benefits available to policyholders. These financial risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The primary risk that the Group faces arises from the impact of volatility in equity prices and interest rates on the value of assets and liabilities. The Group manages exposure to investment volatility as part of a regular review of the assets held to back the insurance policy liabilities using asset liability modeling techniques. The asset-liability risk management policy allows for asset liability modeling to drive the optimal long-term asset class composition. This approach ensures the expected return on assets is sufficient to fund the required return on the risk reserves and to maximise the rate of return on the balance of the policy liabilities subject to acceptable levels of risk. Asset class composition is reviewed on a quarterly basis with the respective asset managers. Credit and counterparty risk Credit risk refers to the risk of loss arising from the inability of the counterparty to service its debt obligations. The Group’s key areas of exposure to credit risk include: • debt securities and cash and cash equivalents; • amounts due from insurance and investment contract policyholders; • amounts due from intermediaries; • reinsurers’ share of insurance liabilities; • amounts due from reinsurers in respect of payments already made to policyholders; and • amounts due from insurance and other receivables. The nature of the Group’s exposures to credit risk and its objectives, policies and processes for managing credit risk have not changed significantly from the prior period. In monitoring credit risk, amounts receivable are grouped according to their credit characteristics. The Group also limits its exposure to credit risk by only investing in liquid debt securities and only with counterparties that have a credit rating as set out below as well as only investing with reputable banks which are assessed quarterly. 39. Management of risks (continued) 39.3 Financial risk management (continued) 179 Notes to the Consolidated Financial Statements
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