Aviva 2013 Annual Report Download - page 81

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Aviva plc
Annual report and accounts 2013
79
Directors’ and Corporate governance report continued
geopolitical uncertainty, which have the potential to depress
economic growth and cause financial market volatility such as
the potential for adverse consequences from the removal of
quantitative easing, a slowdown in the US recovery, renewed
challenges in emerging markets and political impasse in the
eurozone.
During the year the Group was designated a GSII, which
brings the Group within scope of the policy requirements issued
by the International Association of Insurance Supervisors,
including the development by July 2014 of a Systemic Risk
Management Plan, the development of recovery and resolution
plans and additional loss absorbency capital requirements from
January 2019, if the Group remains a GSII.
It is now proposed that Solvency II will be implemented on
1 January 2016, following political agreement between the
Trilogue parties in relation to long term guarantee product and
investment measures. Until the “Level 2” Delegated Acts are
finalised there remains uncertainty over the final capital impact
on the Group.
Committee activities during 2013
The work of the committee followed an agreed annual work
plan, which evolved throughout the year in response to the
changing macro-economic and regulatory environment and
changes in the Company’s strategy. The Group Company
Secretary and the CRCO assisted the committee chairman in
planning the committee’s work, and ensured that the
committee received information and papers in a timely manner.
The chart below shows how the committee allocated its
time during 2013.
Risk Committee – allocation of agenda time
22% Risk appetite, risk management and risk reporting
23% Group capital, liquidity management and stress testing
10% Economic Capital Infrastructure Programme oversight
10% Business unit and functional updates
8% Risk review of Group plan
12% Regulatory and governance
10% Asset portfolio monitoring
5% Other (including internal audit)
During the year the committee focused on the following areas:
Risk appetite monitoring
The committee received regular detailed reports on key risk
exposures, emerging and potential risks, and the drivers of
risk throughout the Group. It assessed and challenged the
appropriateness of the Group’s overall risk appetite. The
committee monitored the Group’s exposure against these
appetites, particularly in relation to liquidity appetite and
Individual Capital Adequacy (ICA) surplus and how the Group’s
business plan improves the Group’s capital position over time.
Capital and liquidity management
Following the approval of a revised capital management
framework in 2012, the committee has closely monitored the
Group’s economic capital and liquidity positions against risk
appetite and targets for the Group and for material subsidiaries.
The Group’s liquidity position and ICA surplus has increased
throughout the year following implementation of a programme
of strategic, economic and operational actions approved by the
committee and the Board to strengthen and provide greater
resilience to the Group’s capital and liquidity position.
Actions included the sale of the US Life business, sale of the
Group’s remaining interest in Delta Lloyd N.V., and actions to
reduce the Group’s internal and external debt.
The committee received regular one-year liquidity forecasts
and closely monitored the Group’s ability to satisfy the 2012
final, 2013 interim and 2013 final dividend.
The committee requested that management develop a plan
to address the potential capital impact of future events such as
being classified as a GSII and the transition to Solvency II and
what contingent actions could or should be taken.
During the year the committee recommended to the Board,
approval of a new unguaranteed Euro Commercial Paper
Programme and issuance of new hybrid debt and considered
options to reduce the Group’s debt.
Methodology and assumptions
In early 2013, the committee considered and approved the
methodology and assumptions used to calculate the economic
capital for the 2013 ICA submission. In late 2013 the committee
considered and approved the methodology and assumptions for
the 2014 ICA submission.
Economic Capital Infrastructure Programme
The implementation of the Solvency II Directive (SII) has been
delayed by the European Union until 2016. The Group
continues to work towards compliance based on currently
available guidance from the European Insurance and
Occupational Pensions Authority and is moving to an enhanced
economic capital model ahead of SII implementation as it is
strategically important for Aviva to have a view of its businesses
on an economic capital basis to inform our business decisions.
Risk management and governance
The committee had an ongoing programme of receiving reports
from local risk committee chairmen or Chief Executive Officers
on the risk environment and issues arising in the Group’s
businesses and in respect of particular product lines. During the
year, the committee received reports on the businesses in Italy,
Spain, France, the UK and the European region as a whole, and
in respect of the Corporate and Speciality Risks business in the
UK and business lines in UK Life, Ireland Life, Poland, France and
Aviva Investors. The committee also received updates on issues
concerning IT and data security and UK with-profits policies.
The committee received regular reports from the CRCO and
monitored the effectiveness of the Company’s RMF which is
described in more detail in the Corporate Governance Report
and in note 58.
The committee assessed a customer culture review carried
out at the Group centre and in the UK Life and General
Insurance businesses and requested that the Risk function
review whether customer risks had been appropriately identified
in business plans, that sufficient processes were in place to
monitor such risks and that customer risks be included in the
strategic planning process.
The committee reviewed an internal assessment of the
adequacy, quality and effectiveness of the Risk and Compliance
functions and was satisfied that overall, the function was
effective although the level or quality of resource needed to be
increased in some business units.
Regulatory oversight
The committee monitored the impact of the Financial Services
Authority’s split into the Financial Conduct Authority (FCA) and
Prudential Regulation Authority (PRA) in the UK as well as the
relationship with regulators across the Group and discussed the
specific management actions identified to address or mitigate
issues which arose during the year. As discussed above, the
Company has been designated as a GSII which will have a
number of implications for the Group if it is still classified as
a GSII in 2017. The committee is monitoring management’s