Aviva 2009 Annual Report Download - page 255

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Performance review
Aviva plc Notes to the consolidated financial statements continued
Corporate responsibility
Annual Report and Accounts 2009
Governance
Shareholder information
Financial statements IFRS
Financial statements MCEV
Other information
55 – Capital statement continued
The available capital resources in each regulated entity are generally subject to restrictions as to their availability to meet
requirements that may arise elsewhere in the Group. The principal restrictions are:
— (i) UK with-profit funds – (NWPSF,OWPSF and existing UKLAP WP funds) – any available surplus held in each fund can be
used to meet the requirements of the fund itself, be distributed to policyholders and shareholders or in the case of NWPSF and
OWPSF, transferred via the capital support arrangement explained above (for OWPSF only to the extent support has been
provided in the past). In most cases, with-profit policyholders are entitled to at least 90% of the distributed profits while the
shareholders receive the balance. The latter distribution would be subject to a tax charge, which is met by the fund.
— (ii) UK non-participating funds – any available surplus held in these is attributable to shareholders. Capital in the non-profit
funds may be made available to meet requirements elsewhere in the Group subject to meeting the regulatory requirements of
the fund. Any transfer of the surplus may give rise to a tax charge subject to availability of tax relief elsewhere in the Group.
— (iii) Overseas life operations – the capital requirements and corresponding regulatory capital held by overseas businesses are
calculated using the locally applicable regulatory regime. The available capital resources in all these businesses are subject to
local regulatory restrictions which may constrain management’s ability to utilise these in other parts of the Group. Any transfer
of available capital may give rise to a tax charge subject to availability of tax relief elsewhere in the Group.
— (iv) General insurance operations – the capital requirements and corresponding regulatory capital held by overseas
businesses are calculated using the locally applicable regulatory regime. The available capital resources in all these businesses
are subject to local regulatory restrictions which may constrain management’s ability to utilise these in other parts of the Group.
Any transfer of available capital may give rise to a tax charge, subject to availability of tax relief elsewhere in the Group.
56 – Risk management
This note sets out the major risks our businesses face and describes our approach to managing these. It also gives sensitivity
analyses around the major economic and non-economic assumptions that can cause volatility in our earnings and capital
requirements.
(a) Risk management framework
Aviva has established a risk management framework to protect the Group from events that hinder the sustainable achievement
of its performance objectives, including failing to exploit opportunities.
The risks faced by the Group can be categorised as follows:
— Financial risks cover market and credit risk, insurance risk, liquidity and capital management.
— Strategic risks include issues such as customer, brand, products and markets as well as any risks to our business model arising
from changes in our market and risks arising from mergers and acquisitions.
— Operational risk arises from inadequate or failed internal processes, or from people and systems or from external events.
— Operational risks include business protection, information technology, people, legal and regulatory compliance.
The risk management framework provides the means to identify, assess, mitigate, manage, monitor and report all of the different
types of risk faced by the Group to provide a single picture of the threats and uncertainties faced and opportunities that exist.
Responsibility for risk management resides at all levels within the Group with appropriate risk related objectives embedded
within performance measurement plans. As part of our risk management framework we employ a three lines of defence model
that encourages close working relationships between line management and the risk function whilst facilitating independent
assurance by internal audit. Primary responsibility for risk identification and management lies with business management (the first
line of defence). Support for and challenge on the completeness and accuracy of risk assessment, risk reporting and adequacy of
mitigation plans are performed by specialist risk functions (the second line of defence). Independent and objective assurance on the
robustness of the risk management framework and the appropriateness and effectiveness of internal control is provided by group
audit (the third line of defence).
The Group sets limits to manage material risks to ensure the risks stay within risk appetite (the amount of risk the Group is
willing to accept). The Group assesses the size and scale of a risk by considering how likely it is that the risk will occur and the
potential impact the risk could have on our business and our stakeholders. Where risks are outside appetite actions are agreed
to mitigate the exposure.
The Group’s risk management framework is designed to manage, rather than eliminate, the risk to business objectives and
mitigates the risk of material financial misstatement or loss. New and emerging risks, or risks we currently deem as immaterial may
also pose a risk to business objectives.
The Group recognises the critical importance of maintaining an efficient and effective risk management framework. To this
end, the Group has an established governance framework, which has the following key elements:
— Defined terms of reference for the Board, its committees, and the associated executive management committees.
— A clear organisational structure with documented delegated authorities and responsibilities from the Board to Board
committees, executive management committees and senior management.
— A risk management function operating across Group centre, regions and business units, with clear responsibilities and
objectives;
— A Group policy framework that defines risk appetite and sets out risk management and control standards for the Group’s
worldwide operations. The policies also set out the roles and responsibilities of businesses, regions, policy owners and the risk
oversight committees; and
— Risk oversight committees that review and monitor aggregate risk data, assess whether the risk profile is within appetite and
take overall risk management decisions. The committees monitor adherence to the risk management policies and oversee
mitigating actions being taken where risks are outside of appetite.
Financial statements IFRS