Group Risk Committee report

The Committee enables members of the Board to spend time considering the key risks to the group, informing views on acceptable risk taking and the effectiveness of strategies for controlling risks.”

Lindsay Tomlinson, Independent non-executive director

The Committee and its remit

The Committee comprises six independent non-executive directors.

Members

 

Lindsay Tomlinson

Committee member and chair since 24 July 2013

Rudy Markham

Committee member since 15 October 2014

Richard Meddings

Committee member since 1 December 2014

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 six times during 2014. The effectiveness of the Committee during the year was reviewed as part of the internally facilitated evaluation of the Board and its Committees.

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 2014

The work of the Committee is supported by the group chief risk officer 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

Each quarter the Committee receives a report from the group chief risk officer. This report brings to the Committee’s attention key risk factors in the operating environment of the group’s businesses and the potential risks they may raise. The review includes analysis of risks arising from the macro–economic outlook and conditions in financial markets, together with geo-political, legislative and regulatory change risks that may impact the group’s businesses.

Alongside the group chief risk officer’s report, the Committee receives regular reporting on risk appetite, comparing actual positions relative to the group’s risk appetite statement, management information detailing the group’s exposures to financial and operational risks, and other matters such as the nature of reports made under the group’s whistleblowing policy.

Focused business and risk reviews

Time is allocated at each Committee meeting to carry out a focused ‘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 some of the key reviews that took place during the year:

Infrastructure investment risks – a review of the investment and operational risks implicit in infrastructure as an asset class and the framework of controls to ensure that the group is only exposed to those risks within appetite.

Longevity risk management – a review of the group’s approach to assessing and pricing for longevity risks arising from writing individual and bulk annuity business.

Advice risk – a review of the group’s appetite for advice risk and the policies and procedures to ensure that advised sales are made in line with the group’s target requirements.

Information technology and cyber risks – a review of the key risks associated with the group’s IT environment and the range of threats and mitigations in respect of cyber related risks.

Interest rate risk – a review of the impacts on the group businesses of the low interest rate environment and the risks arising from increases in interest rates, together with mitigation strategies.

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 group’s objectives. The Committee considers on a regular basis emerging risk themes and their significance to the group, with each meeting specifically setting time aside for an open discussion of risk factors of concern to Committee members.

Risk appetite

The July meeting of the Committee undertook a detailed review of the operation of the group’s risk appetite framework and the key measures and tolerances used within the framework, recommending a number of refinements to the Group Board. In December, the Committee considered the risk profile of the group’s strategic plan and its alignment with the group’s overall risk appetite.

Risk based capital model

The Committee has reviewed throughout the year different aspects of the group’s risk based capital model, which is used to determine the economic capital requirements for the group. This has included the review of the key assumptions and methodologies as well as the outputs of the model itself. The Committee has also considered developments of the model in anticipation of the implementation of the new Solvency II regime.

Own risk and solvency assessment (ORSA)

The ORSA is an ongoing assessment of the risks to which Legal & General is exposed and an evaluation of the sufficiency of resources to sustain the business strategy over the plan horizon.

Over the course of the year the Committee considered different aspects of the group’s ORSA process. Activities have included the review of proposed stress tests and scenarios to be used in the evaluation of capital adequacy; the profile of risks within the group’s strategic plan and how they may change over the planning period; and the group’s overall capacity to bear the risks identified. A formal ORSA report is subject to annual review by the Committee prior to formal approval of the Group Board.

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 has received updates on the continued development of our risk governance framework.