PRINCIPAL RISKS AND UNCERTAINTIES.


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RISK

WHAT WE ARE DOING

REGULATORY CHANGE

The suite of regulatory changes impacting the Risk business includes [Solvency II], Gender directive, I-E tax regime, RDR and MMR.

We shall build on our considerable expertise in managing capital, flexible pricing capabilities and distribution strengths. We will continue to engage with regulators to ensure compliance whilst minimising risks and capitalising on any opportunities.

BOND MARKETS

Although we continue to broaden the range of investment assets backing our annuities business, fixed interest securities remain a significant proportion of the overall investment portfolio, potentially exposing us to volatility in returns and the risk of default.

We have developed considerable expertise in the management of credit risks associated with our bond portfolio, and continue to ensure it remains high quality. Despite market volatility in 2011, the asset portfolio backing the annuity business experienced no credit defaults.

WEATHER EVENTS

As a significant writer of household insurance, our general insurance business is exposed to adverse weather events and the effects of changing weather patterns.

Our flood and weather models together with our catastrophe reinsurance programme seek to limit our exposure to loss from adverse weather events. As an active participant in ClimateWise we are at the centre of shaping the insurance sector’s global approach to environmental risk.

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