AVBOB Integrated Annual Report 2018

an Own Risk and Solvency Assessment report. In terms of Pillar I requirements, the Society remains extremely well capitalised. Pillar II and III – Risk and governance and statutory reporting The key requirement for Pillar II is the sound and prudent management of the business. Governance, the management of risk and control, sits at the heart of the Pillar II requirements. As part of the SAM project, a gap analysis was used to develop an action plan to address the gaps as identified. The Risk Taxonomy, Risk Strategy and Risk Appetite statements were updated. The charters of the Board Committees as well as the policies for Governance, Outsourcing, Internal Control, Investments, Remuneration, ORSA, Data Quality, ERM and Asset-liability and Liquidity Management had been updated and were approved by the Board. Each ORSA report from 2014 to 2017 was approved by the Board for submission to the Regulator. The Pillar III reporting process was streamlined to ensure that the Society will meet the stringent reporting deadlines and all reporting requirements under the Insurance Act. Following the conclusion of the SAM project, management is confident that the Insurance Act and SAM requirements for 2019 will be met. Capital Management The Group’s objectives when managing capital is to safeguard the Society’s ability to continue as a going concern to provide policyholder benefits. The Society ensures that regulatory capital requirements are met at all times and that it is capitalised in line with the Society’s risk appetite. The Group manages capital using the capital adequacy requirement ratio (statutory capital) and by ensuring that sufficient liquid assets are available if required and that the available investments are of a suitable quality. The capital adequacy requirement is the minimum amount by which the value of assets must exceed the value of the policyholder liabilities as required by the Regulator. As a Mutual Society, the Society does not have access to capital markets and consequently targets to keep excess assets as a multiple of the capital adequacy requirement. If the ratio decreases, following for instance a market value shock or other catastrophe, the Board has approved planned management actions which allow the Society to remove non-vesting and special bonuses. The Society’s capital adequacy ratio is 5,1 times the requirement for the 2018 and 4,8 times for the 2017 financial year. The Society did not experience an event which negatively impacted its capital adequacy ratio to such an extent that the planned management actions had to be invoked. The Society and the Group are exposed to financial risk through their financial assets, financial liabilities, reinsurance contracts and insurance liabilities. In essence, the financial risk is the possibility that adverse changes in the market will result in the Society not being able to meet its obligations. The most important elements of the financial risk include market risk (equity risk, interest rate risk and currency risk), credit and counterparty risk and liquidity risk. The Society manages financial assets within an asset distribution analysis that was developed to maximise long-term investment yield, while taking into consideration the nature of its liabilities. The Society outsources the management of its investments to six leading asset managers. These asset managers are expected to manage their portfolios in accordance with agreed-upon mandates. In addition, the total asset distribution of the Society is managed in accordance with the guidelines set 83