Audit committee

Membership

• 1. The members, including the chairman, of the Committee shall be appointed by the Board on the recommendation of the Nomination Committee. All members of the Committee shall be independent non-executive directors of the Company one of whom shall, to the satisfaction of the Board, have recent and relevant financial experience. For this purpose, independence shall be determined in accordance with Rule 10A-3 under the US Securities Exchange Act of 1934, in addition to the other independence criteria set out in the Board terms of reference. The Board shall also determine whether or not any member of the committee is an “audit committee financial expert” in accordance with US regulations. The Committee shall consist of not less than three members. A quorum shall be two members.

Attendance at meetings

• 2. The Chairman of the Board, the Group Chief Executive, the Chief Financial Officer, the Group Audit Director and a representative of the auditor shall normally attend all meetings at the invitation of the Committee.
• 3. Other Board members and members of Management and any advisers appointed by the Committee shall attend, if invited by the Committee.
• 4. The Group Company Secretary, or his nominee, shall be the secretary of the Committee.

Frequency of Meetings

• 5. Meetings shall be held not less than five times each year.
• 6. The auditor, the Group Audit Director, the chairman of the Committee or two members of the Committee may request a meeting if they consider that one is necessary.

Authority

• 7. The Committee is authorised by the Board to :
  1. Investigate, or cause to be investigated, any activity within its terms of reference;
  2. Seek any information that it requires from any employee of the Company and require all employees to co-operate with any request made by the Committee;
  3. Obtain external legal or independent professional advice from such advisors as the Committee shall select, who may at the invitation of the Committee attend meetings as necessary,
  4. Meet for despatch of its business, adjourn and otherwise regulate its business as it shall see fit, including approving items of business by the written resolution procedure set out in the Company's articles of association.
  5. Cause the Company to pay (to the extent it has not already done so) all:
     1. Compensation to any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company;
     2. Compensation to any advisers employed by the Committee under these terms of reference; and
     3. Ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties, and
  6. Delegate any of its duties as is appropriate to such persons or person as it thinks fit.

Purpose

• 8. Working closely with the Risk and Regulatory Committee, the purpose of the Committee is to assist the Board in discharging its responsibilities for the integrity of the Company’s financial statements and the effectiveness of the systems of internal financial controls and monitoring the effectiveness, performance and objectivity of the internal and external auditors.

Duties

• 9. The duties of the Committee shall be to :
  1. Consider the appointment, dismissal or resignation of the auditor and to directly oversee the process for selecting the auditor and to make appropriate recommendations, through the Board, to shareholders to consider at the annual general meeting concerning the reappointment of the auditor;
  2. Assess, and keep under review, the independence and objectivity of the auditor, approve and monitor the application of the Group External Auditor Policy, ensure that key audit partners are rotated from time to time and that the nature and amount of non-audit work does not impair the auditor's independence and objectivity;
  3. Recommend the audit fee to the Board;
  4. Discuss with the auditor the nature, scope and effectiveness of the annual audit process taking into account relevant UK professional and regulatory requirements, and review the auditor’s quality control procedures and the steps taken by the auditor to respond to changes in regulatory and other requirements;
  5. Establish and monitor the implementation of policies or procedures for the receipt, retention, and treatment of complaints received by the Group regarding accounting, accounting controls and auditing matters and for confidential, anonymous submission by Group employees of concerns regarding questionable accounting or auditing matters;
  6. Approve the auditor’s engagement letter and any amendments thereto and to review the auditor’s management letter and Management’s response thereto;
  7. Review the annual operational plan and the effectiveness of the Company’s internal audit function, and ensure that it is adequately resourced and has appropriate standing within the Company;
  8. Consider (in the absence of Management if necessary), Management’s response to any material recommendations made by the auditor or by the Group Audit Director;
  9. Approve the appointment or dismissal of the Group Audit Director and to have direct input into the assessment of the Group Audit Director’s annual performance and the Group Audit Director's salary and bonus review;
  10. To approve the Group’s policy relating to the employment of former employees of the auditor and review the application of the policy from time to time;
  11. Review and assess the effectiveness of systems for internal financial control and financial reporting;
  12. Review, and challenge where necessary, the actions and judgements of Management, in relation to the interim and annual financial statements, and any formal announcements relating to the Company's financial performance paying particular attention to:
      1. Critical accounting policies and practices, and any changes thereto;
      2. decisions requiring a major element of judgement;
      3. the extent to which the financial statements are affected by any unusual transactions in the year and how they are disclosed;
      4. the clarity of disclosures;
      5. significant adjustments resulting from the audit;
      6. the going concern assumption;
      7. compliance with accounting standards;
      8. compliance with FSA and other legal requirements;

         After completing its review of the financial statements/ announcements the Committee shall (other than in relation to the review of the Group’s quarterly management statement, which the Committee is authorised to approve) make a recommendation to the Board regarding their approval.

  13. Note any significant pending legal actions against or by a Group company.
  14. Approve Group policies as determined by the Board from time to time, and any material changes thereto;
  15. Receive and review, at least annually, reports on the reserving position relating to the Group’s life assurance and general insurance operations.
  16. Be available to advise the Board, or the Chairman of the Board, on any questions relating to the financial affairs of the Company on which advice might be sought.
  17. Consider other topics, as referred to it from time to time by the Board.

Reporting Procedures

• 10. The Chairman of the Committee shall report to the Board at regular intervals on the matters it has reviewed and making recommendations when requested or when he/she considers appropriate. The Group Company Secretary shall circulate the minutes of the meetings of the Committee to all members of the Board.
• 11. The Committee members shall undertake a review of the Committee’s work and these terms of reference annually and, if necessary, make recommendations to the Board for the amendment of the terms of reference.
• 12. The Committee’s duties and activities during the year shall be disclosed in the Company’s Annual Report and Accounts.
• 13. The chairman of the Committee shall attend the annual general meeting and shall answer questions, through the chairman of the Board, on the Committee’s activities and responsibilities.