MARSH VALUATIONS SERVICES PRACTICE (VSP)

Property valuations assist in preventing misaligned insurance premiums and assets being exposed to removal, misappropriation and the like.

The Marsh Difference

Global experience &

full-time professionally

IssueInaccurate asset insurance, poor

asset monitoring and tracking.

SolutionRegular and

accurate asset valuation and

Benefit Avoidance of

distorted insurance

premiums and asset values.

Asset management is a business necessity that is often overlooked and neglected. Inaccurate asset valuation leads misaligned insurance programs, often resulting in unnecessarily high insurance premiums and unnecessary exposure to unforeseen risk, alternatively under declared asset values and thereby financial loss due to insurer application of the “average” clause. Property valuations should be updated and reviewed regularly, at least every three years.

The Marsh Valuation Services Practice (VSP) team enables the correct valuation and tracking of your assets at all times. Valuations also assist in reconciling the fixed asset register with the business's physical asset base, facilitating accurate purchase price allocations and improved financial reporting.

When your insurance program is misaligned with your asset values there is a risk of over or under insurance that results in unnecessary cost and or risk. A solution to these avoidable high premiums, alternatively under insurance, is through regular asset valuations.

Issue:

Solution:

Benefit:

The Marsh VSP Difference: Marsh has been in the industry in South Africa since 1984. Marsh's global experience coupled with professionals, who maintain the highest certifications and advanced professional accreditations, enable VSP to deliver accurate and timely valuations. VSP's team of full time professionals aren't outsourced. This translates into unbridled commitment and quality. VSP takes the often complex process of asset management and creates a simplified and consolidated solution driven by a philosophy of uncompromising adherence to international principles and standards of property valuations.

2 • Valuations Services Practice

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Reasons to valuate

Common reasons for over/under insurance

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Asset valuations help track your assets so that you know where they are positioned at all times.

Valuations monitor the physical and market conditions of your assets.

Valuations enable you to protect your asset with the right insurance coverage.

Valuations help reconcile fixed asset registers with the business's physical asset base (floor-to-book alignment).

Placing sums insured on market valuations - Valuations are performed for multiple purposes and values can vary significantly. Market valuations can exceed/fall short by integer multiples when compared to ENRC valuations - insurance is mainly placed on an Estimated New Replacement Cost basis (ENRC).

No previous valuations performed - Multiple measures are used to place sums insured, the inaccuracy of which can be severe. Besides the inaccuracy of inflationary adjustments, the original cost itself, often the point of departure of an asset value, can be a misleading figure. Conversely, there are costs which may only feature in a reconstruction – demolition and site clearance situation for example. In addition to these factors, original construction costs can be carried out at lower costs to keep a workforce employed in recessionary periods or inflated in periods of high demand. This can result in extensive construction cost distortion.

Inflation related escalations - CPI and PPI cannot adequately match industry and asset specific cost escalations, furthermore, escalation indices are country or region specific, making them unsuitable for globally sourced assets.

Misunderstanding the basis for cover - Valuation consultants need to be cognisant of the requirements and provisions of an insurance policy, understanding precisely which assets are to be insured and which are to be omitted – this is key, especially with complex operations.

Exchange rate fluctuations - This factor is particularly influential in economies with unstable exchange rates; South Africa being a prime example. Exchange rates influence the cost of imported plant, machinery, equipment, general contents and construction inputs.

All these reasons lead to misleading valuations of a business's holdings and consequently can result in an inaccurate insurance program placement wrt values/sums insured.

4 • Valuations Services Practice

Who we are;Marsh's Valuation Services Practice

The roots of the Valuations Services Practice (VSP) dates back to 1984. We have since grown to become the largest specialist Machinery and Technical Specialties valuation practice on the African continent, including a significant Land and Buildings specialty, with a presence in the US, Europe and the Middle East.

VSP has experience in the countries highlighted below.

Well-established in the industry, VSP Middle East & Africa has extensive experience valuing a wide variety of buildings, site improvements, machinery and equipment. Our team based in South Africa comprises 19 valuers and is led by four seasoned professionals with over 90 years of collective experience.

In addition to experience in the field, our professionals also maintain the highest certifications and credentials including advanced degrees and professional accreditations. We employ members of the Royal Institution of Chartered Surveyors, members of the American Society of Appraisers, Professional Valuers registered with the South African Council for the Property Valuers Profession as well as members of the South African Institute of Valuers. We do not rely on consultants and prefer to employ a team of full time professionals.

VSP provides a comprehensive range of fixed asset valuation services including:

�Fair Market Value

�Insurance Value (ENRC)

�Asset Verification

�Asset Tagging

�Electronic Data Capture

�Asset-Register Reconciliation (Floor-to-book).

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The VSP difference

The Valuation Services Practice assists organisations in ascribing insurable value to their property; buildings, contents, land improvements and other insurable assets. VSP's fixed asset specialists have the experience and qualifications to develop flexible solutions. We have been at the forefront of Asset Tagging, Electronic Data Capture and Asset Tracking for more than ten years.

Prior to any analysis, VSP will help establish a valuation program that produces a supportable, high-quality, repeatable work product in a timely and cost-efficient manner.

To best service our clients, VSP offers flexible property valuation solutions which are objective, independent, professional, and performed and reviewed by qualified experts.

Solutions can be tailored and can include:

�Value-based analysis that utilises a client's fixed asset ledgers; and/or,

�Site visits, fixed asset data gathering; asset inventory, tagging, and book reconciliation based valuation analysis.

Engagements are generally performed on a flat fee basis based on engagement scope and deliverables, which include complete documentation explaining and substantiating the analysis.

�As part of our service delivery we can barcode all the assets concerned. We will use our handheld scanners in order to ensure that all information is automatically received in our proprietary valuation software. This ensures data safety and integrity.

�Once the barcoded asset information is synchronised with our master database we are able to provide you with an estimated costing based on our prior valuation prices for those particular assets. This first draft is available shortly after the site visit is completed. Our valuers will then update the price information after the site visit with the most recent price information for the final draft.

�We hold an extensive understanding of, and experience in the valuation environment with a large database of comparable projects and prices which allows for efficiency and an established basis for our valuations.

�Meeting project deadlines is ensured due to our ability to assign multiple teams to a project.

Benefits of performing valuations

4 • Valuations Services Practice

�We adhere to the International Valuation Standards strict ethical code of conduct and best practice prescribed by the South African Council for the Property Valuers Profession, South African Institute of Valuers, American Society of Appraisers and the Royal Institution of Chartered Surveyors.

�Marsh has Professional Indemnity cover of US$10 000 000.

�We can draw on valuation resources from our USA and UK Valuations Division.

�We possess the scale and international resources required to perform global valuation projects. VSP can roll out programs over multiple geographies in line with client requirements, providing uniformity to reporting, insurance placement and other valuation requirements.

Valuation Methodologies Estimated New Replacement Cost

Estimated New Replacement Cost (ENRC) is defined as the estimated cost of acquiring and installing a new asset or the most up-to-date substitute, inclusive of the following:

�Installation costs

�Surcharges on or near the date of valuation

�Excludes all finance charges.

In cases where property, plant and equipment cannot be replaced in today's market, we will show values that we believe are fair and reasonable and would value the replacement of the existing asset with the most suitable equivalent.

Fair Market Value

Fair Market Value (FMV) is defined as the value which an asset may reasonably be expected to realise on the Open Market assuming an arm's length transaction between a willing, able and informed seller and a willing, able and informed buyer and further, that a reasonable time is allowed for disposal.

We will utilise one of the three recognised methods to establish this value:

�Direct Comparison Method

�Income approach/Discounted Cash Flow (DCF)

�Cost Approach.

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Service offerings

Ensuring that investment assets are adequately covered

�Providing certainty that under-insurance is not present – Which could result in large unseen exposures and insurer application of the “average” clause.

�Providing certainty that over-insurance is not present – Which could result in unnecessarily high premiums.

�Asset verification safeguards against insuring assets which are not in existence and accounting for all assets present per policy (reconciliation).

�Our systems allow for regular updates of values, thereby updating exposure awareness.

�Assisting with asset acquisition due diligence with regard to purchase price

�Assisting with setting of values for sale of assets

�Asset verification confirms that all assets have been considered for both sale and acquisition of assets

�Our systems allow for regular updates of values –this proves advantageous when making key decisions regarding asset acquisitions or divestitures.

�Asset verification allows for a clear view of all assets present per operation/site/location;

�This in conjunction with the valuation figures allows for Group/Holding companies to be compared and benchmarked by division, by location and by country et al.

�As assets are reflected a unit basis, data can be extrapolated and informed for multiple purposes

- Various metrics and ratios can be calculated reliably, including return on assets, 80/20 asset compositions, useful lives, remaining lives, depreciated values, maintenance requirements

- Synergies between operations can be uncovered

- Reporting standards could be improved with regard to all fixed asset holdings

�Regularly updating asset values proves useful in managing asset risks and opportunities; our systems allow for this function.

INSURANCE

ACQUISITIONS AND DIVESTITURES

STRATEGY/REPORTING REQUIREMENTS

Marsh Proprietary Limited is one of the Marsh & McLennan Companies, together with Guy Carpenter, Mercer, and Oliver Wyman.

This document is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh Proprietary Limited shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting, or legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as actuarial, accounting, tax, or legal advice, for which you should consult your own professional advisors. Any modeling, analytics, or projections are subject to inherent uncertainty, and the Marsh Analysis could be materially affected if any underlying assumptions, conditions, information, or factors are inaccurate or incomplete or should change.

Marsh Proprietary Limited makes no representation or warranty concerning the application of policy wordings or the financial condition or solvency of insurers or re-insurers. Marsh Proprietary Limited makes no assurances regarding the availability, cost, or terms of insurance coverage.

Marsh Proprietary Limited is an authorised financial services provider and regulated by the Financial Services Board (FSB/FSP Licence: 8414).

This document or any portion of the information it contains may not be copied or reproduced in any form without the prior written consent of Marsh Proprietary Limited.

Copyright © 2016 Marsh Proprietary Limited. All rights reserved.GRAPHICS NO. MA-B-100516

CONTACT

Andre Nagel | Valuations Practice LeaderOffice: +27 11 060 7647Mobile: +27 82 570 3250Email: andre.nagel@marsh.com

Matthew Bezuidenhout | Marketing Coordinator & Valuations ConsultantOffice: +27 11 060 7159Mobile: +27 82 773 1196Email: matthew.bezuidenhout@marsh.com