NTUC Income AR 2019

CORPORATE GOVERNANCE In particular, there are policies, processes and controls in place: • to protect the Co-operative from risks associated with money laundering and terrorist financing, and these include regular monitoring and screening activities. • to protect the customers, business and other related third parties from fraud risks. • to manage cyber risks and technology risks relating to data loss/leakage, system security vulnerabilities, system breakdown and availability, privileged access misuse and technology obsolescence. 5. Reputational Risk The Co-operative’s business relies on its reputation and the trust its policyholders place in it for their financial security. The Co-operative is committed to continue to earn this trust by reinforcing fair and ethical practices, supported by strong compliance and corporate governance structures and processes. 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 approach and SAA are formulated by the IC and approved by the Board. 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 SAA is premised upon a prudent philosophy guided by the risk appetite. The asset pool backing guaranteed liabilities is predominantly 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 matching 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 staying within all risk limits. ANNUAL REPORT 2019 31