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Each meeting of the Committee receives a formal report from the Group Chief Risk Officer (CRO) providing an assessment of the environment in which the Group is operating, the risks that this may present and potential mitigation. The report provides the Committee with an opportunity to debate key issues and review mitigating actions proposed by management.

Matters considered by the Committee as part of its review of the CRO’s report included:

The economic outlook, developing events within the eurozone, and the implications for sovereign debt, bond markets and banking counterparties;

Changes in the legal and regulatory environment including the implications of the Test-Achats judgment, Legal & General’s implementation of the Retail Distribution Review (RDR) and [Solvency II] requirements and our response to the FSA’s With-Profits consultation; and

Proposed changes to the UK financial services regulatory framework and their implications for the Group.

The CRO report includes a management information pack providing analysis of the Group’s exposures to market, insurance, liquidity, counterparty, operational and conduct risks together with the top risk issues to the Group.

A cycle of focused business reviews enables the Committee to consider the risk profile of Legal & General’s core business lines, typically presented by its managing director. The Committee also receives ad-hoc reviews, either at the request of the Committee or in response to developing risks.

Key reviews during the year included the risk profile of our:

Investment Management business;

Insurance businesses in America;

Retail Savings business; and

UK Group Protection business.

The Committee undertook reviews of the profile of risks within our annuity business in 2010, with specific consideration of investment and insurance risks. During 2011 consideration was given to the impact of inflation on the annuity book.

Focused risk management reviews provide the Committee with an opportunity to challenge the robustness of frameworks in place to manage the different types of risk to which the Group may be exposed.

During the year the Committee has overseen the development of the Group’s Risk Appetite Statement. The Committee has also undertaken specific reviews of the frameworks for the management of:

Liquidity risk;

Reputation risk; and

Operational risk.

The Group’s overall risk taxonomy and assessment framework was also reviewed.

A programme of stress and scenario tests is in place to enable assessment of the impact of extreme but plausible events on the Group’s capital position.
The Committee contributes to the scenarios to be evaluated and considers the completed analysis.
The Committee also invites senior business personnel to discuss emerging risks and the impact of extreme outcomes.

In addition to contributing to the assumptions of the Group’s stress and scenario test programme at its March meeting, and reviewing the results at its September meeting, the Committee considered analysis of:

Key reverse stress tests performed by each of the Group’s core business lines;

Potential stresses arising as a result of a “double dip” recession;

Contingency options in the event of a prolonged period of market stress and illiquidity;

Possible Euro break-up scenarios, the implications for the macroeconomic environment and the Group; and

Exposures to banking counterparties and how those exposures are managed.

At each Committee meeting there is a formal agenda item to enable members to raise and discuss emerging risks. As well as providing a feedback loop into the programme of stress and scenario tests, discussions provide an opportunity to shape future meeting agenda of the Committee. The November meeting of the Committee included an externally facilitated review of the macroeconomic environment and the financial risks that may present to the Group.


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