Andrea Blance, Group Chief Risk Officer (photo)

“Our risk management culture is embedded across all of our businesses. As Group Chief Risk Officer my role is to ensure that we clearly define our appetite for risk, with an effective framework in place to control risks in line with appetite.”


Understanding the risks implicit in our business and the markets in which we operate provides us with real competitive advantage.

By selecting those risks that can give us sustainable returns, and closely managing unrewarded risks, we aim to optimise how we use our capital and make commercially effective decisions that help deliver our strategy.

Our risk appetite framework expresses the types of risk we are prepared to be exposed to in pursuit of our business strategy, the minimum capital requirements that we wish to maintain and the degree of volatility in earnings that we are prepared to accept.

We have well established strategies for managing market, insurance, credit, liquidity and operational risk. Formal policies define our approaches to risk management and the minimum control standards to ensure that risks are managed in line with appetite.

We set limits for our material risk exposures, which we monitor on a continuous basis. We also deploy a range of risk management techniques to manage and mitigate risks, thereby controlling our risk exposures in line with these limits. For example, we use derivative instruments to hedge unrewarded risks as part of our asset liability management activity and reinsurance programmes to transfer significant aggregations and concentrations of insurance risk exposures.

Our framework of controls includes documented underwriting policies and structured delegated pricing and underwriting authorities. It also includes investment policies which take into account the nature of our liabilities, guarantees and other embedded options given to policyholders.

We operate a continuous risk identification and assessment process under which all our businesses consider changes in the profile of existing and emerging risks. We record the risks we have identified and allocate responsibility to an owner to assess and manage them within agreed tolerances. Risk mitigation plans are developed and implemented to manage or respond to these risks. As the nature, probability or impact of risks may change over time, these plans are kept under regular review to ensure that they remain robust and appropriate. Our risk identification and assessment process is underpinned by a Group-wide programme of stress and scenario tests. These tests aim to demonstrate the resilience of our balance sheet to a range of market conditions and external events and to ensure that we maintain our target levels of capital.

During 2011 extreme stresses included evaluation of the impact of a return to recession, factors resulting in market illiquidity and a range of possible Euro break-up scenarios.

The overall operation of the Group’s risk management framework is overseen by the Group Risk Committee, whose membership comprises non-executive directors of the Board. Key review activities of the Committee during 2011 are set out in the Group Risk Committee Report.

Note 48 describes the risks to which our core product lines are exposed and our approach to managing those risks, together with sensitivity analysis setting out how changes in a range of risk factors may impact our results.

We set out an analysis of the Group’s principal risks and uncertainties in the Principal risks and uncertainties section.


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