Our Accounts 61
Notes to the Financial Statements continued
31 December 2012
Capital and risk management
This section details the capital and risk management approach of the Society and Group. The Group seeks to create value for its
members by maintaining an appropriate balance between the capital available to support risk and the level and type of risk it takes
on in order to achieve returns. The risk appetite for each type of principal risk is set based on the amount necessary to meet the
FSA’s capital requirements.
2. Capital management
The Society retains capital within its Unallocated divisible surplus to meet the key objectives:
(i) To ensure financial stability and to support the risks it takes on as part of its business;
(ii) To enable the Group’s strategy to be implemented;
(iii) To give confidence to policyholders and other stakeholders who have relationships with the Group; and
(iv) To comply with capital requirements imposed by its UK regulator, the FSA.
At least annually, these objectives are reviewed and benchmarks are set by which to judge the adequacy of the Group’s capital.
The capital position is monitored against those benchmarks to ensure that sufficient capital is available to the Group. In the event that
sufficient capital is not available, actions would be taken either to raise additional capital or to reduce the amount of risk accepted thereby
reducing the capital requirement through, for example, reinsurance, reducing business volumes or a change in investment strategy.
The Group complied with all externally imposed capital requirements to which it was subject throughout the reporting period.
Capital statement
The tables below set out the capital resources available to the individual life funds and other activities of the Group.
Reconciliation of Available Capital Resources
The following table reconciles the Unallocated divisible surplus presented in the Statement of Financial Position and total available
capital resources calculated on a regulatory basis.
Statements and Reviews
2012 2011
£m £m
Unallocated divisible surplus 878.6 1,055.1
Regulatory adjustments
- Adjustment to reserves to realistic basis 355.1 196.6
- Adjustment to cost of investment in subsidiaries (note 1) (319.8) (362.1)
- Inadmissible assets (note 2) (13.2) (130.4)
900.7 759.2
RNPFN Fund not available to the Group (note 3) 179.5 164.5
Our Businesses
Total Available Capital Resources 1,080.2 923.7
Notes:
1. Represents the difference between the cost of investment in subsidiaries and the value for regulatory purposes net
of the capital requirement.
2. Inadmissible assets include pension scheme, deferred tax and goodwill.
3. RNPFN denotes Royal National Pension Fund for Nurses, which is a ring-fenced fund. The free assets attributable to this fund are
reported as insurance contract liabilities of the Society.
Risk Management
Movements in capital are analysed below:
2012 2011
£m £m
Capital at 1 January 923.7 1,050.9
Effect of investment variations 199.2 23.9
Effect of changes in market conditions (52.6) (9.5)
Corporate Governance
Effect of changes in assumptions 166.3 (13.9)
New business (128.6) (94.3)
Other (27.8) (33.4)
Capital as at 31 December 1,080.2 923.7
Our Accounts