- Part 3: For the preceding part double click ID:nRSe0943Bb
is too a degree dependent on Broker relationships, the
business is exposed to losses arising from "mass lapse" events.
Expense overruns and unsustainable unit cost growth For the closed UK and Dutch businesses, the group is exposed to the impact on profitability of fixed - For the UK business the group pursues a strategy of outsourcing functions with charging structures such that the policy administration cost is more aligned to the book's run off profile.- The Swedish operations assume growth through new business such that the general unit cost trend is positive.- The Dutch business pursues a low cost-base strategy using a designated service company. The cost base is supported by service income from third party customers.- For all three divisions, the group maintains a strict regime of budgetary control.- In the mid/longer term inorganic growth through acquisitions is expected to result in cost synergies and sharing of fixed overheads.
and semi-fixed expenses, in conjunction with a diminishing policy base. For the Swedish open life and
pensions business, the group is exposed to the impact of expense levels varying adversely from those
assumed in product pricing.
Significant and prolonged reduction in the market value of asset holdings A significant part of the company's income and, therefore, overall profitability derives from fees - Wide range of investment funds and managers to avoid significant concentrations of risk- Individual fund mandates are intended to give rise to a degree of diversification of risk.- Established investment governance framework to provide review and oversight of external fund managers, and monitor adherence to investment policy- Operation of controls which limit the level of exposure to any single counterparty and impose limits on exposure by credit rating.- Certain investment management costs are also proportional to fund values thereby reduce in the event of market falls and hence some cost savings arise partially offsetting the impact on income.
received in respect of themanagement of policyholder and investor funds. Fee levels are generally
proportional to the value of funds under management and any material fall in their value will impact
on future income. In addition, for with profits products with guarantees, a sustained fall in the
market value of assets can increase the cost of meeting the guaranteed benefits.The most material risk
is equity risk, as overall investment funds comprise a significant equity content. However, material
market risks also exist if there is a sustained fall in the value of fixed interest holdings, a fall
in the value of property holdings and exchange rate risk in respect of overseas investments held by
policyholders.Income levels may also reduce if policyholders switch from equity based funds to lower
margin, fixed interest funds, as a consequence of a material fall in the market value of equities.
Adverse exchange rate movements against Sterling Exposure to adverse sterling:swedish krona and sterling:euro exchange rate movements (sterling - The group monitors exchange rate movements and would consider the cost/benefit of hedging the currency risk on cash flows when appropriate.- The impact of any adverse currency movements can be reduced by timely movement of cash flows from subsidiaries to group, if appropriate given various other applicable criteria for transfers.
appreciating) arises from cash flows between Chesnara and its overseas subsidiaries and from the
impact on reported IFRS and EcV results which are expressed in Sterling.
Counterparty failure The group carries significant inherent risk of counterparty failure in respect of:- its fixed - Operation of guidelines which limit the level of exposure to any single counterparty and which impose limits on exposure to credit ratings.- In respect of a significant exposure to one major reinsurer, Reassure (formerly known as Guardian), the group has a floating charge over the reinsurer's related investment assets, which ranks the group equally with Reassure 's policyholders.
interest security portfolio;- cash deposits; and- payments due from reinsurers.
Adverse movements in yields on fixed interest securities The group maintains portfolios of fixed interest securities (i) in order to match its insurance - The group maintains rigorous matching programmes to ensure that exposure to mismatching is minimised.- Active investment management such that, where appropriate, asset mixes will be changed to mitigate the potential adverse impact of a decline in bond yields.
contract liabilities, in terms of yield and cash flow characteristics, and (ii) as an integral part of
the investment funds it manages on behalf of policyholders and investors. It is exposed to mismatch
losses arising from a failure to match its insurance contract liabilities or from the fact that sharp
and discrete fixed interest yield movements may not be associated fully and immediately with
corresponding changes in liability valuation interest rates.
Failure of outsourced service providers to fulfil contractual obligations The group's UK life and pensions businesses are heavily dependent on outsourced service providers to - Rigorous service level measures and management information flows under its contractual arrangements.- Continuing and close oversight of the performance of all service providers.- The supplier relationship management approach is conducive to ensuring the outsource arrangements deliver to their obligations.- Ongoing monitoring and testing of business continuity plans and financial assessments of outsourced service providers.- Under the terms of the contractual arrangements the group may impose penalties and/or exercise step-in rights in the event of specified adverse circumstances.
fulfil a significant number of their core functions. In the event of failure by any of the service
providers to fulfil their contractual obligations, in whole or in part, to the requisite standards
specified in the contracts, the group may suffer losses, poor customer outcomes, or reputational
damage as its functions degrade.
- More to follow, for following part double click ID:nRSe0943Bd