Page 141 - Suncorp_Review

Suncorp Group Limited Annual Report 2010/11 139

The key risks addressed by the ERMF are defned below.

KEY RISKS DEFINITION

Counterparty risk (Credit risk) The risk that a counterparty will not meet its obligations in accordance with agreed terms.

Liquidity risk The risk that the Suncorp Group will be unable to service its cash fow obligations today or in the

future.

Market risk The risk of unfavourable changes in foreign exchange rates, interest rates, equity prices, credit

spreads, commodity prices, and market volatilities.

Asset and liability risk The risk to earnings and capital from mismatches between assets and liabilities with varying

maturity and repricing profles and from mismatches in term.

Insurance risk The risk of fnancial loss and the inability to meet liabilities due to inadequate or inappropriate

insurance product design, pricing, underwriting, concentration risk, reserving, claims management and/or reinsurance management.

Operational risk The risk of loss resulting from inadequate or failed internal processes, people and systems or

from external events.

Compliance risk The risk of legal or regulatory sanctions, fnancial loss, or loss to reputation which the Suncorp

Group may suffer as a result of its failure to comply with all applicable regulations, codes of conduct and good practice standards.

Strategic risk The risk of loss arising from uncertainty about the future operating environment, including

reputation, industry, economic and regulatory environment, branding, crisis management, and partners and suppliers.

The Suncorp Group is exposed to mainly the following categories of market risks:

CATEGORIES OF MARKET RISK DEFINITION

Foreign exchange (FX) risk The risk of an asset or liability’s value changing unfavourably due to changes in currency

exchange rates.

Interest rate risk The risk of loss of current and future earnings and unfavourable movements in the value of

interest-bearing assets and liabilities from changes in interest rates.

Equity risk The risk of loss in current and future earnings and unfavourable movement in the value of

investment in equity instruments from adverse movements in equity prices.

Credit spread risk Credit spread is the difference in yield due to difference in credit quality. This is the risk of loss

in current and future earnings and unfavourable movement in the value of investments from changes in the credit spread as determined by capital market sentiment or factors affecting all issuers in the market and not necessarily due to factors specifc to an individual issuer.

Further discussions on the application of Suncorp Group’s risk management practices are presented in the following sections: –– Note 34.2 Suncorp Group insurance risk management

–– Notes 34.3 to 34.6 Risk management for fnancial instruments: credit, liquidity and market risks applied by each of the Suncorp Group’s business areas; and

–– Note 34.7 Derivative fnancial instruments and hedging.