Group chief risk officer Q&A

Simon Gadd was appointed group chief risk officer in January 2013, having previously led our annuities and protection businesses.

Simon’s role is to ensure Legal & General has a clear understanding of the risks facing our businesses and that risk exposures are managed in line with the parameters and tolerances set by the Group Board.

QHow would you summarise Legal & General’s risk profile?

AAs a diverse financial services business, Legal & General is exposed to a broad range of risks. Whilst the profile of risks differs between each of our businesses, in essence our risk landscape reflects:

  • Longevity, mortality, morbidity, and household insurance risks transferred to us by customers of our annuities, protection and general insurance businesses
  • Investment risks, from holding portfolios of assets to meet our obligations to our customers and to deliver returns to shareholders
  • Operational risks in respect of our business processes and IT systems, as well as broader regulatory and legislative risks that can arise in the environments in which we operate.

QHow does the group’s risk framework help in managing these risks?

AOur risk framework, the structure of formal risk policies, reporting procedures and risk oversight activities, supports our business ambition, by enabling us to select those risks that can give us sustainable returns and to closely manage those risks that are unrewarded, and to optimise the capital that we hold so that we can deliver our strategy.

Our risk appetite is at the heart of our risk framework. It expresses the types of risk that 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 of earnings that we will seek to avoid.

QBut risk management is not just about having the right framework?

AAlongside a formal risk framework, it is important that an organisation has the right culture. We encourage our business managers to have a respect for risk and seek to promote an environment where business managers own the risks and risk management processes associated with the activities for which they are responsible, and make decisions in the light of the impact on the entire group.

QAnd what does the economic capital that you hold reflect?

AOur economic capital is our assessment of the capital that we need to hold above our liabilities in order to meet the group’s strategic objectives and to ensure continued solvency. Put simply, it reflects the additional funds we consider necessary to meet future claims on our business, should for example our assumptions regarding life expectancy or investment returns prove to be incorrect. Our risk based capital model is used to calculate our economic capital requirement taking into account our material risk exposures and how those risks interact across a wide range of scenarios. Subject to PRA approval, we will also use our risk based capital model, but with regulatory constraints, to calculate capital requirements under Solvency II. Further details of our risk based capital model and economic capital are set out in the Risk based capital model section.

QWhat are the threats currently on your radar?

AThe Principal Risks and Uncertainties set out in the Principal risks and uncertainties section give an overview of the more significant factors that may effect the delivery of Legal & General’s strategy, our future revenues and profitability. Factors outside our control such as the performance of investment markets and broader economic outlook perhaps present the greater area of uncertainty. As we saw in the 2014 budget, changes in legislation can also impact our business model. As we continue to expand our digital propositions we must also be mindful of the range of cyber crime threats to which we may be exposed.

As part of our ongoing risk assessment processes, we seek to identify new and emerging risks, and develop strategies to ensure our exposures to risk remain within acceptable tolerances.