Governance and Risk

The Board has overall responsibility for the Group’s internal control systems and for monitoring their effectiveness.

The performance of internal control systems is reviewed regularly by the Group Audit Committee and annually by the Board, whose review includes the risk management framework.

The roles of the Chairman and the Group CEO are separate and five of the nine board members are independent non-executive directors.

Corporate responsibility (CR) governance

Overall responsibility for CR lies with the Group CEO. The Board routinely discusses CR issues affecting the Group as necessary. It also conducts a formal annual review of performance and strategy for the year ahead. The Group Executive Committee reviews our CR strategy and performance, including targets, twice a year.

CR targets and objectives are included in CEO goals which are cascaded to other executives and relevant business functions. All employees are assessed against the Brand Beliefs, which help to ensure that doing the right thing forms part of the performance and remuneration structure at RSA.

In 2008, we reintroduced an executive level CR steering committee to oversee implementation of strategy. The committee oversees compliance against our global CR, environmental, human rights and community policies and provides a common reference point for regional businesses. The committee is comprised of the entire Group Executive Committee to ensure all top level management are involved.

CR Committees consisting of employees and managers operate in many countries to determine and respond to local priorities where a dedicated resource is not available. Country and site-based community and environment committees support locally relevant projects. CR managers or coordinators have been appointed covering all our operating countries.

Our approach to risk

The Group operates an enterprise risk management framework that is designed to identify, assess, measure and manage exposure to risk including environmental, social and governance matters.

The Board Risk Committee, which meets at least quarterly, is currently chaired by the Chief Financial Officer. The committee also comprises the Group CEO and other members of executive management.
In 2009, two of our non-executive directors will take up positions on the Committee, Noel Harwerth will join becoming Chairman and Malcolm Le May will also join the Committee.

The Global Asset Management Committee oversees the Group’s investment strategy under the oversight of the Investment Committee, operating within risk limits set by the Board Risk Committee.

Corporate Responsibility is fully embedded in the Risk Appetite because we recognise risks such as damage to our reputation and poor relationships with stakeholders. In addition, Forum for the Future provides an annual materiality assessment on all sustainability risks and opportunities facing our company and sector.

Insurance risk

CR risks include generic aspects affecting reputation, regulation and operating costs. But the insurance industry also faces specific environmental risks, especially climate change, which scientists believe it will bring more frequent and extreme weather events. It also presents opportunities to develop products responding to the changing needs of our customers. We manage our exposure to losses by:

• Pricing products according to the level of risk involved;
• Buying reinsurance to protect against sudden claims increases;
• Developing additional products that encourage more responsible behaviour and appeal to previously underserved areas of the market;
• Working with customers, civil society and governments to raise awareness of the steps people can take to reduce their risk.

Reinsurance is normally bought on a catastrophe basis, providing protection against losses only from individual catastrophic events. RSA buys reinsurance on an aggregate basis too, which protects us from losses arising from the many smaller, more frequent events which may result from climate change. This approach helps us minimise losses to the business in the event of extreme weather conditions.

“At RSA, we have a strong focus on good corporate governance which helps us to be a responsible company and deliver sustainable profitable performance. Our Group Risk Appetite sets out the limits of risk that we as
a company adhere to, both for operations and our underwriting. All regions are required to submit quarterly reports against this which are signed off by the regional CEOs.

Our aim is to serve the best interests of shareholders and follow best practice remuneration policy. Our focus continues to be on a strong link between performance and reward ensuring a significant element of performance related pay. Only exceptional performance attracts the highest levels of award and we work to ensure this process is transparent to shareholders. Where relevant, we consider environmental, social and governance risks when determining remuneration for executive directors and senior managers to ensure that positive behaviours are reinforced.“

Mark Chambers
General Counsel and Group Company Secretary,
Group Corporate Centre