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The principal purpose of the committee is to assist the Board in its oversight of risk within the Group, with particular focus on the Group’s risk appetite, risk profile and the effectiveness of the Group’s Risk Management Framework. We review the risks inherent in both our investment portfolios and in the insurance products we offer our clients. In addition to the risks inherent in investing and in providing assurance, we review the strength of our capital base and our liquidity position, the level of our operational risk, and the significant ongoing changes to the regulatory framework. The capital implications of Solvency II and the Group’s status as a Global Systemically Important Insurer pose risks to the Group and the committee has monitored development of these issues closely during the year and will continue to do so throughout 2016. The committee ensures that due diligence appraisals are carried out on strategic or material transactions, and also works with the Remuneration Committee to ensure that risk management is properly considered in setting the Group’s Remuneration Policy.
The committee is comprised of independent non-executive directors.
Membership and Attendance in 2015
|Member||Number of meetings attended||Percentage attendance1|
|Michael Hawker (chairman)||8||100%|
|Gay Huey Evans2||3||100%|
|Belén Romana García||3||100%|
1. This shows the percentage of meetings which the Committee member attended during the year whilst a member of the Committee.
2. Gay Huey Evans retired from the Committee on 29 April 2015.
The following officers normally attend, by invitation, all meetings of the committee:
- Group Chairman
- Group Chief Executive Officer
- Group Chief Risk and Capital Officer
- Chief Financial Officer
- Chief Audit Officer
Other members of senior management are also invited to attend as appropriate, to present reports.
Committee role and responsibilities
The committee oversees all aspects of risk management in the Group, save for conduct and financial crime risk, and brand and reputation risk (oversight responsibility for which lies with the Governance Committee). Consequently the committee’s particular focus is on market, credit, liquidity, insurance and operational risk, and in considering their impact on both the financial and non-financial goals of the Group.The main responsibilities of the committee are to:
- Review the Group's future risk strategy and its risk appetite, particularly in relation to capital and liquidity and to make recommendations on risk appetite to the BoardReview the implementation of management actions and strategic decisions required to meet the capital implications of the new SII and GSII regulations
- Review the Group's investment risk strategy, credit limit framework and approve individual counterparty exposures in excess of limits
- Review the design, completeness and effectiveness of the Risk Management Framework relative to the Group's activities and to assess the adequacy and quality of the risk management function and effectiveness of risk reporting within the Group
- Review the methodology and assumptions used in the Group's model for determining its economic and regulatory capital requirements and satisfy itself that the assumptions and calibrations used reflect the Group's forward-looking risk profile
- Review and approve risk policies and any relevant Group business standards, and to monitor compliance with these and management's actions to remedy any breaches
- Satisfy itself that risks to the Group's business plan and any capital implications are adequately identified and assessed by management through appropriate stresstesting, and that mitigating actions are implemented
- Satisfy itself that risk-based information is used effectively by management
- Ensure that a due diligence appraisal of strategic or significant transactions due to be proposed to the Board is undertaken before the Board takes a decision on whether to proceed
- Review the effectiveness of operational controls
- Work with the Remuneration Committee to ensure that risk is considered in setting the overall remuneration policy for the Group
- Review relationships with prudential regulatory authorities in relevant jurisdictions and developments in the prudential regulatory environment, and review significant actual or potential breaches of prudential regulation and actions being taken to address these
- Review and recommend to the Board for approval any material regulatory filings
- Review the security and resilience of the IT infrastructure of the Group.
Read the full terms of reference ( for the committee. )
Activities during 2015
A summary of the Committee’s activities during 2015 is shown below, full details can be found in the Committee’s report in the 2015 Annual report and accounts ( . )
- The Committee reviewed and monitored how potential risks connected with increased cost efficiency were being managed; considered the risks associated with the 2016-2018 Group Plan and how management was proposing to mitigate them
- The Committee received a report from the risk function on the performance of business units against the risk and control objectives approved by the Committee. The Committee debated an update to the Group’s liquidity risk appetite and proposed new SII capital risk appetites and recommended these to the Board
- The Committee reviewed and approved changes to the Group-wide risk policies and selected business standards to reflect changes to the risk target operating model for SII and reflecting Financial Stability Board guidance. The Committee selected the extreme stress scenarios to be used in the Group’s recovery plan and liquidity risk management plan and reviewed and recommended those plans and the systemic risk management plan to the Board for approval
- The Committee also reviewed proposals to materially increase the use of an internal composite reinsurer to enhance capital transferability and efficiency and a number of strategic transactions including the reinsurance of a block of the UK General Insurance latent reserves
- The Committee reviewed proposed hybrid debt issuance and redemption
- The Committee also reviewed capital and liquidity projections on a quarterly basis and the results of the Group’s stress and scenario testing
- The Committee carried out a series of deep reviews of the key internal model components, reviewed proposed model changes, received independent internal model validation reports, reviewed and recommended approval of the partial internal model application and received reports on the application of the standard formula for those businesses not covered by the internal model
- The Committee also provided oversight of the SII programme’s preparations for the implementation of SII including Pillar 2 and Pillar 3 and confirmed that the Own Risk and Solvency Assessment (ORSA) requirements had been met
- The Committee received regular updates on the external economic environment and considered the implications for the Group’s asset portfolio
- The Committee conducted deeper thematic reviews into cyber security, broader IT risks, derivatives usage, outsourcing arrangements and general insurance exposure accumulation management
- The Committee monitored closely the developments of the more detailed SII requirements and proposals for higher loss absorbency capital requirements for Global Systemically Important Insurers as well as progress made by the International Association of Insurance Supervisors towards a Global Insurance Capital Standard
- The Committee reviewed the effectiveness of the risk management function and approved the appointment of the CRO and the appointment of a number of subsidiary board risk committee members
- The Committee received regular updates from the Group’s Asset and Liability Committee and Operational Risk Committee.
The Committee monitored certain Major Control Improvement Topics identified by management namely, IT security, disaster recovery in UK datacentres, GI underwriting risk accumulation and outsourcing.