STRATEGIC REPORT
FINANCIAL STATEMENTS
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 2022, the Committee considered the impact of the current conflict in Ukraine 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; further credit downgrades and property fall sensitivity; interest rate sensitivity; the findings of the Group Own Risk and Solvency Assessment; and the risk of regulatory intervention. In addition to risks, the Committee considered the Group business plan approved by the Board in November 2022 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 macro economic and geopolitical uncertainties. 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 by the Prudential Regulation Authority (“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 2022 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, implementation of the Financial Reporting Controls Framework, IFRS 17 implementation, and Treasury transformation and automation initiatives, which together, were designed to enhance controls and create a scalable Finance function that delivers increased value for 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 third 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 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 2023 Annual General Meeting on 9 May 2023 to hold office until the conclusion of the next general meeting at which accounts are laid before the Company. It believes the independence and objectivity of the external auditor and the effectiveness of the audit process are safeguarded and remain strong. EXTERNAL AUDIT Appointment
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 of the external auditor. Throughout the year, the Committee has reviewed regular reports from the external auditor and has 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. Private meetings were also held with the lead audit engagement partner and the Chair of the Committee on a regular basis. In 2022 and to date in 2023, the Committee: • reviewed the 2022 year end audit work plan including the scope of the audit and the materiality levels adopted by the external auditor; • reviewed the recommendations made by the external auditor in their internal control report and considered the adequacy of management’s response; • received an update from the external auditor on their IFRS 17 audit activities and findings on the key IFRS 17 methodology judgements; • 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 firm was 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 2022 Annual Report and Accounts; and • reviewed the external auditor’s explanation of how the significant risks to accounts were addressed. The Committee considered the quality and effectiveness of the external audit 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 2022 reporting period 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, the valuation of complex investments, credit default assumptions and the inclusion of IAS 8 disclosures on the expected impact of the implementation of IFRS 17. The significant judgements made in connection with these risks are set out in the table on page 88. 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 from management on the effectiveness of the audit process. For the 2022 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.
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