BSM has been tasked with enhancing and protecting the MMI shareholder balance sheet as far as exposure to direct market risk is concerned. In managing these risks, BSM seeks to enhance returns and earnings while optimising the level of market risk capital the group is required to hold against these risks. BSM is responsible for ensuring that these risks are identified, quantified, monitored and actively managed within an approved mandate and framework. The financial performance of BSM is included in the Shareholder Capital segment in the segmental report.

Operations

The operating model presents one view of the sensitivity of the shareholder balance sheet to market and credit risks, and the resultant impact of these sensitivities on earnings, embedded value and solvency. This gives rise to a significant business opportunity through the generation of profits while optimising capital levels and market risk management, on a holistic balance sheet basis, by being able to:

  • Manage the balance sheet within group risk tolerance levels
  • Manage market risk economic capital levels
  • Apply a single market risk view across the MMI balance sheet thereby removing sub-optimisation
  • Manage net market risk positions and alleviating offsets
  • Manage shareholder credit exposures and credit lines to optimise portfolio diversification
  • Extract asset acquisition scale benefits in hedging activities
  • Manage funding sources and liquidity requirements
  • Manage sub-optimal performance at portfolio level

The unit protects the shareholder balance sheet against direct exposure to market risks that impact embedded value, earnings and solvency. These market risks include:

  • interest rate risk
  • inflation risk
  • equity risk
  • credit risk
  • liquidity risk

Shareholder balance sheet

The diagram below shows how the shareholder balance sheet (managed by BSM) fits into the total MMI balance sheet.

p43

Shareholder economic capital (Rm)

p44-1-of-1

 

Capital strength

Economic capital

Rbn

Net asset value as per embedded value statement

17.0

Qualifying debt

3.0

Less: net asset value of strategic subsidiaries

(2.1)

Less: required capital

(10.1)

Capital buffer before deployment

7.8

 

Deployed

(4.6)

Final dividend

(1.4)

Special dividend

(0.8)

Debt redemption

(0.5)

Strategic growth initiatives

(1.9)

 

Capital buffer after deployment

3.2

Key areas of strategic and operational focus for 2015

  • Capital management: BSM will seek to optimise the capital requirements, with specific focus on the market risk component of the economic capital.
  • Cash and liquidity: BSM need to further develop operations and processes in order to optimise and enhance the cash and liquidity position of the group.
  • Deal-making: BSM must continue to enhance earnings and value through implementation of transactions in accordance with mandates and risk tolerance levels.
  • Additional sources of income: BSM will seek potential additional sources of income within the group by leveraging its existing capabilities.
  • Mergers and acquisitions: BSM will establish a separate capacity to specifically co-ordinate mergers and acquisitions within the group.
  • Implementation of the operating model: BSM need to finalise the implementation of the operating model, which will yield significant benefits as described in the operations paragraph above.