Aviva 2002 Annual Report Download - page 48

Relations with shareholders
The Company places considerable importance on communications
with shareholders and responds to them on a wide range of issues.
It has an ongoing programme of dialogue and meetings between
the executive directors and its major institutional shareholders,
where a wide range of relevant issues including strategy,
performance, management and governance are discussed within
the constraints of the information already known to the market.
As and when considered appropriate, the Company seeks the
views of major investors, particularly on remuneration issues,
both directly and through consultation with the Association of
British Insurers.
At its Annual General Meetings, the Company complies with the
Combined Code as it relates to the disclosure of proxy voting,
the separation of resolutions and the attendance of Committee
Chairmen. The notice of the Annual General Meeting is sent
out at least 20 business days before the meeting, to ensure that
shareholders have sufficient time in which to consider the items
of business.
Both the Company’s Annual report and Annual review are
designed to present a balanced and understandable view of the
Group’s activities and prospects. The Chairman’s statement, Group
Chief Executive’s review and business operating and financial
reviews on pages 2 to 27 provide an assessment of the Group’s
affairs and position and will be supported by a presentation to be
made at the Annual General Meeting.
Institutional investor
As a major investor, the Group monitors the governance of the
companies in which it invests. Morley Fund Management Limited,
the Group’s UK asset management company, has regular meetings
with senior management of companies where it will raise all
relevant matters which may affect the future performance of
those companies.
Morley operates a Corporate Governance and Voting Policy in
respect of the voting rights it holds in UK companies. The policy
also extends to cover social, environmental and ethical issues.
Details of how voting discretion has been used on any particular
issue are available to clients upon request. In addition, Morley
engages with the management of the companies in which it
invests on contentious matters, and its policy is applied flexibly
after careful consideration of all relevant information.
Appointment of the auditor
Ernst & Young LLP was appointed as auditor of the Company in
2001 following a competitive bid process between the firms which
had acted as auditors of Norwich Union and CGU prior to their
merger in 2000. During the current year, Ernst & Young’s audit
signing partner will change as part of a rotation process.
The Company has established a policy aimed at safeguarding and
supporting the independence of the auditor by avoiding conflicts
of interests. The policy sets out the approach to be taken by the
Group when using the services of the auditor and distinguishes
between those matters where the Company requires an
independent view, such as audit and assurance work, from other
consultancy work. The policy recognises that there may be a small
number of areas where, for pragmatic or historical reasons, it may
be in the Company’s interests to use the auditor for other work
but such appointments are subject to a clear and transparent
approval process.
An analysis of the fees paid to the auditor in 2002 is set out in
note 13 on page 64.
Internal controls
The Board has ultimate responsibility for the systems of internal
control maintained by the Group and for reviewing their
effectiveness. The systems are intended to provide reasonable
assurance, but not an absolute guarantee, against material
financial misstatement or loss, and include the safeguarding of
assets, the maintenance of proper accounting records, the
reliability of financial information, compliance with appropriate
legislation, regulation and best practice, and the identification and
control of business risks.
During the year, the Group Audit Committee, on behalf of the
Board, has reviewed the effectiveness of the framework of the
Group’s systems of internal control, the principal features of which
are as follows.
Control environment
The Group has an established governance framework.
This framework is designed to oversee the Group’s operations
world-wide and assist the Group in achieving its ambitions.
The key features of the control environment within this governance
structure include: the terms of reference for the Board and each
of its committees; a clear organisational structure, with
documented delegation of authority from the Board to executive
management; a Group policy framework, which sets out risk
management and control standards for the Group’s operations
world-wide; and procedures for the approval of major transactions
and capital allocation.
Risk identification and assessment
The Board has in place a system of business risk management,
which has been integrated throughout the Group into the business
planning and monitoring process.
The Group’s risk management and control framework is designed
to support the identification, assessment, monitoring and control
of risks significant to the achievement of its business objectives.
During the year work has commenced to align this framework to
the requirements of the Financial Services Authority’s Prudential
Sourcebook. Risk management functions within the business are
responsible for assessing and reporting the potential impact and
probability of the most significant risks identified across the Group
and the adequacy of related mitigation programmes. This includes
assessing and reporting risks arising from the Group’s financial,
regulatory and operational activities as well as social, ethical and
environmental risks. The results of these assessments are reviewed
by the Group Business Risk Committee, under the chairmanship of
the Group Finance Director and reported to the Board at each
meeting. The overall risk management process is reviewed six
monthly by the Group Audit Committee and annually by the
Board.
Control procedures and monitoring systems
The Group has a well-developed system of planning and
monitoring, which incorporates Board approval of a rolling three
year Group Business Plan. Performance against the Group Business
Plan is monitored monthly by the executive directors and reviewed
at each Board meeting. This report also includes reports on risk,
audit, compliance, solvency and liquidity. Performance is also
reported formally through the publication of Group results and
accounting policies applied consistently throughout the Group.
Operational management report frequently to the Executive
Directors and the Board receives regular representations from
management responsible for each principal business operation.
The Group has well-established internal audit, risk management
and compliance functions. There are formal procedures in place
for both internal and external auditors to report independently
their conclusions and recommendations to management and to
the Group Audit Committee.
Compliance with the Combined Code
The Company has complied fully throughout the accounting
period with the provisions set down in Section 1 of the Combined
Code, except that during the period two executive directors had
contracts with notice periods which exceeded 12 months. The
auditor’s report on page 43 covers their review of the Company’s
compliance with the relevant provisions of the Combined Code.
Corporate governance continued
34 Aviva plc
Annual report + accounts 2002