Strategic Report
Financial Statements
Governance
101
The Committee reviewed the changes arising from the PS10/24 reform, legislation for which came into force as of 31 December 2024, and concluded that the Fundamental Spread add-ons within the Matching Adjustment portfolio appropriately reflect compensation
FRC REVIEW REVIEWS PERFORMED ¹
for the risks retained by the Group. Finance transformation
The FRC have carried out a review of the 2023 Annual Report in accordance with Part 2 of the FRC Corporate Reporting Review Operating Procedures. In addition, the Group was also included in the sample for the FRC thematic review “IFRS 17 ‘Insurance Contracts’ Disclosures in the First Year of Application”. OUTCOME OF REVIEWS The thematic review of IFRS 17 disclosures, published in September 2024, identified three of the Group’s disclosures as examples of good practice. Whilst no queries were identified from the Corporate Reporting Review, the FRC identified areas of improvement regarding disclosure of Alternative Performance Measures (“APMs”) and Task Force on Climate-Related Financial Disclosures (“TCFD”), which have been addressed in this report. 1 SCOPE AND LIMITATIONS OF FRC REVIEWS The FRC review was based solely on the information contained in the Group Annual Report and does not benefit from detailed knowledge of the Group’s business or an understanding of the underlying transactions entered into. It is, however, conducted by staff of the FRC who have an understanding of the relevant legal and accounting framework. The correspondence received by the Group from the FRC provides no assurance that the Annual Report is correct in all material respects; the FRC’s role is not to verify the information provided to it but to consider compliance with reporting requirements. Correspondence provided to the Group from the FRC was written on the basis that the FRC (which includes its officers, employees and agents) accepts no liability for reliance on it by the Group or any third party, including but not limited to investors and shareholders. Going concern As part of the assessment of going concern and longer-term viability for December 2024, the Committee considered the Group business plan approved by the Board in November 2024 and the forecast regulatory solvency position calculated on a Solvency II basis, which includes stretch and adverse scenarios in addition to the primary central plan. In addition, the Committee considered factors including further credit rating downgrades, reductions in interest rates, and other uncertainties which may impact the Group. The Committee also considered various risks under stressed scenarios for the going concern assessment including the risks associated with capital requirements necessary to write anticipated levels of new business which form part of the Group’s business plan; the projected liquidity position of the Group and liquidity stresses; the findings of the Group Own Risk and Solvency Assessment (“ORSA”); and the risk of regulatory intervention. Regulatory reporting oversight The Committee receives regular updates on the Group’s regulatory reporting matters, including the oversight and preparation of the Group’s annual SFCR. The Committee also receives regular updates relating to the ongoing publication of supervisory statements by the PRA that set out its expectations for certain aspects of prudential regulation. Further information on supervisory statements is included in the Risk Management section on page 102. As part of the Solvency requirements, the Committee has responsibility for overseeing the recalculation of the Transitional Measures on Technical Provisions (“TMTP”). During the year, it reviewed and approved changes to the TMTP methodology for inclusion in the SFCR as at 31 December 2024 to reflect refinements in the methodology. There was regular engagement with the PRA on the changes proposed to the TMTP and other matters affecting reporting.
During the year, the Committee received reports on progress against key milestones in the Group’s Finance Transformation Programme. The Committee provided oversight on various workstreams, including implementation of Cloud-computing technology, monitoring of the Financial Reporting Controls Framework, activities aimed at accelerating the reporting Working Day timetable and Treasury transformation, which together have been designed to enhance controls and create a scalable Finance function that delivers increased value for the business. EXTERNAL AUDIT APPOINTMENT The Company’s external auditor is PwC, formally appointed by shareholders in 2020. During the year, Philip Watson was appointed as the lead audit engagement partner, following rotation of the previous engagement partner, Lee Clarke. The Committee is responsible for recommending to the Board the appointment, reappointment and removal of the external auditor, considering factors such as independence, effectiveness, and lead partner rotation, and overseeing the tender process for new appointments. After receiving a recommendation from the Committee, the Board plans to propose the reappointment of PwC as the Company’s auditor at the 2025 Annual General Meeting on 8 May 2025, to hold office until the conclusion of the next general meeting at which accounts are laid before the Company. The Committee believes the independence, objectivity of the external auditor, professional scepticism and the effectiveness of the audit process, is safeguarded and remain strong. The Committee confirms it has complied with The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Process and Audit Committee Responsibilities) Order 2014, published by the Competition and Markets Authority on 26 September 2014. There are no contractual obligations restricting the Group’s choice of external auditor. OVERSIGHT The Committee is responsible for approving the terms of engagement for the external auditor. Throughout the year, the Committee has reviewed regular reports from PwC and held private meetings with the lead audit engagement partner without management present, allowing for confidential discussions and open dialogue. Additionally, private meetings were regularly held between the lead audit engagement partner and the Chair of the Committee. In 2024 and to date in 2025, the Committee: • reviewed the 2024 audit plan including the scope of the audit and the materiality levels adopted by the external auditor for the year end audit and interim review; • reviewed the effectiveness of the external audit process; • agreed the terms of engagement and fees to be paid to the external auditor for the audit of the 2024 Annual Report; • reviewed the external auditor’s explanation of how the significant risks related to financial reporting were addressed; • reviewed reports from the external auditor regarding findings from their audit work, in particular conclusions regarding significant judgements and key assumptions in the valuation of amounts reported within the financial statements;
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