26 LV= Annual Report 2012
Risk Report
Steve Haynes
Chief Risk Officer
The role of risk management
The effective management of risk supports the delivery of our
strategy, protects the value that we create for members, and
helps us to identify opportunities where we can make better
use of our capital.
Our risk management approach is based on the group’s enterprise
risk management framework and has the following core objectives:
l To set out the risks that the group is able and wishes to accept.
l To maintain a risk management and governance framework that in
particular assesses and manages the risk-return trade-off.
l To measure and monitor the group’s risk exposures against the
board’s approved risk appetite statements and risk limits.
LV=’s approach to risk
The board has established, through a set of statements, the risk principles and practices the
business is expected to adhere to. These statements are reviewed at least annually and reflect both
the group’s strategic plans and the risk strategy. The statements approved by the board in 2012 are
set out below.
In conducting its business LV= adopts a group-wide perspective on risk, and aims to avoid undue
concentration, operate within its risk appetite, ensure fair treatment of customers and be competitive
in our chosen markets;
LV= will take on risks that it has the capability to understand and manage and which support the
group’s aim of optimising value for its members, delivering expected policyholder benefits and
ensuring it manages the with-profits business in line with the Principles and Practices of Financial
Management;
LV= has an appetite for insurance risk in the life and non-life sectors. As LV= has long term liabilities,
it also retains illiquidity premium through its investment strategy;
LV= takes on market risk in its non-life business, in its with-profits funds in line with policyholder
reasonable expectations, and in its pension funds. If risk free rates are low, LV= may seek market risk
with its mutual capital to earn a higher return; and
As an insurer LV= is exposed to other risks (such as persistency, expense and operational risk) and it
manages these to optimise the risk-adjusted return.
LV=’s risk management and governance framework
LV= has a strong risk culture which is based on the risk management and governance framework.
The key goals of the framework are:
l To ensure a consistent measurement of risk and capital that enables the group to optimise the
risk-return trade-off;
l To minimise ambiguity by defining the roles, responsibilities and reporting procedures of the risk
and capital decision makers in the group; and
l To ensure that the group identifies, assesses, and manages the material risks to which it is
exposed and operates a robust control framework to maintain these risks within risk appetite.
Risk appetite
The amount of risk that the group is willing and able to accept is measured and monitored by the board
establishing a risk appetite statement and an associated risk tolerance and limit for each major risk
dimension. The board approved the following risk appetite statements in 2012: