issued by the Actuarial Society of South Africa. Financial liabilities under investment contracts are initially recognised and subsequently remeasured at fair value (through profit or loss).

All other financial liabilities are initially recognised at the original invoice amount less any transaction costs and subsequently remeasured at fair value (through profit or loss).

Financial liabilities are derecognised when they are legally extinguished.

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PROVISIONS

Provisions are recognised when the company has a present obligation (legal or constructive) 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. Provisions are reviewed at the end of each financial year and are adjusted to reflect the current best estimate.

Provision for leave pay

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date. Provision for leave pay is included in payables due to the immaterial nature of the balance.

TAXATION

The income tax charge in the income statement takes into account current and deferred corporate income taxes, as well as secondary tax on companies. Due to the nature of indirect taxes, including non-recoverable value added tax, stamp duty, skills development levies and regional service council levies, they are included in administration expenses in the income statement.

Current tax

The current income tax and capital gains tax charges are the expected tax payable on the taxable income for the year using applicable tax rates and any adjustment to tax payable in respect of prior years.

Deferred tax

Deferred income tax is provided in full, using the balance sheet liability method.

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This method recognises the tax effect of temporary differences between accounting and tax values of assets and liabilities, and provides for all such differences at tax rates that have been enacted or have been substantially enacted and are expected to be applied when the asset is realised or liability settled. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets relating to the carry forward of unused tax losses are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred tax related to fair value remeasurements of available-for-sale assets which are taken directly to equity is also taken directly to equity and is subsequently recognised in the income statement together with the deferred gain or loss.

Secondary tax on companies (STC)

STC is provided for at a rate of 12.5% on the amount by which dividends declared exceed dividend received. STC is recognised as part of the current tax charge in the income statement when the related dividend is declared. Unused STC credits are recognised as an asset in the financial statements to the extent that STC payable on future dividend payments is likely to be available for set-off.

SHARE CAPITAL

Issued share capital is stated in the statement of changes in equity at the amount of proceeds received less directly attributable issue costs.

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DIVIDEND DISTRIBUTIONS

Dividend distributions to all issued shares are recognised as a deduction from reserves in the statement of changes in equity in the period in which they are declared.

RETIREMENT BENEFIT OBLIGATIONS

Pension obligations

The employees of the company participate in the Alexander Forbes Group defined contribution plan.

For defined contribution retirement plans, the company pays contributions to a retirement plan and has no further payment obligation once the contributions have been made. The company’s contributions to defined contribution retirement plans are recognised as an employee benefit expense and charged to the income statement in the year to which the service relates.

EMPLOYEE SHARE OPTIONS

The Alexander Forbes group issues share options to eligible employees, all of which are classified as equity-settled share-based payments. Equity-settled share-based payments are measured at fair value at the grant date. Subsidiary companies are charged for the cost of the share option granted to their employees and this charge is expensed through the income statement according to the vesting period of the options grated.

Fair value is measured using an actuarial binomial model. Fair value excludes the impact of any non-market vesting conditions which are included in assumptions about the number of options that are expected to become exercisable or the number of shares that employees are expected to ultimately receive.

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CONTINGENCIES AND COMMITMENTS

Transactions are classified as contingencies where the company’s obligations depend on uncertain future events. Items are classified as commitments where the company commits itself to future transactions with external parties.

OFFSETTING

Financial assets and liabilities are offset and the net amount reported on the balance sheet when there is a legally enforceable right to set-off the recognised amount and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

RELATED PARTY TRANSACTIONS

Guardrisk Life Limited has one single controlling shareholder.

REVENUE RECOGNITION

Dividends are recognised as revenue at the last day of registration in respect of listed shares and when received in respect of all other investments.

Interest received and preference dividend income are recognised as revenue on a time proportionate basis using the effective interest rate method.

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No

tes

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tsNotes to the Financial Statements for the year ended 31 March 2005

2005R’000

Cost

Accumulated depreciation and impairment

Net carrying value

Opening net carrying value

Movement during year

Depreciation charge

Additions to enhance existing operations

Closing net carrying value

Cost

Accumulated amortisation and impairment

Net carrying value

Cost

Cost at 1 April

Movement during year

Additions to enhance existing operations

Cost at 31 March

200

(40)

160

0

(40)

200

160

345

328

17

345

0

345

0

0

0

0

0

0

0

345

224

121

224

121

345

1.1 Equipment

2004R’000

1.2 Purchased and developed computer software

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Accumulated amortisation and impairmentAmortisation at 1 April

Movement during yearCharge for the yearAmortisation at 31 March

‘Fair value through profit or loss’

Consisting of:Short term depositsEquitiesPreference shares Unit trustsLinked insurance policies

Balance at beginning of yearMovement during yearCharged to income statementBalance at end of year

2005R’000

224

104328

730,755

515,7020

29,15917,445

168,449730,755

70

35105

134

90224

716,891

431,32618,21520,07029,140

218,140716,891

0

7070

2004R’000

2. Financial assets

3. Deferred tax asset

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Deferred tax is attributable to the following item:

Leave pay provision

Cash and cash equivalents comprise bank and cash balances

Authorised10 000 000 Ordinary shares of R1 each20 000 “L” ordinary shares of R1 each

Issued10 000 000 Ordinary shares of R1 each805 (2004: 680) “L” ordinary shares of R1 each

2005R’000

105

12,178

10,00020

10,020

10,0001

10,001

70

40,192

10,00020

10,020

10,0001

10,001

2004R’000

4. Cash and cash equivalents

5. Share capital

Calculated losses in the individual policyholder fund amount to R65,257,894 (2004: R35,124,467) and R3,595,182 (2004: R6,051,760) in the company policyholders fund. No deferred tax asset has been raised in respect of these losses as it is uncertain whether there will be any future income to utilise these tax losses.

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Balance at the beginning of the yearMovement during year

Premium on “L” ordinary shares issued during the yearBalance at the end of the year

The movements in insurance contract liabilities for the year were as follows:Balance at beginning of the yearMovement during yearReclassification from/(to) policyholder liabilities under investment contractsGross transfer from income statementReinsurers share of transfer from income statementBalance at the end of the year

2005R’000

4,413

1,5755,988

473,274

15,821123,244(27,687)584,652

2,260

2,1534,413

595,376

(227,102)90,90314,097

473,274

2004R’000

6. Share premium on “L” ordinary shares

“L” ordinary shares are issued to cell owners, and after approval by the board and statutory actuary, this entitles them to the profits and losses from the insurance business conducted by Guardrisk Life Limited in their cell.

The unissued “L” ordinary shares are under the control of the company until the forthcoming annual general meeting.

7. Non-current liabilities

7.1 Policyholder liabilities under insurance contracts

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Split as follows:Policyholder liabilitiesReinsurers share

The movements in investment contract liabilities for the year were as follows:Balance at beginning of the year

Movement during yearReclassification (to) / from policyholder liabilities under insurance contracts Transfer to opening retained earningsTransfer from “L” shareholders and policyholders interestContribution receivedWithdrawalsFair value adjustmentBalance at end of the year

2005R’000

666,978(82,326)584,652

236,467

(15,821)8

08,463

(131,844)15,171

112,444

527,913(54,639)473,274

0

227,1020

2529,403

(28,782)8,719

236,467

2004R’000

The reinsurers’ share has been disclosed separately and the comparatives have been adjusted accordingly.

7.2 Policyholder liabilities under investment contracts

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Administration expenses include the following:Auditors remuneration

- Audit fees- Other services

Staff costs Salary, wages and other benefits Provident fund contribution Medical aid costs

Number of employees at year end

Depreciation on equipment (note 1.1)

Amortisation on computer software (note 1.2)

2005R’000

426426

0

4,2813,824

36889

7

40

104

741671

70

4,1483,675

356117

7

0

90

2004R’000

8. Administration expenses

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Interest incomeDividend incomeIncrease/(decrease) in market value of investmentsNet profit on sale of investments

South African normal tax- Current tax- Secondary tax on companies- Deferred tax- Capital gains tax

Reconciliation of effective tax rateNormal tax rateincrease (decrease) in rate of tax due toAdjustment to policyholder fundsSTCEffective tax rate

2005R’000

53,4801,6308,2113,506

66,827

3,8381,028

(35)29

4,860

30.00%

16.73%3.17%

49.90%

61,6781,782

(3,826)15

59,649

3,1621,213

(70)0

4,305

30.00%

(8.90%)6.20%

27.30%

2004R’000

9. Investment return

10. Taxation

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Related party transactionsThe company is controlled by Guardrisk Holdings Limited (incorporated in South Africa) which owns 100% of the company's ordinary shares. The ultimate parent of the company is Alexander Forbes Limited. There are certain related party transactions between Guardrisk Life Limited, Guardrisk Insurance Company Limited and Alexander Forbes Limited. Certain expenses are paid by Guardrisk Insurance Company Limited and reimbursed by Guardrisk Life Limited.

A fellow subsidiary, Alexander Forbes Group (Pty) Ltd has an interest in a cell in the company. The balance at the end of the year was:

Directors remunerationA listing of the members of the board of directors is provided in the Directors Report herewith. Details of directors remuneration are as follows:

SalariesOther- (including pension contributions, performance bonuses and fringe benefits and gains on share options exercised)

2005R’000

55 321 29,566

2004R’000

11. Related party transactions and balances

554487

67

000

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tsShare Option InformationFair value The company early adopted accounting for share option costs in accordance with the new accounting standard AC 139 (IFRS 2) which requires the fair value cost of share options granted to employees to be valued at date of grant and expensed through the income statement by way of a charge spread over the vesting period of the options. This standard has been adopted in the current year. Previously share option costs were not expensed through the income statement.

The fair value of each option grant has been estimated on the date of grant using an actuarial binomial option-pricing model. The assumptions used in determining the fair value of the options granted in the financial year are as follows:

The expected volatility is determined based on the rolling historical volatility over the expected life of the option (i.e. the remaining term to expiry) that prevailed at the grant date.

Grant

date

In the

financial

year ending

31 March

2005

Share

Price

R

11.90

Exercise/

strike price

at grant date

R

12.11 – 13.73

Expected

volatility

%

35.1 – 37.2

Expected

dividend

Yield

%

4.0

Risk free

interest free

%

8.5 – 8.7

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No

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tsWhen volatility data on the Alexander Forbes share price was not available, the average volatility of comparable financial institutions was used.

The risk-free rate is the yield on zero-coupon SA government bonds of a term consistent with the assumed option life.

Income statement effect The fair value share option charge in the income statement amounts to R 166 000 in the current year.

Credit riskFinancial assets which potentially subject the company to concentrations of credit risk consist principally of cash and cash equivalents, investments and accounts receivable.

Cash equivalents and investments are placed with high credit rated financial institutions. Accounts receivable are presented net of the allowance for doubtful receivables. Credit risk with respect to accounts receivable is limited as reinsurers and intermediaries used are established companies.

The financial condition of the reinsurers in relation to their credit standing is evaluated on an ongoing basis.

The carrying amounts of financial assets included in the balance sheet represents the company's exposure to credit risk in relation to these assets. At 31 March 2005 the company did not consider there to be a significant concentration of credit risk which had not been adequately provided for.

12. Financial risks

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tsUnderwriting riskProcedures to control and manage the underwriting risks are in operation and include catastrophe reinsurance which is in place to cover single event disasters. The risk committee meets on a regular basis.

Profit after investment returnAdjustments for:Cash items- Investment income (note 9)Non-cash items- Depreciation (note 8)- Fair value adjustments to investments (note 9)- Profit on disposal of shares (note 9)- Movement in outstanding claims- Amortisation

Changes in working capital:- Decrease in receivables & accrued premium- (Increase) / Decrease in accounts payable

Cash generated from operations

13. Reconciliation of cash generated from operating activities

2005R’000

120,467

(55,110)

40(8,211)(3,506)

(442)104

5,484(1,361)

57,465

133,726

(63,460)

03,826

(15)898

90

64,1411,095

140,301

2004R’000

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Notes to Financial

Statements

No

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14. Dividends paid

15. Reconciliation of taxation paid

Opening balanceCurrent taxationClosing balance

Taxation paid

16. Capital commitmentsThere are no capital commitments in the current year.

2005R’000

10,042

(5,069)4,8956,568

6,394

16,305

11,6644,3755,069

21,108

2004R’000

Exit

Home Corporate Governance Our Approach to Risk Management Statement of Responsibility Certificate by Company SecretaryCertificate by Company Secretary.

Documents

audit committee

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internal audit reports

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nonexecutive chairperson

annual financial statements

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