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Part 4. Risk management (continued)

4.1 Enterprise Risk Management Framework (continued)

4.1.2 Risk appetite

Risk appetite represents the nature and level of risk that the Board is willing to accept in the pursuit of strategic objectives.

The Board recognises the importance of risk appetite as a key component of setting the strategic direction of the Company, however it is also acknowledged that risk appetite is not something fxed and rigid. Rather, it is dynamic, evolving through time, and responding to a number of different drivers. These drivers include: capital strength; underlying performance of the business; staff capability and capacity; culture; systems capability; competitor behaviour; and exogenous macro-economic forces.

Critically linked to capital management, risk appetite is set at both the Suncorp Group and Line of Business levels, with risk articulated in the form of:

–– quantitative measures: such as appetite and tolerance for volatility in capital and earnings, which are measures that relate directly to business plans, risk limits and stress test scenarios

–– qualitative considerations: which underpin the way risk is managed across the Suncorp Group; and –– zero tolerance: areas where the Board has no appetite for risk.

When approving Suncorp Group risk appetite, the Board considers:

–– the competing requirements and constraints imposed by key stakeholders and the current risk profle of the Group –– the strategic direction of the Suncorp Group and the future capital needs based on these strategies; and –– the potential impact of signifcant and plausible stress scenarios to the Group’s overall fnancial position. An activity was conducted during the year to refne the Suncorp Group’s risk appetite. This activity elicited preferences of the Board when making business decisions to help inform the Suncorp Group’s risk appetite. Each Line of Business has a risk appetite statement relevant to their business, but which is aligned with the parameters set at the Suncorp Group level. In conjunction with capital plans and business plans, Line of Business risk appetite statements and the Suncorp Group risk appetite statement are reviewed and evaluated by the Group CRO, Group CFO and Risk Committee and approved by the Board.

4.1.3 Risk categorisation and policy setting

The universe of risks managed by the Suncorp Group includes strategic, compliance, credit, market, balance sheet, liquidity, insurance and operational risk. Policies, procedures, limits and other controls are in place either at the Group or Line of Business level to manage these risks and align them with the Suncorp Group’s risk appetite, as depicted in the table below.

Counterparty risk

The risk that a borrower or counterparty will not meet its obligations in accordance with agreed terms. Counterparty risk arises in Banking through lending and trading counterparties. In General Insurance and Life, counterparty risk arises as a result of receivables due from policyowners and intermediaries, the placement of reinsurance programs with counterparties and investment in fnancial instruments.

Suncorp Group Counterparty Risk Policy Bank Credit Risk Policy Investment Mandates

(General Insurance & Life)

Market risk

The risk of unfavourable changes in interest rates, foreign exchange rates, equity prices, credit spreads, market volatilities and liquidity. Market risk arises from exposures to interest rates and foreign exchange rates in trading and non-trading activities in Banking. Market risk in General Insurance and Life arises from the risk of adverse movements in interest rates, foreign exchange rates, equity prices, credit spreads and prices of other fnancial contracts, including derivatives.

Traded Market Risk Policy (Bank) Investment Mandates

(General Insurance & Life)

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. Asset and Liability risk arises at a Group level from the structure and characteristics of assets and liabilities and in the mismatch of their repricing dates.

Non-Traded Market Risk Policy (Bank) Investment Mandates

(General Insurance & Life)

Liquidity risk

The risk that the Suncorp Group will be unable to service its cash fow obligations today or in the future. In Banking, liquidity risk arises from mismatches in the cash fows of fnancial transactions or the inability of fnancial markets to absorb the transactions of the Bank. In General Insurance and Life, liquidity risk arises from the requirement to make claim payments in a timely manner.

Suncorp Group Liquidity Policy Investment Mandates

(General Insurance & Life)

Bank Liquidity Policy

Corporate Governance Statement (continued)