Aviva 2009 Annual Report Download - page 98

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Aviva plc Risk and Regulatory committee report
Annual Report and Accounts 2009
This report provides details of the role of the Risk and
Regulatory Committee and the work it has undertaken during
the year.
The purpose of the Committee is to assist the Board in
providing leadership, direction and oversight of the Group’s
management of risk. The full terms of reference for the
Committee can be found on the Company’s website,
www.aviva.com, and are also available from the Group
Company Secretary.
The following independent non-executive directors served
on the Committee during the year:
Period
Member From To
Mary Francis (Chairman) 14 January 2006 To date
Nikesh Arora 1 July 2007 5 August 2009
Wim Dik 14 January 2006 29 April 2009
Leslie Van de Walle 24 September 2009 To date
Russell Walls 14 January 2006 To date
Michael Hawker was appointed to the Committee on 1 January
2010. The Committee met on six occasions in 2009 and the
members’ attendance record is set out in the Corporate
Governance report on page 88. In addition the Committee held
separate meetings with members of senior management and
Ernst & Young for the purposes of induction and training. The
Group Company Secretary acts as the secretary to the
Committee.
The Group Chief Executive, Chief Risk Officer, Chief
Financial Officer, Chief Audit Officer, Group Regulatory Director
and the external auditor normally attend, by invitation, all
meetings of the Committee. Other members of senior
management are also invited to attend as appropriate to
present reports. It is the Committee’s practice at each meeting
to meet separately with the Chief Audit Officer and the external
auditor without any members of management being present. In
performing its duties, the Committee has access to the services
of the Chief Audit Officer, the Chief Risk Officer, the Group
Regulatory Director, and the Group Company Secretary and
external professional advisers. During 2009 the Committee
appointed Keith Nicholson, a former partner at KPMG LLP, as an
external adviser to the Committee.
External background
In the challenging economic and market environment the Board
and the Committee continued to focus on financial risk and
capital management. The Committee also spent an increasing
amount of time on the emerging requirements of the European
Union’s Solvency II Directive, and the recommendations of the
Walker Report in the UK. Although the recommendations of the
Walker Report are not yet binding on the Group, the Group is
already compliant with the majority of the recommendations
relating to risk. In particular, the Board has had a separate risk
and regulatory committee since 2006. The Committee chairman
regularly reports to the Board on the Committee’s activities, and
sits on the Audit and Remuneration Committees to ensure that
risk considerations are fully reflected in their decisions.
Committee activities during 2009
The Committee’s main functions are to assist the Board in
making decisions on the Group’s risk appetite; to oversee the
monitoring and control of risks so that they remain aligned with
appetite; to ensure that management is reviewing emerging
risks and testing the Group’s resilience through scenario
planning and stress testing; to give broad direction to the way
the Group assesses its capital requirements and how it is
optimising the balance between risk and reward when
allocating capital for new business; and to ensure that
management and the Board have high quality information on
risk when reviewing Group strategy and future plans.
During the year the Committee focused on the
following areas:
— Strengthening the risk function: a number of changes
have been made to the risk function since the Group’s move
to a regional structure. Following a review of progress,
further changes have been implemented including; the
appointment of a new Chief Risk Officer who reports to the
Group Chief Executive; emphasis on first line responsibilities
for managing risk, with support and challenge from the risk
function and initiation of a comprehensive review of the
Group’s risk appetite.
— Capital management: this was a strong focus of the
Committee throughout the year. Group capital requirements
were monitored against existing risk appetite and capital
availability in a rapidly changing market. The Committee
reviewed scenario and stress testing and also considered
reinsurance and hedging strategies to understand their
contribution to capital management.
— Solvency II: with increasing emphasis on economic capital,
the Committee monitored the likely impact of Solvency II on
the Group’s economic capital requirements and businesses.
The Committee is responsible for the oversight of the
Group’s Solvency II programme.
— Risk monitoring: the Committee received regular reports on
key risks and the actions and controls introduced to mitigate
any risks that were out of appetite. Necessary focus was
placed on financial and insurance risks including those
relating to capital, credit, and equity risk. The Committee
continued its practice of inviting business unit and regional
teams, led by their Chief Executive, to present on how risk is
managed in their businesses. During the year, presentations
were received from North America region, Europe region,
Asia Pacific region and UK General Insurance.
— Group risk policies: The Committee approved significant
changes to certain Group risk policies and received regular
reports on compliance with Group policies.
— Operational risks: during the year the Committee paid
particular attention to business protection and IT risks, and
how business units were embedding behaviour that met the
FSA’s principles of Treating Customers Fairly.
— Regulatory risks and relationships: The Committee
received regular reports on compliance issues and regulatory
and other public policy initiatives. In particular, it monitored
the actions being taken by management in response to the
FSA’s Risk Mitigation Programme; monitored worldwide
regulatory reform developments arising from the financial
crisis and government and regulatory responses to it;
monitored management responses to proposed changes in
the prudential requirements for financial services companies;
and oversaw measures to strengthen oversight of the
Group’s compliance functions, particularly outside the UK.