Prudential 2015 Annual Report Download - page 99

• Finance Committee: oversees risks involving our capital and liquidity management, the incurrence and repayment of borrowings,
the capital structure, the funding of benefit plans and statutory insurance reserves. It also oversees the strength of the finance
function. The Finance Committee reviews and recommends for approval to the Board our capital plan. The Finance Committee also
receives regular updates on the sources and uses of capital relative to plan, as well as on our Capital Protection Framework.
• Investment Committee: oversees investment and market risk and the strength of the investment function. The Investment
Committee approves investment and market risk limits for Prudential Financial and for Prudential Insurance’s general account
based on asset class, issuer, credit quality and geography.
• Compensation Committee: oversees our compensation programs so that incentives are aligned with appropriate risk taking.
• Corporate Governance and Business Ethics Committee: oversees our political contributions, lobbying expenses and overall political
strategy, as well as our environmental, sustainability and corporate social responsibility.
• Risk Committee: oversees the governance of significant risks throughout the Company and the establishment and ongoing
monitoring of our risk profile, risk capacity and risk appetite. The Risk Committee also serves to coordinate the risk oversight
functions of the other committees of the Board.
Management Committees
Our primary risk management committee is the Enterprise Risk Committee (“ERC”). The ERC is chaired by our Chief Risk Officer
and otherwise comprised of the Vice Chairman, Chief Operating Officers for the U.S. and International Businesses, General Counsel, Chief
Financial Officer, Chief Investment Officer and Chief Actuary. Our Chief Auditor also attends meetings of the ERC. The ERC’s mandate
is to review significant risks that impact us and approve, or recommend to the Board for approval, our risk management policies and limits
to keep our risk profile consistent with our strategy.
The ERC is supported by five Risk Oversight Committees, each of which is comprised of subject matter experts and dedicated to one
of the following risk types: investment risk, market risk, insurance risk, operational risk and model risk. These Risk Oversight Committees
report their activities to the ERC, and significant matters or matters where there are unresolved points of view are reviewed and brought to
the ERC. The Risk Oversight Committees provide an opportunity to evaluate complex issues by subject matter experts within the various
risk areas. They evaluate the adequacy and effectiveness of risk mitigation options, identify stakeholders of risks and issues, review
material risk assumptions for reasonability and consistency across the Company and, working with the different risk areas, develop
recommendations for risk limits, among other responsibilities.
Each of our business units and significant corporate functions maintains its own risk committee. The business unit risk committees
serve as a forum for leaders within each business unit to identify, assess and resolve risk and exposure issues and to review new products
and initiatives, prior to such issues being reviewed by the Risk Oversight Committees and/or the ERC as appropriate. Corporate function
risk committees assess and monitor risks associated with performing the relevant corporate functions, set standards and exercise oversight
over specific risks.
Risk Identification
We use a variety of tools and processes to assess risk, such as quantitative tools for measurable financial risks and qualitative
assessments for non-financial risks, such as certain operational risks.
Beginning with the development of material new products or services, we complete a risk assessment which may lead to changes in
design features, terms, pricing, investment strategy or the use of other risk mitigation techniques to affect the risk/reward dynamics for the
product or service. We also weigh risk decisions against the impact to our reputation and our ability to achieve our ratings objectives.
Risk Exposure and Monitoring
We classify our risks into four general categories: investment risk, market risk, insurance risk and operational risk (which includes
legal, regulatory and technology risk). In addition we are exposed to model risk, as well as reputational risk, which underlies, and is a part
of, each risk assessment.
For information on risk as it relates to our capital and liquidity, see “—Liquidity and Capital Resources.”
Investment Risk Management
We view investment risk as the risk of loss on fixed maturity investments due to default or deterioration in credit quality, or loss on
equity or real estate investments due to deterioration in value. Our exposure to investment risk is primarily comprised of:
• the risk that we will not receive contractual payments on a timely basis on fixed maturity investments (for example, credit default
risk);
• the risk that our fixed maturity investments lose value due to a deterioration of credit quality (for example, the probability of default
rises or the likelihood of recovery on a default deteriorates);
• the risk that a counterparty on derivatives, securities lending, reinsurance or other transactions does not meet its contractual
obligations to us; and
• the risk that values of our non-coupon, equity and/or real estate equity investments decline.
With general account fixed maturities of $322 billion as of December 31, 2015, Prudential Financial is exposed to significant credit
risk. To manage this risk, we have a set of risk limits in place, including enterprise-level risk limits set by the Investment Committee of the
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