Annual Report 2023KLP Group, Sustainability Report and KLP

To ensure that KLP delivers secure and competitive financial and insurance services to its customers, and to safeguard the interests of the owners and the company’s assets and values, a system of risk management and internal control has been established.

The Board of Directors of KLP has adopted a policy for risk management and a policy for operational risk and internal control. At KLP, good risk management and internal control are all about ensuring effective goal attainment. By identifying and analysing relevant risks, the company can take effective measures to manage and control risks that could hinder goal attainment. This is a continuous process, and feeds into all decisions on significant changes in the business.

Risk management also includes sustainability risk. KLP’s guiding principle is that the management of sustainability risk should follow the ordinary division of roles and established strategic and risk management processes.

Roles and responsibilities

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 material 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 risk in KLP itself and in the Group. Among other things, the committee assesses the overall risk appetite and risk exposure broken down across all of the major risk factors in the company’s operations, including ownership risk for subsidiaries. The committee also deals with the strategies for the most important risk categories, and the overall risk.

Organisation of the risk management system

The risk management system at KLP is organised on the principle of 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 control functions in the second line monitor, assess, advise on, aggregate and report on the risk situation.

The third line of defence provides independent confirmation 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.

Risk monitoring

KLP’s managers, at all levels, constantly monitor the risks associated with their target area, provide for the creation and implementation of controls and follow up on any unwanted incidents within their area. The second-line functions monitor, assess, report and make recommendations relating to the risk situation. The second-line functions focus especially on the level of risk for KLP’s major risk areas in relation to the Board’s risk appetite.

More about the second and third-line control functions

The second-line functions consist of the risk management, compliance and actuarial functions, and the third line consists of Internal Audit. These make independent and impartial assessments of the level of risk within the company and assess whether established risk mitigation measures are adequate, in accordance with established guidelines for each of the functions.

KLP’s Risk Management function monitors the company’s total risk and risk handling, and ensures that management, 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.

The Compliance function is an independent control function that identifies, assesses and monitors KLP’s key compliance risks, following a risk-based approach. Through reporting, advice and recommendations on rules, the Compliance function assists the management and the Board 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.

The Actuarial function assists the management in ensuring that methods, models and assumptions used in the calculation of technical provisions are appropriate The Actuarial function makes assessments of the data used in the calculations to ensure adequacy and quality. The Actuarial function comments on KLP’s reinsurance programme and contributes to the effective implementation of the risk management system.

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. The internal auditors submit an overall report to the Board each year on KLP’s risk management, internal control and corporate governance.

Organisation and implementation of financial reporting

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 an 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.