RISK MANAGEMENT.


The effective management of risk is essential to delivery of the Group’s strategy and the generation of shareholder value.

RISK GOVERNANCE:

  • Responsibility for risk management is embedded within the Group’s business divisions.
  • Challenge and oversight of the effectiveness of risk management is provided by Group functions and formal Group level risk committees.
  • Independent assurance on the effectiveness of both business risk management, and the Group level oversight and challenge processes, is provided by Internal Audit.

GROUP OVERSIGHT FUNCTIONS:

  • Group Chief Risk Officer.
  • Group Actuarial.
  • Group Regulatory Risk & Compliance.
  • Group Legal & Governance.

COMMITTEE OVERSIGHT:

  • Key indicators monitor actual risk exposures to target positions.
  • Risk mitigation programmes are established where risk exposures are outside tolerance or more effective use of capital can be achieved.
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OUR RISK APPETITE PRINCIPLES

STRATEGY

We manage a diversified portfolio in which we accept risk in the normal course of business and aim to deliver sustainable returns on risk based capital in excess of our cost of capital.

We have an appetite for the risks we understand and are rewarded for and which are consistent with the delivery of our strategic objectives.

CAPITAL

We aim to maintain an appropriate buffer of capital resources over the minimum regulatory capital requirements.

LIQUIDITY

We expect to be able to meet our payment and collateral obligations under extreme, but plausible liquidity stress scenarios.

VOLATILITY

We have low appetite for unexpected volatility in excess of our disclosed sensitivities.

CUSTOMER AND REPUTATION

We aim to protect our reputation to ensure that there is no material damage to the Group’s franchise.

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OUR RISK LANDSCAPE

MARKET RISK

We have an appetite for market risk within our annuities and With Profits businesses, and our shareholder funds, where we are rewarded for it.

We have limited appetite for significant losses or volatility from market risk and so we set clear risk limits which must be adhered to by Group businesses.

CREDIT RISK

We have appetite for credit risk to the extent that accepting this risk enables us to optimise policyholder and Group risk adjusted returns.

We have limited appetite for significant losses from counterparty failures and we therefore establish clear risk limits which must be adhered to by Group businesses.

INSURANCE RISK

We have an appetite for longevity, mortality and morbidity risk as we expect to add value by accepting such risks.

We have a low appetite for persistency and expense risks. We manage these risks by investigations and monitoring experience and reflecting the conclusions in our product design and reserving strategies.

LIQUIDITY RISK

We have no appetite to fail to meet our obligations when they fall due or to incur material losses on forced asset sales to meet obligations.

We maintain at Group level sufficient liquid assets and standby facilities to meet a prudent estimate of the Group’s cash outflows over a period of two years, as identified through annual planning processes.

OPERATIONAL RISK

We have very limited appetite for large operational losses due to the likely customer impact, reputational damage and opportunity costs.

We aim to implement effective controls to reduce operational risk exposures except where the costs of such controls exceed the expected benefits.

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