Compliance with Code Provisions
The Board
Meetings with Non-Executive Directors
Board Performance Evaluation
Audit and Internal Control
Shareholder Communication
Board Committees
Audit and Risk Committee
Remuneration Committee
Nomination Committee
Beazley plc Registered Office Details

The board confirms that the company and the group have complied with the provisions set out in the 2014 version of the Financial Reporting Council’s UK Corporate Governance Code (the Code) throughout the year ended 31 December 2016. The Company has not, however, tendered for audit services in the past 10 years as explained on page 87.

The Code can be viewed on the www.frc.org.uk website. The governance section, together with the remuneration report, describes how we have applied the main principles of the Code and complied with its detailed provisions.

The board considers that the annual report and accounts, taken as a whole, are fair, balanced and understandable; and that they provide the information necessary for shareholders to assess the company’s performance, business model and strategy. The company’s auditors have reviewed the company’s compliance to the extent required by the UK listing rules for review by auditors of UK listed companies.

The board is accountable to the company’s shareholders for good governance and the statements set out below describe how the main principles identified in the UK Corporate Governance Code have been applied by the group.

The board has a schedule of matters reserved for its decision. This includes: inter alia, strategic matters; statutory matters intended to generate and preserve value over the longer term; approval of financial statements and dividends; appointments and terminations of directors, officers and auditors; and appointments of committees and setting of their terms of reference. It is responsible for: the review of group performance against budgets; approving material contracts; determining authority levels within which management is required to operate; reviewing the group’s annual forecasts; and approval of the group’s corporate business plans, including capital adequacy and the Own Risk Solvency Assessment. The board is responsible for determining the nature and extent of the principal risks it is willing to take in pursuing its strategic objectives. To this end, the board is responsible for the capital strategy, including the group’s Solvency II internal model.

The board consists of a non-executive chairman, Dennis Holt, together with seven independent non-executive directors, of whom George Blunden is the senior independent non-executive director, and five executive directors, of whom Andrew Horton is chief executive. The non-executive directors, who have been appointed for specified terms, are considered by the board to be independent of management and free of any relationship which could materially interfere with the exercise of their independent judgement.

George Blunden, who has served a term in excess of six years, continues to bring strong challenge and insight to the board and its committees and his appointment was extended for a further three years at the 2016 AGM, subject to annual reappointment at the AGM. The nomination committee carried out a rigorous assessment of George Blunden’s continuing independence, taking into account the length of his tenure on the boards of both Beazley plc and Beazley Furlonge Ltd, and concluded that he remained independent. As senior independent director George will, if required, deputise for the chairman. He is available to talk to shareholders if they have any issues or concerns or if there are any unresolved matters that shareholders believe should be brought to his attention.

John Sauerland, Christine LaSala and Robert Stuchbery were appointed to the board during 2016 on 5 May, 1 July and 11 August respectively. Rolf Tolle, Padraic O’Connor and Vincent Sheridan resigned from the board on 11 March 2016, 24 March and 31 December 2016 respectively.

In accordance with the code, the board has recommended that all directors should submit themselves for election or re-election on an annual basis and as such all directors will stand for election or re-election at the forthcoming AGM.

Biographies of current board members appear in the ‘board of directors’ section of this report. The biographies indicate the high level and wide range of business experience that are essential to manage a business of this size and complexity. A well defined operational and management structure is in place and the roles and responsibilities of senior executives and key members of staff are clearly defined.

View full report.

The full board meets at least five times each year and more frequently where business needs require. In 2016, in addition to the five regular board meetings, there were further meetings to consider the Q3 2016 interim statement and director changes. Attendance at the meetings was high. All the directors also attend an annual strategy day. The remuneration, nomination, and audit and risk committees had additional ad hoc meetings with full attendance. The chairman holds meetings as required with the non-executive directors without the executive directors being present.

Under the UK Corporate Governance Code, the board is required to undertake formal and rigorous evaluation of its own performance and that of its committees and individual directors, and for this to be externally facilitated every three years. In 2015 an assessment of the effectiveness of the board and its committees was externally facilitated by Deloitte LLP. The board considered the results of the assessment and confirmed that there were no significant matters to be addressed. A self-assessment of the board and its committees was carried out in 2016 as described in the nomination committee report on page 90.

View the individual attendance by directors at regular meetings of the board and of committees

The respective responsibilities of the directors and the auditors in connection with the accounts are explained in the statement of directors’ responsibilities and the independent auditor’s report, together with the statement of the directors on going concern in the directors’ report.

The board confirms that there is a continuous process for identifying, evaluating and managing any significant compliance issues and risks facing the group. All significant known risks are captured in the Beazley risk register and monitored on a monthly basis. The risk register and the related internal capital assessment process are subject to review, challenge and approval by the board.

The board agreed the 2016 risk appetite for the group at the end of 2015 and, throughout 2016, the board has considered and acted upon the information presented to it in order to make risk based decisions against the 2016 risk appetite. Key components of the risk management framework include monthly control self assessments and six monthly risk assessments, with ad hoc risk assessments being conducted when required. These matters have been considered by the executive risk and regulatory committee each month and the audit and risk committee and board quarterly. In addition, the board has considered the quarterly Own Risk and Solvency Assessment report in the past year. This risk management framework has provided the board with an ongoing process for identifying, assessing, monitoring and managing the risks to the company, and accords with the UK Financial Reporting Council’s ‘Guidance on Risk Management, Internal Control and Related Financial Business Reporting’.

The board is responsible for the group’s system of internal control and for reviewing its effectiveness. However, such a system can only provide reasonable, not absolute, assurance against material misstatement or loss. The system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives within the risk appetite set by the board.

The key procedures that the board has established to ensure that internal controls are effective and commensurate with a group of this size include:

  • day-to-day supervision of the business by the executive directors;
  • review and analysis by the various group committees of standard monthly, quarterly and periodic reporting, as prescribed by the board;
  • review of financial, operational and assurance reports from management; and
  • review of any significant issues arising from internal and external audits.

The board therefore confirms that it has, during 2016, reviewed the effectiveness of the group’s risk management and internal controls (including financial, operational and compliance controls), which have been in place throughout the year under review and continue to operate up to the date of approval of the annual report and accounts.

Further information on the role of the audit and risk committee is set out on page 83 and further information on risk management at Beazley is set out in the risk management report.

Read our Internal Audit Charter here

The company places great importance on communication with shareholders. The annual report and accounts and the interim report are available from www.beazley.com and, where elected or on request, will be mailed to shareholders and to stakeholders who have an interest in the group’s performance. The company responds to individual letters from shareholders and maintains a separate investor relations centre within the existing www.beazley.com website, as a repository for all investor relations matters.

There is regular dialogue with institutional shareholders, as well as general presentations, attended by executive directors, after the preliminary and interim results. The board is advised of any specific comments from institutional investors, to enable it to develop an understanding of the views of major shareholders. All shareholders have the opportunity to put forward questions at the company’s annual general meeting.

The company has the authority within its articles to communicate with its shareholders using electronic and website communication and to allow for electronic proxy voting.

The company operates through the main board, the managing agent board, the board of the reinsurance company (that accepts reinsurance premiums ceded by the corporate member, Beazley Underwriting Limited) and their board committees. The group has established properly constituted audit and risk, remuneration and nomination committees of the board. There are terms of reference for each committee and details of their main responsibilities and activities in 2016 are set out on pages 83 to 91. The board has also appointed an executive committee that is chaired by Andrew Horton and acts under delegated authority from the board. The executive committee meets on a monthly basis and are responsible for managing all activities of the operational group. The governance framework of the main board and its committees is shown in the diagram on the following page.

The roles of the chairman and chief executive are separate with each having clearly defined responsibilities. They maintain a close working relationship to ensure the integrity of the board’s decision making process and the successful delivery of the group’s strategy. The board evaluates the membership of its individual board committees on an annual basis and the board committees are governed by terms of reference which detail the matters delegated to each committee and for which they have authority to make decisions. The terms of reference for the board committees can be found on www.beazley.com.

The Beazley plc matters reserved for the board can be found here.

The board has delegated oversight of audit and risk matters to the audit and risk committee which currently comprises Angela Crawford- Ingle (committee chairman), George Blunden, Catherine Woods, Christine LaSala and Bob Stuchbery.

During the year the committee has remained focused on its key responsibilities relating to financial reporting, internal controls, compliance and risk management; working collaboratively with management and internal and external assurance providers to make an effective assessment of the governance framework. The committee has received and challenged a variety of information in order to ensure that the internal risk and control framework is appropriate for the group. The control and risk environment is continuing to change and the committee is working actively with the group to ensure a robust internal control and risk environment is maintained.

At the same time we have considered a number of significant issues including the increasingly complex regulatory reporting environment, potential impact of the UK referendum, business growth in the US primarily in our cyber book and our proposed tender strategy to rotate our current auditors.

The committee has seen a number of changes during the year. Vincent Sheridan and Rolf Tolle resigned and I would like to take this opportunity to thank them for their contribution.

We were able to bring on board Catherine Woods, Christine LaSala and Bob Stuchbery who bring a diverse range of experience and insight to the committee. Throughout the year we maintained continuity within the committee and this enabled us to carry out our full range of responsibilities.

Details of the members’ financial, accounting and other relevant financial experience are given in their biographies under ‘board of directors’ on pages 74 to 75.

The audit and risk committee is required to meet at least quarterly, with meetings scheduled at appropriate intervals in the reporting and audit cycle. Additional meetings are held as required. In 2016 there were a total of six meetings, reflecting the workload of the committee during the year.

Only members of the committee have the right to attend meetings; however standing invitations are extended to the chief executive officer, the group finance director, the chief underwriting officer, the chief risk officer, the head of internal audit and the head of compliance. Other non-members may be invited to attend all or part of any meeting as and when appropriate. The company secretary acts as secretary to the committee. The internal and external auditors attend committee meetings and regularly meet in private with the committee. In addition the chairman of the audit and risk committee has regular contact with the external and internal auditors throughout the year and members of the committee met individually with the Central Bank of Ireland and the Prudential Regulation Authority during 2016.

As part of the appointments process the nomination committee reviewed the membership of the committee during the year. Taken as a whole, the committee has an appropriate balance of skills, including recent and relevant financial experience as required by the UK Corporate Governance Code. All committee members are independent non-executives.

There is representation from the plc audit and risk committee on the group’s regulated entity audit and/or risk committees which further demonstrates our proactive approach to understanding our control and risk environment at all levels of the organisation.

Responsibilities of the committee

The committee’s main audit-related responsibilities are detailed in the section below:

The primary role of the audit and risk committee in relation to financial reporting is to monitor the integrity of the financial statements of the group and any formal announcements relating to the group’s financial performance, and to review significant financial reporting judgements. The committee has continued to approach its review of the annual report as a whole with focus on behalf of the board on considering the concept of ‘fair, balanced and understandable’. We have challenged ourselves to ensure the key messages about the performance of the business are delivered in a manner consistent with our own understanding and interpretation of the information we receive.

Specific committee responsibilities are set out below:

a) Financial and narrative reporting

  • monitor the integrity of the company’s financial statements and any other formal announcements relating to the company’s financial performance;
  • review the annual report before submission to, and approval by, the board, and before clearance by the external auditors. This covers critical accounting policies, significant financial reporting judgements, the going concern assumption, compliance with accounting standards and other requirements under applicable law and regulations and governance codes applicable to the financial statements; and
  • advise the board on whether, taken as a whole, the annual report is fair, balanced and understandable and provides the information necessary for shareholders to assess the company’s performance, business model and strategy.

b) Internal control and risk management systems

  • review the company’s internal financial controls and the company’s internal control and risk management systems; advise the board on the company’s risk management framework, which includes the risk management objectives, risk appetite, risk culture and assignment of risk management responsibilities;
  • review risk reports and management information to enable a clear understanding of the key risks and controls in the business;
  • review any breaches of risk appetite and the adequacy of proposed action;
  • review the identification of future risks, including considering emerging trends and future risk strategy; and
  • review the remit of the risk management function and ensure it has adequate resources and appropriate access to information to enable it to perform its function effectively.

c) Compliance

  • review the arrangements by which employees of the company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other areas;
  • review procedures and systems relating to fraud detection, prevention of bribery and money laundering; and
  • review the regular reports from the compliance officer and keep under review the adequacy and effectiveness of the group’s compliance function.

d) Internal audit

  • recommend the appointment or termination of appointment of the head of internal audit;
  • monitor and review the effectiveness of the company’s internal audit function; and
  • review and approve the internal audit plan, charter and ensure the function has the necessary resources and access to information.

e) External audit

  • recommend to the board, to be put to the shareholders for approval, the appointment, reappointment and removal of the external auditors;
  • oversee the relationship with the external auditor including planning, reviewing of findings and assessing overall effectiveness; and
  • approve auditor’s remuneration for audit, assurance and non-audit services.

f) Actuaries

  • recommend to the board the appointment and termination of any firm of consulting actuaries used for the provision of Syndicate Actuarial Opinions and/or review of insurance reserving; and
  • monitor performance, determine independence and approve fees.

Full details of the terms of reference of the committee are available at www.beazley.com

Principal activities

The principal activities undertaken by the committee in discharging its responsibilities in 2016 are described below.

a) Significant financial statement reporting issues

The significant financial statement reporting issues, along with the significant matters and accounting judgements that the committee considered during the year under review, are set out below.

i) Valuation of insurance liabilities

As further explained in note 1 to the financial statements, the group’s policy is to hold sufficient provisions, including those to cover claims which have been incurred but not reported (IBNR) to meet all liabilities as they fall due. Similar to 2015, the past year has seen a relatively benign claims environment in terms of large risk, catastrophe exposed classes of business. In this regard, our consideration of catastrophe losses has therefore been focused on developments in relation to the more significant catastrophes of previous years.

The audit and risk committee receives regular reports from both the internal group actuary and the external audit team, as the output of independent projections are reviewed at key reporting quarters. In the latter part of the year, the group actuary has reported both informally and formally on the results of the third quarter reserving process, which the committee considers to be a key control as this process provides a level of informed independent challenge for the reserve position. To support the year end view, the committee has received a detailed paper in support of the level of margin held within technical reserves in the group’s statement of financial position, which formed the basis for a robust discussion. Management confirmed that they remain satisfied that the outstanding claims reserves included in the financial statements provide an appropriate margin over projected ultimate claims costs to allow for the risks and uncertainties within the portfolio, and the committee was satisfied that there were no errors or inconsistencies that were material in the context of the financial statements as a whole.

The external auditor has also used the group’s data to re-project the reserves using its own methodologies and the comparison presented to the committee has provided an additional level of challenge to the result. On the basis of its audit work, the auditor reported no misstatements that were material in the context of the financial statements as a whole.

On the basis of the information provided by the group actuary throughout the year and at the year end, the consistent application of Beazley’s reserving philosophy, and the review work carried out by our external auditor, the committee is satisfied that the reserves held on the group statement of financial position at 31 December 2016 are reasonable.

ii) Financial close process

The audit and risk committee continues to focus on the group’s close and estimation processes generally, and the related control carried out by the business and specifically the finance team. The close process is particularly important in the current environment where insurers are being required to adhere to increasingly tight regulatory reporting timelines and the audit and risk committee is committed to ensuring that the robust nature of our control environment is not compromised during this period of change.

During the year and at year end, we received updates from management on the level of estimations used in our close process and the controls carried out to review these estimates retrospectively. As mentioned in note 1 to the financial statements, IBNR represents the most crucial estimate included within the group’s financial position and our claims reserves are specifically discussed in point a)i) on the previous page. Aside from claims, the audit committee also reviewed process and control information around expenses, actuarial premium projections and other premium adjustments, investments and other key income statement and balance sheet captions.

The committee has received updates and commentary from management in relation to updates from both Lloyd’s of London and the Central Bank of Ireland in respect of Solvency II reporting dates and requirements as well as associated audit requirements. The committee also considered the appropriateness of the group’s proposed governance processes around these financial statements.

On the basis of the reporting received and reviewed during the last 12 months, the audit and risk committee remains satisfied that the estimation and control processes deployed by the group are appropriate and leave us well placed to meet the increasingly challenging reporting deadlines under Solvency II.

iii) Valuation of financial assets at fair value

The board is responsible for setting the investment strategy, defining the risk appetite and overseeing the internal and outsourced providers via the chief investment officer. The committee receives updates from the group finance director and/or the chief investment officer and it has reported for 2016 that the investment portfolio is in line with the board approved risk appetite and that carrying values of the portfolio as at 31 December 2016 are appropriate. Committee members are invited to and regularly attend the investment committee.

No misstatements that were material in the context of the financial statements as a whole were identified and the committee is satisfied with the approach employed by management in valuing the financial assets at fair value on the balance sheet at 31 December 2016.

iv) Recoverability of insurance receivables

Management has continued the progress made in the prior year in respect of aged debt analysis and reporting, and we note that management continues to focus attention and resource on our processes and reporting of aged debt as the group continues to grow. The analysis reviewed in 2016 did not identify any material instances of default in relation to our insurance debtors.

On this basis, the committee is satisfied that insurance receivables are materially correct and that no adjustment is required at 31 December 2016.

v) Recoverability of reinsurance assets

The committee received confirmation from management that the majority of Beazley’s reinsurance receivables are due from highly rated institutions. Based on previous experience, the committee has not noted any instances where poor quality reinsurers have led to a material financial loss and is comfortable with the monitoring processes management have described and put in place to ensure this continues.

Considering management updates and supported by the external auditor’s report on the output of their work over assessing the recoverability of the group’s reinsurance assets, the committee is satisfied that the judgements applied by management in making provision for bad debts are appropriate.

vi) Dividends, going concern and viability

During key reporting periods, management outlined to the committee in detail their support for the basis of preparation adopted in the financial statements and any statements around the future viability of the group. In addition, the committee considers the appropriateness of management’s dividend strategy of growing the ordinary dividend each year and the appropriateness of applying this strategy in the current year.

The committee reviews detailed projections of future cash flows, profit forecasts and capital requirements under various scenarios, including scenarios stressed in terms of claims frequency and liquidity. In the current year, we also considered, and discussed with management, the impact of the result of the EU referendum in June. We also consider the appropriateness of management’s viability statement and the period over which this analysis is performed. The committee is satisfied by the level of analysis presented during the year, and the related approach taken and statements made in the group’s key external reporting.

vii) Tax

The audit and risk committee discussed management’s updates on the continually developing tax environment and in particular reviewed management’s approach to Diverted Profits Tax in the UK and developments in this area generally. The committee is satisfied that the approach taken by management (see note 9) at the balance sheet date is reasonable.

viii) Intangible asset valuation

The audit and risk committee received an overview of management’s valuation of intangibles. The audit and risk committee discussed the carrying value of goodwill, in particular relating to the group’s life, accident and health division and is satisfied that the underlying assumptions used by management in respect of future profitability and cash flows were reasonable. The committee also reviewed management’s accounting for movements in other intangibles during the year and is satisfied that management’s accounting for these intangibles appears appropriate.

b) Other updates

During 2016, in addition to the financial reporting matters mentioned above the following items were key topics of discussion for the committee:

  • oversight of the reporting and control processes and procedures relating to the increased Solvency II reporting requirements;
  • overview of key reporting and regulatory updates, including updates on accounting standards, changes in tax legislation and changes in regulatory requirements;
  • management’s accounting approach in relation to the scheme of arrangement executed by the group during the year;
  • enhancements to key process and reconciliation procedures, in particular in relation to technical balances due to/from internal coverholders;
  • compliance, financial crime and assurance reporting including risk incident information;
  • quarterly reserving and actuarial data; and
  • the consideration of emerging risks and the processes and controls in place to mitigate these risks.

Committee meetings are scheduled to ensure that they support the financial and regulatory reporting timetables and the internal audit and risk cycle.

Function updates

The Beazley plc board has delegated a number of oversight responsibilities to the audit and risk committee in relation to the risk management framework, compliance, internal audit and external audit.

The work undertaken and key matters considered during the year in these areas are set out below:

a) Risk management

To assist the board, the committee, supported by the risk committees of the subsidiary boards, receives and reviews reports from the risk management function focusing on the following areas:

  • risk appetite: The committee has monitored the actual risk profile against risk appetite throughout 2016 and can confirm that Beazley plc has been operating within risk appetite as at 31 December 2016. The committee has also reviewed the proposed 2017 risk appetite and commended it to the Beazley plc board for approval;
  • risk assessment: The committee has performed a review of the group’s risk profile to ensure it covers the complete universe of risk and that all major underlying risks are visible and are being monitored;
  • risk profiles: The committee and the risk committees of the subsidiary boards have reviewed Beazley’s risk profiles, which are focused risk assessments of specific topics. In 2016, the committee received a review of cyber risk aimed at ensuring our suite of realistic disaster scenarios are appropriate. There was also a number of other operational risk profiles presented which supported the committee’s oversight of the on-going business processes.
  • emerging risk: The committee supported the identification of strategic and emerging risks which were discussed at the board meeting in May 2016 and have been subsequently monitored and reported in the quarterly Own Risk and Solvency Assessment (ORSA);
  • oversight of the control environment: The committee has received a quarterly consolidated assurance report which provides commentary on the status of the control environment with perspective from the business, risk management, compliance and internal audit. It also includes entries from the risk incident log;
  • reverse stress testing: The committee has received the results of the reverse stress testing exercise, which explores what would have to happen for the group to be unviable and has been able to provide assurance to the board that this work has been performed with the appropriate level of depth and expertise; and
  • oversight of the internal model: The committee and the risk committees of the subsidiary boards have reviewed regular reports associated with the internal model. These have included a standing report on internal model output, and a validation report featuring both internal and independent validation and themed reviews, for example, on the approach used to aggregate risk. These assessments have supported the boards’ use of the internal model; and
  • quarterly ORSA: The committee has received a quarterly ORSA report and has reviewed it as part of the quality assurance process before commending it to the board.

b) Compliance

The group head of compliance has direct access to the committee members and attends all committee meetings.

To assist the board the committee receives reports and updates from the compliance function on various issues including, but not limited to, regulatory developments, routine and non-routine interactions with the group’s regulators, any significant instances of noncompliance with regulatory or internal compliance requirements.

During 2016, the committee:

  • monitored the implementation of the 2016 compliance plan;
  • reviewed and approved the 2017 annual compliance plan, including the compliance monitoring programme;
  • reviewed changes in the regulatory environment applicable to Beazley;
  • received updates on relationships with key group regulators, and oversight of regulatory requests;
  • provided oversight to regulatory responses to corporate developments;
  • reviewed updates from the Money Laundering Reporting Officer on the adequacy and effectiveness of the company’s anti-money laundering systems and controls;
  • provided oversight of the progress of the business in addressing identified enhancements to compliance requirements;
  • approved the group policies and controls in respect of whistleblowing, anti-bribery and corruption, and fraud; and
  • received updates on the structure and effectiveness of the company’s compliance function.

In reviewing the effectiveness of the function the audit and risk committee remained satisfied that the compliance function had sufficient resources during the year to undertake its duties.

In addition, the risk committees and/or boards of the group’s regulated subsidiaries receive more locally-focused compliance reports which are specific to those entities.

c) Internal audit

The group’s internal audit function reports directly to the committee, in addition the head of internal audit has direct access to the committee chairman and is accountable to the committee. The committee has reviewed the effectiveness of the function and remains satisfied that the internal audit function had sufficient resources during the year to undertake its duties.

During 2016, the committee:

  • considered the results of all internal audit reports and monitored the progress of the business in addressing the findings of internal audit;
  • monitored the implementation of the 2016 internal audit plan;
  • reviewed and approved the basis for audit planning and approved the 2017 internal audit plan;
  • reviewed and approved the internal audit charter;
  • reviewed and approved the internal audit budget for 2017;
  • received and reviewed an overall summary assessment of 2016 internal audit activity; and
  • monitored on-going amendments to the internal audit function’s activities in light of emerging best practice in the financial sector.

d) External audit

i) Audit tendering

Following in depth consideration during 2016, the board have committed to changing group auditor no later than for the 2019 financial year. Given KPMG’s length of service (group auditor since 2002) and because the board have not sought to formally tender KPMG’s services the committee requested KPMG to submit a non-competitive tender outlining their approach, value proposition and areas of focus over the next two years up until their rotation. Following careful consideration of KPMG’s proposal, the assessment of the auditors effectiveness through the 2016 cycle as part of the committee’s routine activities and taking into account the operational challenges the business faces which are in progress (such as Solvency II reporting and major finance system developments), the committee decided that it would be beneficial to retain KPMG for the time being. It is therefore proposed to put the audit out to tender no later than 2018 to allow new auditors to take over for the 2019 reporting period.

ii) Assessing the effectiveness of the external auditor

The committee places great emphasis on ensuring there are high standards of quality and effectiveness in the external audit process. Audit quality is assessed throughout the year, with a focus on strong audit governance and the quality of the team. The effectiveness of the audit is assessed through discussion throughout the year, taking into account considerations such as:

  • reviewing the quality and scope of the audit planning and its responsiveness to changes in the business;
  • monitoring of the auditor’s independence;
  • considering the level of challenge evidenced in discussions and reporting; and
  • discussing the output of the FRC’s Audit Quality Review with our auditors.

These considerations are taken in to account by the committee when determining whether to reappoint the external auditor.

iii) Non-audit services

The audit and risk committee’s responsibility to monitor and review the objectivity and independence of the external auditor is supported by a policy that we have developed in relation to the provision of non-audit services by the auditor.

The objective is to ensure that the provision of such services does not impair the external auditor’s objectivity. The policy specifically disallows certain activities from being provided by the auditor, such as bookkeeping and accounting services, internal actuarial services and executive remuneration services. The policy requires consideration and pre-approval for all other material services such as due diligence assistance, tax services and advice on accounting and audit matters. The committee reviews the terms of such proposed services to ensure they have been robustly justified.

The committee receives a report from the external auditors twice a year setting out all non-audit services undertaken, so that it can monitor the types of services being provided, and the fees incurred for that work. The aim is to limit the total spend on non-audit services to a maximum of the annual audit fee, unless it is deemed that not doing so is in shareholders’ interest from an efficiency and effectiveness point of view.

The split between audit and non-audit fees for the year under review is disclosed in note 6 to the financial statements. In the year the audit fees for the statutory audit of the consolidated financial statements were $1.0m (2015: $1.1m) while fees paid for non audit and assurance services were $1.2m (2015: $0.8m). Fees for non audit and assurance services include work related to the accounts and regulatory reporting of the syndicates managed by Beazley. Also included, as a one-off in 2016, is reporting accountant work in relation to the change of domicile and comfort letters to support the debt issuance. Both of these are assignments normally performed by the incumbent auditors.

KPMG is a panel member eligible to provide services under our cyber breach response service. To date KPMG has not been called upon to provide any services under this arrangement and the committee receives regular updates to monitor the level of activity and to ensure conflicts of interest do not occur.

None of the non-audit services provided are considered by the audit and risk committee to affect the auditor’s independence or objectivity.

Committee effectiveness

The committee considers its effectiveness regularly. An assessment was facilitated in November 2016 using an online survey completed by members of the committee. The review concluded that the committee was operating effectively and efficiently and there were no major issues highlighted for attention. It was noted there had been an increase in the work load of the committee driven by Solvency II and other regulatory requirements and additional training may be useful.

Fair, balanced and understandable assessment

It is a key compliance requirement of the group’s financial statements to be fair, balanced and understandable. The annual report is prepared following a well documented process and is performed in parallel with the formal process undertaken by the external auditor. The committee has reviewed a report presenting the approach taken during the preparation of the annual report. Following its review, the committee is satisfied that the annual report is fair, balanced and understandable, and provides the information necessary for shareholders and other stakeholders to assess the company’s position and performance, business model and strategy, and has advised the board accordingly.

CMA Order 2014 statement of compliance

The committee confirms that during 2016 the group complied with the mandatory audit processes and audit committee responsibilities provisions of the Competition and Markets Authority Statutory Audit Services Order 2014 as presented in this report.

Currently the membership of the remuneration committee comprises Sir Andrew Likierman (chairman), George Blunden and John Sauerland.

Responsibilities of the committee

The committee’s main responsibilities are to, inter alia:

  • set the remuneration policy for the group for approval at the annual general meeting. The objective of such policy shall be to ensure that members of the executive management of the company are provided with appropriate incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the company;
  • recommend and where appropriate approve targets for performance related pay schemes and seek shareholder approval for any long term incentive arrangements;
  • recommend and approve the remuneration of the chairman of the company;
  • recommend the remuneration of the chief executive, the executive directors, the direct reports to the chief executive, the company secretary and such other members of the executive management as it is designated to consider. No director or manager shall be involved in any decisions as to his or her own remuneration;
  • obtain reliable, up-to-date information about remuneration in other companies; and
  • appoint and review the performance of remuneration committee consultants, currently Deloitte LLP.

Key activities in 2016

During 2016 the committee:

  • reviewed the key aspects of the remuneration policy, and oversaw its implementation and application;
  • satisfied itself that the current remuneration structure is appropriate to attract and retain talented people;
  • considered the chief risk officer’s report that confirmed that the design of remuneration promotes appropriate risk behaviour throughout the organisation. In addition, the analysis considered the performance of the control environment, profit related pay targets, calculation of the bonus pool, share awards, a suite of risk metrics for each solvency II member of staff and any individual who has created a higher than expected level of risk;
  • ensured incentives continued to be appropriate and to align company and shareholders;
  • approved the grant of share awards under the group’s deferred, retention and LTIP plans;
  • considered the salary and bonus awards for 2016 for executive directors, heads of control functions, material risk takers and other officers;
  • reviewed remuneration policies in light of emerging requirements for Solvency II;
  • approved the chairman’s fees; and
  • reviewed the executive director employment contracts.

Further information on the work of the remuneration committee is set out in the directors’ remuneration report.

The nomination committee is chaired by Dennis Holt and currently comprises George Blunden and Sir Andrew Likierman.

Responsibilities of the committee

The committee’s main responsibilities are to, inter alia:

  • regularly review the structure, size and composition (including the skills, knowledge, experience and diversity) required of the board compared to its current and projected position;
  • give full consideration to succession planning for executive and non-executive directors and in particular for the key roles of chairman and chief executive, senior executives and any other member of the senior management that it is relevant to consider;
  • ensure the directors have the required skills and competence;
  • review annually the time required from non-executive directors;
  • review the results of the board performance evaluation process that relate to the composition and skills and competencies of the board and ensure an appropriate response to development needs;
  • recommend to the board appointments to the role of senior independent director and chairman as well as membership of board committees; and
  • recommend, if appropriate, all directors for re-election by shareholders under the annual re-election provisions of the UK Corporate Governance Code.

The nomination committee meets at least twice annually and at such other times during the year as is necessary to discharge its duties. In 2016 there were five scheduled meetings, reflecting the workload of the committee during the year. Only members of the committee have the right to attend meetings, however other individuals, such as the chief executive and external advisers, may be invited to attend for all or part of any meeting.

The specific responsibilities and duties of the committee are set out in its terms of reference which were updated in July 2016 to include specific responsibility to keep under review the leadership needs of the organisation, both executive and non-executive, with a view to ensuring the continued ability of the organisation to compete effectively in the market place. The terms of reference are available to download from the company’s website.

Policy on gender, diversity and inclusion

We believe having a diverse and inclusive workplace will support our vision for growth and outperforming the market. We continually review our approach to diversity and our aim is to have nurtured diverse employees across the business who are given the tools and opportunities to progress their career within Beazley. We believe employing individuals with wider perspectives and from a broader skill base will lead to a more dynamic, innovative, responsive organisation in touch with changes and developments in our business environment.

We have a defined policy and strategy that will enable us to:

  • nurture diverse individuals across all areas of the business and encourage them to grow into senior positions with our organisation;
  • develop plans on how to best support diversity in a way that is both locally relevant and globally impactful;
  • support, mentor and encourage individuals from diverse backgrounds to grow and develop within Beazley;
  • have leadership and sponsorship of our vision at the most senior level of our organisation;
  • regularly review our employment policies and practices. We expect our people to work with us to further enhance our diversity objectives; and
  • ensure all employees receive equality of opportunity in recruitment, training, development, promotion and remuneration.

The committee has agreed the establishment of goals for gender diversity for both the board and the broader organisation. The board approved goals for gender diversity for the Beazley plc board of two female members by AGM 2016, and a third female member by AGM 2017. This goal has been achieved through the appointments of Catherine Woods and Christine LaSala. Female representation on the board has gone from zero to three within the last five years. The committee has established 2020 goals for increasing diversity across the wider organisation through a series of initiatives looking at recruitment, development and succession. Having achieved our goal of having three female directors by the 2017 AGM, the committee has established new goals of a minimum of 35% female senior managers within the organisation by 2020 and of 33% female board members at group level by 2021.

The 2016 board review was overseen by the committee and was facilitated in November 2016 using a survey completed by board and committee members. No material matters were identified and the committee will oversee the implementation of an action plan to further strengthen the board’s overall effectiveness in 2017.

Key activities in 2016

Tasks which the committee carried out in 2016 were to:

  • recommend the appointment of three additional non-executive directors. The appointments to the board were made on merit and against objective criteria. For the recruitment process, the committee was assisted by Korn Ferry for Bob Stuchbery and Spencer Stuart for John Sauerland. Both of these search firms are wholly independent of the company and of the group. No consultant was used in the recruitment of Christine LaSala;
  • review of the performance of management by inviting all nonexecutive directors to attend a nomination committee meeting to review the performance of the executive management team;
  • consider the board and committee succession plans;
  • assess the collective skills and competency of the board and consider the proposed reappointment of directors;
  • ensure that director development plans were implemented and that the board collectively received relevant training; and
  • ensure board members were able to allocate sufficient time to the company to discharge their responsibilities effectively.

Beazley plc is a public limited company registered in the UK under registered number: 09763575, whose registered address is at Plantation Place South, 60 Great Tower Street, London, EC3R 5AD. Please contact us at the address below should you have any queries:

Beazley plc
Plantation Place South,
60 Great Tower Street,
London
EC3R 5AD
Email: info@beazley.com

For details of other Beazley company offices, please contact the Company Secretary.