Aviva 2013 Annual Report Download - page 221

Strategic report Governance IFRS Financial statements Other information
Aviva plc
Annual report and accounts 2013
219
Notes to the consolidated financial statements continued
57 – 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-profits fund – (NWPSF, OWPSF and WPSF) – 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. In several
business units, Group companies and other parties jointly control certain entities; these joint venture operations may constrain
management’s ability to utilise the capital 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.
58 – Risk management
This note sets out the major risks our businesses and its shareholders face and describes the Group’s approach to managing these.
It also gives sensitivity analyses around the major economic and non-economic assumptions that can cause volatility in the Group’s
earnings and capital position.
(a) Risk management framework
The risk management framework (RMF) in Aviva forms an integral part of the management and Board processes and decision-
making framework across the Group. The key elements of our risk management framework comprise risk appetite; risk
governance, including risk policies and business standards, risk oversight committees and roles and responsibilities; and the
processes we use to identify, measure, manage, monitor and report (IMMMR) risks, including the use of our risk models and stress
and scenario testing.
For the purposes of risk identification and measurement, and aligned to Aviva’s risk policies, risks are usually grouped by risk
type: credit, market, liquidity, life insurance, general insurance, asset management and operational risk. Risks falling within these
types may affect a number of metrics including those relating to balance sheet strength, liquidity and profit. They may also affect
the performance of the products we deliver to our customers and the service to our customers and distributors, which can be
categorised as risks to our brand and reputation.
To promote a consistent and rigorous approach to risk management across all businesses we have a set of risk policies and
business standards which set out the risk strategy, appetite, framework and minimum requirements for the Group’s worldwide
operations. On a semi-annual basis the business chief executive officers and chief risk officers sign-off compliance with these
policies and standards, providing assurance to the relevant oversight committees that there is a consistent framework for managing
our business and the associated risks.
A regular top-down key risk identification and assessment process is carried out by the risk function. This includes the
consideration of emerging risks and is supported by deeper thematic reviews. This process is replicated at the business unit level.
The risk assessment processes are used to generate risk reports which are shared with the relevant risk committees.
Risk models are an important tool in our measurement of risks and are used to support the monitoring and reporting of the risk
profile and in the consideration of the risk management actions available. We carry out a range of stress (where one risk factor,
such as equity returns, is assumed to vary) and scenario (where combinations of risk factors are assumed to vary) tests to evaluate
their impact on the business and the management actions available to respond to the conditions envisaged.
Roles and responsibilities for risk management in Aviva are based around the ‘three lines of defence model’ where ownership
for risk is taken at all levels in the Group. Line management in the business is accountable for risk management, including the
implementation of the risk management framework and embedding of the risk culture. The risk function is accountable for
quantitative and qualitative oversight and challenge of the IMMMR process and for developing the risk management framework.
Internal Audit provides an independent assessment of the risk framework and internal control processes.
Board oversight of risk and risk management across the Group is maintained on a regular basis through its Risk Committee.
The Board has overall responsibility for determining risk appetite, which is an expression of the risk the business is willing to take.
Risk appetites are set relative to capital, liquidity and franchise value at Group and in the business units. Economic capital risk
appetites are also set for each risk type. The Group’s position against risk appetite is monitored and reported to the Board on a
regular basis. The oversight of risk and risk management at the Group level is supported by the Asset Liability Committee (ALCO),
which focuses on business and financial risks, and the Operational Risk and Reputation Committee (ORRC) which focuses on
operational and reputational risks. Similar committee structures with equivalent terms of reference exist in the business units.