Risk and Capital Management

The Group's philosophy and approach to risk and capital management have been stable for a number of years, and are aligned to our Group Operating Model. However, the risk landscape is changing and the Group is entering a new phase in its development. Our approach to risk management has evolved accordingly.

The objective of the risk framework is to align strategy, capital, process, people, technology and knowledge in order to evaluate and manage business opportunities, uncertainties and threats in a structured, disciplined manner. In this way we seek to ensure that risk and capital implications are considered when making strategic and operational decisions. Risk management is designed to increase our understanding of the risks inherent in the business, to improve decision making - which includes accepting risk.

Our risk and governance framework is supported by economic capital tools and transparent processes for managing, monitoring and controlling risks. We continue to refine structures and processes as necessary, but the overall governance structures are stable. These structures and processes, together with our strong balance sheet, provide a solid base to support our business as we pursue our growth strategy over the next few years. Risk frameworks, governance and the Group's internal capital model are overseen centrally but implemented by our businesses locally, so that local requirements can be addressed appropriately. This approach is reinforced through senior Group executive representation on business unit boards, coupled with formal dual reporting for all key control functions.

We assess the Group's risk profile through several different lenses, in line with our risk appetite. We seek to optimise capital efficiency, avoiding excessive risk concentrations and diversifying risk where possible. In this context, we view risk concentration and diversification within each business unit. Each of the Group's business units (and regulated companies within business units) is sufficiently capitalised in its own right. The distribution and allocation of capital to our businesses largely reflects the different risk profiles within their regions and the prevailing regulatory requirements. Even when applying significant economic stresses to our current capital, the Group remains adequately capitalised. We have also identified management actions that could be taken to remedy the Group's capital or liquidity position in an extreme shock event, where capital or liquidity levels could significantly breach our risk appetite limits for a sustained period.

In line with our peers, there is significant regulatory change impacting the financial services sector in the territories we operate. Clarity on outstanding regulatory capital uncertainties is emerging in relation to Solvency II/SAM and Basel III. There is also substantial change in the conduct agenda in terms of the way business is sold or the nature of the products which meet our customers' needs. Our focus on responsible business, core values and culture gives us confidence to embrace these changes, and we continue to monitor the position carefully.