RBS 2006 Annual Report Download - page 185
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Financial statements
RBS Group • Annual Report and Accounts 2006
184
Notes on the accounts continued
The tables below set out the Group’s structural foreign currency exposures. Foreign
currency Structural
Net investments borrowings foreign
in foreign hedging net currency
operations investments exposures
2006 £m £m £m
US dollar 15,036 5,278 9,758
Euro 3,059 1,696 1,363
Swiss franc 462 457 5
Chinese RMB 3,013 — 3,013
Other non-sterling 132 107 25
21,702 7,538 14,164
2005
US dollar 15,452 6,637 8,815
Euro 2,285 139 2,146
Swiss franc 431 430 1
Chinese RMB 914 — 914
Other non-sterling 76 72 4
19,158 7,278 11,880
The exposure in Chinese RMB arises from the Group’s strategic investment in Bank of China.
●Equity risk
Non-trading equity risk arises principally from the Group’s
strategic investments, its venture capital activities and its general
insurance business.
VaR is not an appropriate risk measure for the Group’s venture
capital investments, which comprise a mix of quoted and
unquoted investments, or its portfolio of strategic investments.
These investments are carried at fair value with changes in fair
value recorded in profit or loss, or equity.
Insurance risk
The Group is exposed to insurance risk, either directly through
its businesses or through using insurance as a tool to reduce
other risk exposures.
Insurance risk is the risk of fluctuations in the timing, frequency
or severity of insured events, relative to the expectations of the
Group at the time of underwriting.
Underwriting and pricing risk
The Group manages underwriting and pricing risk through the
use of underwriting guidelines which detail the class, nature
and type of business that may be accepted; pricing policies
by product line and by brand; and centralised control of policy
wordings and any subsequent changes.
Claims management risk
The risk that claims are handled or paid inappropriately is
managed using a range of IT system controls and manual
processes conducted by experienced staff. These, together
with a range of detailed policies and procedures ensure that
all claims are handled in a timely, appropriate and accurate
manner.
Reinsurance risk
Reinsurance is used to protect against the impact of major
catastrophic events or unforeseen volumes of, or adverse
trends in, large individual claims and to transfer risk that is
outside the Group’s current risk appetite.
Reinsurance of risks above the Group’s risk appetite is only
effective if the reinsurance premium makes economic sense and
the counterparty is financially secure. Acceptable reinsurers are
rated A- or better unless specifically authorised.
34 Risk management (continued)