FINANCIAL STATEMENTS
STRATEGIC REPORT
GOVERNANCE
Alternative performance measures The Committee considered the APMs used by the Group and whether these remained appropriate and useful measures. The Committee reviewed the disclosures in the Annual Report and Accounts in relation to the APMs used by the Group and also considered compliance with the guidance on APMs set out by the European Securities and Markets Authority. Going concern As part of the assessment of going concern and longer-term viability for December 2021, the Committee considered the impact of COVID-19 and other uncertainties, which may impact the Group. The Committee also considered various risks in stressed scenarios for the going concern assessment including the risks associated with capital requirements to write anticipated levels of new business which form part of the Group’s business plan; the projected liquidity position of the Group; eligible own funds being in excess of minimum capital requirements in stressed scenarios; and the findings of the Group Own Risk and Solvency Assessment. In addition to risks, the Committee considered the Group business plan approved by the Board in November 2021 and the forecast regulatory solvency position calculated on a Solvency II basis, which includes scenarios setting out possible adverse trading and economic conditions as a result of the COVID-19 pandemic. The Committee concluded based on all the evidence it assessed, that the going concern basis is appropriate. 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 on-going publication by the PRA of supervisory statements that set out its expectations for certain aspects of prudential regulation. The Committee has responsibility for overseeing the recalculation of Transitional Measures on Technical Provisions (“TMTP”). The Committee reviewed and approved changes to the TMTP methodology for inclusion in the SFCR at 31 December 2021 to reflect refinements in the methodology. The implementation of Solvency II in practice has continued to evolve and is expected to do so in the future. There was regular engagement with the PRA on the changes proposed to the TMTP and other matters affecting reporting during the year. Finance transformation 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 the replacement of the general ledger, IFRS 17 implementation and treasury transformation and automation initiatives, which together, are designed to enhance controls, improve efficiency and increase the value that the Finance function provides the business. The Company’s external auditor is PwC. Following a formal tender process in 2019, PwC was formally appointed as the Company’s external auditor by shareholders in 2020. The current lead audit engagement partner is Lee Clarke who has just completed the second year of his five year term. The Committee is responsible for recommending to the Board the appointment, reappointment and removal of the external auditor, taking into account independence, effectiveness, lead audit partner rotation and any other relevant factors, and oversees the tender process for new appointments. Following recommendation by the Committee, the Board intends to propose the reappointment of PwC as the Company’s auditor at the Annual General Meeting on 10 May 2022 to hold office until the conclusion of the next general meeting at which accounts are laid before EXTERNAL AUDIT Appointment
the Company. It believes the independence and objectivity of the external auditor and the effectiveness of the audit process are 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 approves the terms of engagement of the external auditor and remuneration. Throughout the year, the Committee has reviewed regular reports from the external auditor. The Chair and other Committee members have met with the lead audit engagement partner without the presence of management, providing an opportunity to raise any matters in confidence and for open dialogue. In 2021 and to date in 2022, the Committee: • reviewed the 2021 year-end audit work plan including the scope of the audit and the materiality levels adopted by the external auditor; • reviewed the Group’s policy on the use of the external auditor for non-audit work and concluded that further work commissioned during the year was in compliance with the policy. It also evaluated: a) the independence and objectivity of the external auditor having regard to the report from the external auditor describing the general procedures to safeguard independence and objectivity; b) the level, nature and extent of non-audit services provided by the external auditor; c) whether the external audit firmwas the most suitable supplier of the non-audit services; and d) the fees for the non-audit services, both individually and in aggregate; • agreed the terms of engagement and fees to be paid to the external auditor for the audit of the 2021 Annual Report and Accounts; • reviewed recommendations made by the external auditor in their management letters and on the adequacy of management’s response; and • reviewed the external auditor’s explanation of how the significant audit risks in relation to the Annual Report and Accounts were addressed. The Committee considered the quality and effectiveness of the external audit plan and process. Its effectiveness is dependent on appropriate audit risk identification at the start of the audit cycle. The Committee receives a detailed audit plan from PwC, identifying its assessment of these key risks. For the 2021 reporting period, the significant risks identified were broadly in line with 2020. The key risks identified were in relation to the valuation of insurance liabilities, the valuation of loans secured by residential mortgages, recoverability of investment in subsidiaries and the valuation of hard to value investments. The significant judgements made in connection with these risks are set out in the table on page 85 to 86. The Committee challenged the work conducted by the external auditor to test management’s assumptions and estimates around these areas. The Committee assesses the effectiveness of the audit process in addressing these matters through the reporting received from PwC at the interim and year end. In addition, the Committee seeks feedback frommanagement on the effectiveness of the audit process. For the 2021 reporting period, management were satisfied that there had been appropriate focus and challenge on the primary areas of audit risk and assessed the quality of the audit process to be good. The Committee concurred with the view of management. Safeguarding independence and non-audit services The independence of the external auditor is essential to the provision of an objective opinion on the true and fair view presented in the financial statements. Auditor independence and objectivity are safeguarded by various control measures, including limiting the nature and value of non-audit services performed by the external auditor and partner rotation at least every five years.
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