principles and practices of financial management. - Legal & General

PRINCIPLES AND PRACTICES OF FINANCIAL MANAGEMENT – REPORT ON COMPLIANCE FOR 20092INTRODUCTIONThe Board of Legal & General Assurance Society (the Society Board) published its Principles andPractices of Financial Management (PPFM) for its with profits business on 30 April 2004. RevisedPPFMs were published on 29 June 2005, 29 June 2007 and 31 December 2007.Each year, the Society Board must report to with profits policyholders on compliance with itsobligations relating to the PPFM. This report covers governance arrangements; exercise of discretion;compliance with the PPFM; competing or conflicting rights, interests and expectations; and includesstatements from the independent assessor and the With Profits Actuary.The report covers the period from 1 January 2009 to 31 December 2009 inclusive, plus the bonusdeclaration for the year ending 31 December 2009, which was announced on 18 February 2010.Defined terms in this report have the meaning set out in the PPFM published on 31 December 2007.GOVERNANCE ARRANGEMENTSThe following statements relate to the governance arrangements and systems and controls in placeover the period 1 January 2009 to 31 December 2009 and at the time of the 18 February 2010 bonusdeclaration.The Legal & General Group Board has overall responsibility for the Group’s internal control systemsand for monitoring their effectiveness. Implementation and maintenance of the internal controlsystems are the responsibility of the executive directors and senior management. The performanceof internal control systems was reviewed regularly by the Audit Committee, the Group Risk andCompliance Committee (GRCC) and the boards and risk committees of subsidiary companies,including the Society Board. The Group’s control policies and procedures were set out in an operatingmanual, which was regularly updated and distributed throughout the Group. Executive directors wererequired to confirm compliance with these policies.The GRCC met in February, June, September and December 2009 and was chaired by the Group ChiefExecutive. All executive directors of the Group were members. In addition, senior managers drawnfrom across the Group were regular attendees. Its primary role was to ensure there were appropriateprocesses in place across the Group to identify, assess, monitor and control critical risks facing theGroup, including regulatory risks.In order to provide more detailed management of risks, the following sub-committees of the GRCCwere in place:Group Capital Committee – to assess the capital requirements (including the risk-based capitalrequirements) of the Group; to monitor the sources of capital available to meet these requirementsand oversee the allocation of capital to firms.Group Counterparty Credit Committee – to set limits for the Group’s exposure to any singlecounterparty failure and to manage exposures within these established limits.Group Investment and Market Risk Committee – to ensure that investments supporting the UKinsurance business were appropriately managed.Group Insurance Risk Committee – to ensure that products for the UK businesses were appropriatelydesigned and priced, that product legal risks were assessed and that appropriate processes were in placeto identify, assess, monitor and, where deemed appropriate, reinsure risk.Group Operational Risk Assessment Committee – to ensure consistency in approaches to operationalrisk management across the Group.Bonus declaration decisions were made by the Society Board. These decisions were subject toratification by the Legal & General Group Board.