Vitalis Group SA Business Plan › Section 15 › Financial Plan: Methodology & Key Assumptions

The Company has constructed a fully integrated five-year financial
model, which underpins the P&L, balance sheet, cash flow statement,
capital plan, and investor return analysis presented in Sections 16
through 20. This section describes the methodology, the principal
assumptions, and the sensitivity boundaries that govern those
projections. The model has been independently reviewed by the Company’s
prospective audit partner for internal consistency and against industry
benchmarks.

15.1 Modelling Approach

The model is a driver-based, monthly-resolution operating model
rolled up to quarterly and annual reporting periods. Each product line
is modelled separately, with the following standardised stack: (i)
policy count build (new business plus persistency); (ii) gross written
premium per policy; (iii) claims emergence pattern by product cohort and
policy age; (iv) reinsurance recoveries on a treaty-specific basis; (v)
direct acquisition costs (broker commission, digital
cost-per-acquisition, agent compensation); and (vi) allocated overhead.
The behavioural rewards economics flow through as a separate cost line
and as a claims-frequency reduction factor calibrated to Discovery
Vitality’s published evidence base.

15.2 Macroeconomic Assumptions

Macroeconomic inputs are sourced from the South African Reserve Bank
quarterly bulletin, National Treasury Medium-Term Budget Policy
Statement projections, and consensus forecasts from the Bureau for
Economic Research. Sensitivities are presented in Section 19.

15.3 Customer and Premium Assumptions

Customer growth follows the four-phase ramp described in Section 4.6
and Section 14. New business volumes are tied to channel capacity
(digital marketing investment, broker count, tied-agent productivity,
embedded partner integrations). Average premiums reflect product mix,
with progressive mix shift toward higher-value products as the franchise
matures.

15.4 Claims and Loss-Ratio Assumptions

Claims assumptions are calibrated to South African industry
experience by product line, adjusted for the Company’s underwriting
discipline and the behavioural-incentive frequency reduction. Loss
ratios improve over the projection period as the book matures,
behavioural data refines pricing, and reinsurance terms tighten.

Loss ratios shown gross of reinsurance recoveries. The
behavioural credit reflects observed claims-frequency reduction among
Active and Champion-status members and is an output of, not an input to,
individual line ratios.

15.5 Reinsurance Strategy and Net-of-Reinsurance Economics

The Company will cede premium under quota-share and surplus treaties
as described in Section 6. The reinsurance programme is structured to
provide regulatory capital relief and earnings volatility protection
during the build phase. As scale and data depth grow, the Company
progressively retains more risk on its balance sheet, increasing net
premium retention from 55% in Year 1 to 71% by Year 5.

15.6 Operating Expense Assumptions

Operating costs are split into fixed (technology, occupancy,
executive and central functions) and variable (acquisition,
distribution, claims handling, customer service, rewards funding). The
plan reflects deliberate front-loading of technology and brand
investment in Years 1 and 2 to build a scalable, low-marginal-cost
platform.

15.7 Capital and Investment Assumptions

• Initial paid-up capital: R1.0 Billion injected
  at financial close, with a further R600M targeted in a Series B raise at
  the start of Year 4 (Month 36).
• Investment portfolio: Surplus and reserve assets
  are invested in line with the asset-liability matching policy described
  in Section 10.4, generating a blended pre-tax investment yield of 9.4%
  in Year 1, declining gradually to 8.8% by Year 5 as the cash component
  reduces.
• Capex schedule: Total capital expenditure of
  R780M over five years, of which R520M relates to platform build and
  licensing, R140M to office and infrastructure, and R120M to subsequent
  enhancements. Amortisation profile of 5–7 years for software, 10 years
  for leasehold improvements.
• Working capital: Receivables turn at 28 days,
  payables at 35 days, premium-debtor days at 32 days at maturity.
  Insurance liabilities (unearned premium and outstanding claims reserves)
  are driven by formulaic relationships to written premium and claims
  emergence patterns.
• Effective tax rate: Corporate income tax
  modelled at the statutory 27% rate. The Company expects to be tax-paying
  from Year 4 onwards; prior-year assessed losses provide partial
  shielding into Year 5.

15.8 Scenario Definitions

Three scenarios are presented in this plan: Base Case (the central
estimate, used throughout Sections 16–18); Upside Case (faster customer
growth, better persistency, lower loss ratios); and Downside Case
(slower customer growth, higher CAC, elevated loss ratios in Years 2–3).
Scenarios are not stochastic — they are coherent integrated runs of the
operating model with named driver changes specified in Section 19.

Confidential — this business plan is provided to prospective investors and lenders for evaluation purposes only and may not be reproduced or distributed without the written consent of Vitalis Group South Africa (Pty) Ltd.