Management of risk
The Company, in course of its business activities, is exposed to market, credit and liquidity risk. Overall responsibility for the management of these risks is vested in the Board. To support it in this role, a risk framework is in place comprising a structure of formal committees, risk assessment and reporting processes and risk review functions. The framework provides assurance that risks are being appropriately identified and managed and that an independent assessment of risks is being performed.
Risk assessment processes
A continuous process is in place formally identifying, evaluating and managing the significant risks to the achievement of the Company’s objectives. A standard approach is used to assess risks.
Senior management and the risk review functions (see below) review the output of the assessments.
Risk review functions
Risk review functions provide oversight of the risk management processes within the Company. Responsibilities include the evaluation of changes in the business operating environment and business processes, the assessment of these changes on risks to business and the monitoring of the mitigating actions. They also ensure that risk committees are provided with meaningful risk reports and that there is appropriate information to assess risk issues.
Details of the categories of risk to the Company and high level management processes are set out below. Defined policies for the management of its key risks are in place, the operation of which are supported by risk review functions and are independently confirmed by Group internal audit.
Market risk
Market risk is the risk arising from fluctuations in interest and exchange rates and market valuations.
Credit risk
Credit risk is the risk that the Company is exposed to loss if another party fails to perform its financial obligations to the Company.
Credit risk is managed through the setting and regular review of detailed counterparty credit and concentration limits. Compliance with these limits for investment and treasury transactions is monitored daily. The Counterparty Credit Committee oversees these processes. Counterparties used for the provision of hedging derivatives have a minimum credit rating of A- from Standard & Poor’s. The Company’s maximum exposure to credit risk on its financial assets at the balance sheet date is equal to the value of the derivative assets.
Liquidity risk
Liquidity risk is the risk that the Company, though solvent, either does not have sufficient financial resources available to enable it to meet its obligations as they fall due, or can secure them only at excessive costs.
A degree of liquidity risk is implicit in the Company. Liquidity risk arises as a consequence of the uncertainty surrounding the value and timing of cash flows. The Company’s treasury function manages liquidity to ensure that it maintains sufficient liquid assets and standby facilities to meet a prudent estimate of its net cash outflows.
