NTUC Income AR 2017

CORPORATE GOVERNANCE Roles and Responsibilities The RMC provides Board level oversight on risk management. The Risk Review Committee (RRC) is a management committee responsible for the implementation and operationalisation of the risk management strategy. The Chief Risk Officer and the Risk Management team are accountable to both committees and have primary accountability to ensure that objectives of the committees are met. The role of the RMC is to: • Approve and review on a regular basis the Co-operative’s Risk Management Strategy, which should be commensurate with the size and nature of its activities; • Provide oversight of material risks taken by the Co-operative and approve risk management policies to ensure they are consistent with the business strategies approved by the Board. The role of the RRC is to implement the Risk Management Strategy through: • Institution of appropriate policies, processes and procedures; • Review of material risk evaluation methodologies and approval processes; • Monitor, review and reporting of risk exposures and limits; • Shape and promote appropriate risk culture throughout the organisation. The Chief Risk Officer, supported by the Risk Management team: • Establishes and maintains our ERM framework, key risk profile, and individual risk management strategies for each broad risk category; • Has oversight of the execution of these risk management strategies across the enterprise; • Proactively partners with business units to ensure a consistent enterprise-wide assessment of risk and risk based capital. Asset Liability Management The Co-operative adopts a rigorous and dynamic Asset Liability Management (ALM) approach that drives the Co- operative’s Strategic Asset Allocation (SAA). The ALM process does not focus only on addressing interest rate risk of the Co-operative’s Assets and Liabilities but rather, a ‘balance sheet approach’ is adopted with consideration of Liability requirements and liquidity needs, supported by well-articulated risk appetite boundaries for the achievement of the Co- operative’s long-term return objectives. The overall ALM approach in setting of the strategic investment asset allocation is premised upon a prudent philosophy guided by our risk appetite. The asset pool backing liabilities is invested in fixed income bonds with a conservative mix of Singapore government versus investment grade corporate bonds. The duration of the assets is driven by the profile of the liabilities, targeting good cash flow match to minimise the fund’s liquidity and interest rate risks. The asset pool backing surpluses consists of assets backing capital requirements versus surplus capital. Assets backing capital requirements are invested in a conservative mix of fixed income assets while surplus capital assets are invested in return seeking assets such as equities, physical properties and alternative assets to achieve optimal asset diversification benefit. ALM Methodology Studies are conducted annually to determine the optimal SAA to be adopted by the Co-operative. A range of financial models, such as short-rate models and multi-factor models, is used to develop stochastic economic scenarios. Each scenario contains forward looking views on interest rates, credit spreads, equity returns and property returns, which are used to simulate the possible changes in both the value of the liabilities and the value of a portfolio of assets. A number of portfolio assets are run through the economic scenarios to determine their risk and return characteristics. The optimal SAA is chosen as the portfolio that generates the highest return while still respecting all risk limits. The optimal SAA determined in each study and the Investment Policy are approved by the Investment Committee and the Board before implementation. ANNUAL REPORT 2017 EVERY DAY MADE DIFFERENT 27