Annual report 2021 KLP Group, Sustainability and KLP

The Board of Directors bears the overall responsibility for ensuring that KLP has established appropriate and effective processes for risk management and internal control. The Board determines the overall risk appetite and ensures that the management of significant risks is appropriately organised.This also means maintaining independent monitoring to ensure that the risks are handled in accordance with the overall risk appetite.

It is the responsibility of the Group CEO to ensure that the Board’s policies for management and control are implemented in the business. KLP has a risk management committee which acts as an advisory body to the CEO on all matters relating to KLP’s total risk exposure. The committee addresses the general willingness to take risks, the overall risk strategy and risk exposure, broken down into all the major risk factors in the parent company’s business, including owner risk associated with the subsidiaries.

KLP’s risk management function monitors the company’s total risk and risk handling, and ensures that the risk management committee and the Board of Directors of KLP are always sufficiently informed of the Group’s overall risk profile.

The risk management function assesses whether the assumptions used in the company’s risk calculations are reasonable, and assists the management in refining and implementing an overall framework for KLP’s risk management, ensuring that this complies with external and internal requirements.

KLP’s compliance function assists the management by ensuring that KLP does not incur any sanctions, financial losses or loss of reputation because of failure to comply with laws, regulations and standards (“compliance risk”).

The compliance function assists the management in identifying, assessing and reporting on compliance risks and gives advice to management, the Board and the staff on compliance with the relevant rules for the business.

The actuarial function is responsible for coordinating the calculations of the technical provisions, and ensuring that methods, models and assumptions used in calculating technical provisions are appropriate.

Best estimates should also be compared with KLP’s past experience.

The data used in the calculations should be assessed in terms of adequacy and quality.The actuarial function should also comment on KLP’s re-insurance programme and contribute to the effective implementation of the risk management system. The risk management, compliance and actuarial functions make their own independent assessments of the risk level in the company and the adequacy of established risk-reduction measures.

The company’s internal audit group carries out independent assessments of actuarial, financial and operational risks. After discussion with the Board of Directors and management, key risk areas are evaluated and tested with a view to satisfactory management and control. The internal auditors’ reports and recommendations are presented to, and followed up by, the management and the Board. Internal audit helps to give the Board and management confidence that the company has appropriate risk management, internal control and corporate governance.

Roles and responsibilities related to risk management and internal control in KLP can be summed up with a simple model of corporate governance providing three lines of defence. The primary responsibility for risk management lies in the first line, which is made up of managers and staff in the business areas. The compliance, risk management and actuarial functions are defined as second-line functions in KLP. The second line monitors, assesses, advises on, aggregates and reports on the risk situation. The third line of defence includes independent confirmation from the internal auditors that the first and second lines of defence are working properly. In addition to the three internal lines of defence, the external auditors provide independent feedback to the company’s owners.

KLP’s managers, at all levels, constantly monitor the risks associated with their target area, provide for the creation and implementation of key controls and follow up on any unwanted incidents within their area. The second-line functions assist the managers, monitor the risk level in KLP’s key risk areas, and focus especially on risk areas that are not being handled in line with the Board’s risk appetite.

KLP publishes four quarterly reports in addition to the annual report. KLP’s quarterly and annual reports are drawn up by the group accounts department, which reports to the CFO. The work is divided in such a way that valuations of assets and liabilities are made outside the group accounts department.

Before each set of accounts is presented, meetings are held between the group accounts department and central technical functions to identify risk factors, market issues etc. that could have a bearing on the accounts. Reconciliation and control procedures have been established to assure the quality of financial reporting. KLP’s business is required by law to be audited, and external auditors carry out a full audit of the annual accounts.

The Board of Directors of KLP has appointed its own audit committee to prepare for the Board’s discussion of the accounts, with the emphasis on monitoring the financial reporting process and the key principles and valuations underlying the accounts.The company’s external auditors take part in the audit committee’s discussion of the accounts. The audit committee assesses and monitors the independence of the auditors. In addition to quarterly and annual accounts, monthly operational reports are produced with comparisons against budgets and analyses of developments.