RBS 2012 Annual Report Download - page 125

RBS GROUP 2012
123
Risk type Definition Features How the Group managed risk and the focus in 2012
Country risk The risk of material losses
arising from significant country-
specific events.
Can arise from sovereign
events, economic events,
political events, natural
disasters or conflicts.
Potential to affect parts of the
Group’s credit portfolio that are
directly or indirectly linked to
the country in question.
Primarily present in credit
portfolios of Markets,
International Banking, Ulster
Bank (Ireland), Group Centre
(mainly Treasury) and Non-
Core.
Under the Group's country risk framework, all countries except
the UK and the US are currently under limit control. All
countries with material exposures are monitored continually
using the Group’s country risk watchlist process to identify
emerging issues and facilitate the development of mitigation
strategies. Detailed portfolio reviews are undertaken on a
regular basis to ensure that country portfolio compositions
remain aligned to the Group’s country risk appetite in light of
evolving economic and political developments.
In the context of several sovereign downgrades, the Group has
made continued progress in managing down its sovereign
exposures. Having recognised an impairment on its holding of
Greek government bonds in 2011, the Group participated in the
restructuring of Greek sovereign debt in the first quarter of
2012 and no longer holds Greek government bonds. During
2012, the Group brought nearly all advanced countries under
country limit control and further restricted its country risk
appetite. Balance sheet exposures to periphery eurozone
countries decreased by 13% or £9 billion to £59 billion with £20
billion outside of Ireland. Funding mismatches in Ireland and
Spain reduced to approximately £9 billion and £4 billion
respectively. Mismatches in other periphery eurozone countries
were modest.
Refer to pages 252 to 280.
Insurance risk The risk of financial loss
through fluctuations in the
timing, frequency and/or
severity of insured events,
relative to the expectations at
the time of underwriting.
Frequent small losses which
are material in aggregate.
Infrequent large material
losses.
The Group’s insurance risk resides principally in its majority
owned subsidiary, Direct Line Insurance Group plc (DLG),
which is listed on the London Stock Exchange. DLG ensures
that it prices its policies and invests its resources appropriately
to minimise the risk of potential loss. The risks are mitigated by
agreeing policies and minimum standards that are regularly
reviewed. The controls are supplemented by reviews by
external experts.