Group Risk Committee report.

Group Risk Committee report.
Lindsay Tomlinson, Chairman Group Risk Committee (photo)
“We have seen a number of changes to the Committee membership this year and I assumed the chair in July 2013. The diversity of skills and experience on the Committee continues to enhance its overall effectiveness in supporting the Board to discharge its responsibilities in relation to the management of the Group’s risk framework and internal control systems.”
LINDSAY TOMLINSON, CHAIRMAN

THE COMMITTEE

The composition of the Committee was refreshed during the year following a number of Board changes and the Committee now comprises four independent non-executive directors.

Members

 

Lindsay Tomlinson

Committee member and Chair since 24 July 2013

Stuart Popham

Committee member since 1 July 2011

Julia Wilson

Committee member since 24 July 2013

Lizabeth Zlatkus

Committee member since 26 February 2014

Other attendees at Committee meetings include: the group Chairman, group chief executive, group Chief financial officer, group chief risk officer, group chief internal auditor and representatives of the external auditor, PricewaterhouseCoopers LLP.

The Committee met four times during 2013. The effectiveness of the Committee during the year was reviewed as part of the internally facilitated evaluation of the Board and its Committees.

COMMITTEE’S ROLE AND RESPONSIBILITIES

The purpose of the Committee is to assist the Board in fulfilling its responsibilities in relation to the oversight of risk within the Group and to provide advice in relation to current and potential future risk exposures of the Group. This includes reviewing the Group’s risk appetite and risk profile and assessing the effectiveness of the Group’s risk management framework. The Group’s approach to the management of risk is set out in more detail in the Risk management section.

The key responsibilities of the Committee, as set out in the terms of reference, are to:

  • Advise the Board in relation to the Group’s overall risk appetite for each of the categories of principal risk to which the Group may be exposed
  • Oversee and advise the Board on the current risk exposures of the Group
  • Oversee the management of those categories of risk to which the Group may be exposed
  • Provide oversight of the Group’s overall risk framework ensuring that the principal risks are being appropriately assessed
  • Advise the Board on the appropriateness of the Group’s risk appetite
  • Review and approve the Group’s risk strategy, policies and procedures
  • Monitor the impact of the principal risks on the Group’s strategy and consider changes to the risks arising at a Group level as a consequence of the Group’s strategy, market and regulatory events
  • Advise the Remuneration Committee on specific risk adjustments to be applied to performance objectives and other issues, as requested by the Remuneration Committee.

COMMITTEE ACTIVITIES DURING 2013

The work of the Committee is supported by the Group’s risk management team and company secretary who assist the Committee chairman in planning the Committee’s work and ensuring that the Committee receives accurate and timely information.

During the year, the Committee focused on the following areas:

Group chief risk officer’s report

The Committee has an ongoing programme of receiving reports from the group chief risk officer (‘GCRO’). These reports bring to the Committee’s attention key issues in the operating environment of each of the Group’s businesses and the potential risks they may raise. Issues considered by the Committee during 2013 included, amongst others, the eurozone and sovereign debt, the UK economy and the UK and international regulatory environments. The report also keeps the Committee apprised of the activities undertaken, and transactions supported, by the GCRO’s team. During 2013, the GCRO team’s activities included, amongst others:

  • Providing an objective review and guidance in respect of a number of transactions and acquisitions
  • Carrying out an assessment of the Group’s economic capital requirements in order to meet regulatory solvency requirements
  • Facilitating a review of the risk governance framework

Focused business and risk reviews

Time is allocated at each Committee meeting to carry out a focussed ‘deep dive’ review of a particular risk area. The purpose of these reviews is to enable Committee members to examine the risk profile of the core business lines and to consider the robustness of the frameworks in place to manage the key risk exposures. The table below gives examples of the key reviews that took place during the year:

Legal & General Investment Management – a review of the strategic and operational risks faced by the business and how they are managed.

Legal & General Networks – a review of the risks associated with Legal & General’s advisor distribution network, focussing on risk culture and advice risk.

Cofunds – a review of the risk profile of the Cofunds business, with specific consideration of the strategic, regulatory and operational risks and the strategies for integrating the business into Legal & General.

Cyber security risks – a review of the risks of unauthorised access to electronically stored data and the framework to safeguard against potential threats to our systems.

Currency risks – a review of the currency risk exposures across the Group, and the policies deployed to manage these risks particularly with regard to investment assets and dividends from overseas subsidiaries.

Remuneration schemes – a review of the key conduct risks and the risk profile relating to the bespoke incentive arrangements, as well as current and emerging regulation in relation to reward.

Credit risk – a review of the credit risk profile across the Group’s investment portfolios, and actions to further enhance the risk management framework.

Liquidity risk – a review of the Group’s key liquidity risks and the operation of the liquidity risk management framework, including contingency funding and standby facilities.

Epidemic risk – a review of the Group’s exposures to epidemic risk and the modelling for those risks within the Group’s internal model.

New and emerging risks

Monitoring new and emerging risks in a pre-emptive way is an important aspect of the Group’s risk management processes and the ability to react to emerging risks is essential to the achievement of the company’s objectives. The Committee considers on a regular basis emerging risk themes and their significance to the Group.

The Committee as part of these reviews, and broader discussions of business risks, has also considered the profile of risks from organisational change and potential for management stretch across the range of strategic initiatives.

Risk appetite

The Group’s risk appetite framework continues to evolve. The July meeting of the Committee undertook a detailed review of the operation of the framework, recommending a number of refinements to the Group Board. In November, the Committee considered the risk profile of the Group’s strategic plan and its alignment with the Group’s overall risk appetite. The regular reporting to the Committee includes comparison of actual positions relative to the Group’s risk appetite statement.

Group internal model

The Committee has received updates throughout the year on the Group’s internal model which underpins our risk based capital requirements. This has afforded members the opportunity to develop understanding of the model and to assess key assumptions in advance of the implementation of the new Solvency II regime.

Risk governance

Sound frameworks of risk management and internal control are essential in the management of risks which may impact the fulfilment of the company’s strategic objectives. During the year the Committee considered a proposal for a revised Group level risk structure in order to establish clearer distinctions between the first line decision making committees and the second line committees responsible for risk oversight. Further details of this revised structure can be found in the Our risk management framework section.

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