Our performance in 2009 - Sappi

Risk philosophy
The Sappi Limited board recognises that risk management
success can only be achieved if all three elements of risk,
namely threat, uncertainty and opportunity, are recognised and
managed in an integrated fashion. The board is also fully
committed to:
complying with the risk management requirements and
mandates of the Code of Conduct of the Second Report of
the King committee on Corporate Governance (King II);
complying with the risk management requirements of the
Sarbanes-Oxley Act;
evaluating its risk management processes in terms of the
COSO framework (adjusted to Sappi’s own needs) to
enhance the overall risk management framework; and
ensuring an integrated risk management system is implemented
throughout its operations.
The group risk management team was mandated by the Sappi
Limited board to establish, coordinate and drive the risk
management process throughout Sappi. It has established a
comprehensive risk management system to identify and
manage significant risks.
Complete risk assessments are conducted at least annually in
our divisions (including Sappi Trading) and for the group, and
are updated every six months. The process uses our strategy
as the base against which to assess risk scenarios. The scope
of the risk assessment includes risks that may lead to a
significant loss, or loss of opportunity, or may affect the current
strategic plan. These risks are identified and analysed, and
risk responses to each individual risk are designed, planned,
implemented and monitored. Risks identified as ‘uncontrollable’,
or those risks where the root causes are outside of the control
of Sappi, are identified. The responses to the risks are classified
under the headings of Transfer, Treat, Tolerate, Terminate, Exploit
and Avoid.
The risk assessments are reviewed by the Sappi group risk
management team during facilitated workshops where the
risks are evaluated and ranked. The resultant risk profiles are
reviewed by our group executive and are reported to the audit
committee at least once every six months and are reported to
the board at least annually.
In addition to the above mentioned risks, the risks and
opportunities that may only manifest over the longer term
(three- to five-year horizon), are identified and reported to the
audit committee at least once every six months and are
reported to the board at least annually.
This methodology ensures that risk assessments are undertaken
at least annually; are reviewed every six months; that identified
risks are prioritised according to the potential impact on the
company; and cost-effective responses are designed and
implemented to counter the effects of identified losses.
2009 annual report 69
Insurance
Sappi follows a practice of insuring its assets against unavoidable
loss arising from catastrophic events. These events include fire,
flood, explosion, earthquake and machinery breakdown. External
risk engineers conduct both underwriting surveys as well as
risk control surveys of all the Sappi facilities. The risk control
survey reports rate and rank the identified risks and make
recommendations to address the probability and/or severity
of these risks. This process is focused primarily on the risk
exposures associated with insurable risks.
Insurance also covers business interruption events which may
result from these events. Specific environmental risks are also
insured. In line with previous years, the board decided not to
take separate cover for losses from acts of terrorism, which is
consistent with current practice in the paper manufacturing
industry. Sappi places the insurance for its plantations on a
stand-alone basis into international insurance markets. The
impact of widespread fires on our plantations this year was
substantially less than in 2007 and 2008.
Sappi has a global insurance structure and the bulk of its
insurance is placed with its own captive insurance company in
Stockholm, Sweden; Sappisure Försäkrings AB, which in turn
reinsures those risks outside the company’s self-insurance
capabilities in the global reinsurance markets.
Sappi has negotiated the renewal of its 2010 insurance cover
at rates similar to those of 2009. Self-insured retention for any
one property damage occurrence has remained at US$25 million,
with an unchanged annual aggregate of US$40 million. For
property damage and business interruption insurance, costeffective
cover to full value is not readily available. However, the
directors believe that the loss limit cover of US$1 billion should
be adequate for what they have determined as the reasonable
foreseeable loss for any single claim.
Insurance cover for credit risks currently applies on a regional
basis to Sappi’s Northern American, European and South
African domestic trade receivables.
governance