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Audit Committee

The Audit Committee presents its report for the financial year ended 31 December 2011.

Prof JPM Deiss, a Non-Executive Director, resigned as a member of the committee during the year under review, in order to fulfil the requirements of the Companies Act and King III. The committee consists of three Independent Non-Executive Directors. Details of membership of the committee can be found here.

The committee would like to extend its appreciation to Prof Deiss for his contribution as a member of the committee.

Four audit meetings were held during the year at which the committee discharged its functions and responsibilities in terms of the Charter, which was reviewed during the year.

In particular, the committee:

  • Reviewed the interim and annual financial statements and recommended them for adoption by the Board;
  • Approved the risk management, forensic services and audit plans;
  • Received and reviewed reports from both the internal and external auditors which included commentary on the effectiveness of the internal control environment, systems and processes and, where appropriate, made recommendations to the Board;
  • Reviewed the independence of the external auditors, PricewaterhouseCoopers Inc., and recommended them for reappointment at the Annual General Meeting as auditors for the 2011 financial year, with AG Taylor as the designated auditor;
  • Determined the fees to be paid to the external auditors and their terms of engagement;
  • Determined the nature and extent of non-audit services which may be provided by the external auditors and preapproved the contract terms for the provision of non-audit services by the external auditors;
  • Exercised oversight over risk, financial and audit matters in respect of the Company and its subsidiaries (the Group); and
  • Dealt appropriately with any complaints from within or outside the Group relating to the accounting practices and internal audit of the Group including the content or auditing of its financial statements or any other related matter.

The committee was appointed by the Board of Directors and approved by the shareholders to hold office in respect of the financial year under review.

Committee meetings are attended by the internal and external auditors, the Chief Executive Officer and Chief Financial Officer, the Head of Risk as well as other Board members and invitees as considered appropriate by the committee's Chairman.

The Audit Committee Charter provides for confidential meetings between the committee members and the external auditors. The internal and external auditors have unrestricted access to the committee.

In terms of the JSE Listings Requirements, the committee considered and was satisfied that the Financial Director, Pieter Bezuidenhout, has appropriate expertise and experience to fulfil his responsibilities in this position.

The committee has evaluated the annual financial statements for the year ended 31 December 2011 and considers that they comply in all material respects with the requirements of the Companies Act of South Africa, as amended, and International Financial Reporting Standards.

Asset/Liability Management Investment Committee report

The objective of the Asset/Liability Management Investment Committee (ALMIC) is to ensure that appropriate and timely decisions are taken with regard to the investment of Company funds, management of assets relative to liabilities and reviewing the relationship between assets and liabilities. The committee sets the guidelines and principles for the Company to follow and takes advice where appropriate from outside investment professionals.

Details of membership of the committee can be found here and the record of 2011 meetings here.

Remuneration Committee report

The Remuneration Committee (Remco) assists the Board in ensuring that a competitive remuneration policy is in place that aligns to our strategy and performance goals. Remco has approved and adopted the wider Zurich Group's Remuneration Policy, and the key objectives of the policy which are aligned with the committee's terms of reference include:

  • Ensuring that the remuneration policy promotes the achievement of the Company's strategic objectives and encourages individual performance;
  • Ensuring the combination of fixed and variable pay, in cash, share appreciation rights and other benefits, meets the Company's needs and strategic objectives;
  • Ensuring all benefits, including retirement benefits and other financial arrangements, are justified and correctly valued;
  • Considering the results of the evaluation of the performance of the Chief Executive Officer and other Executive Directors, both as Directors and as executives in determining remuneration;
  • Selecting an appropriate comparative group when comparing remuneration levels;
  • Reviewing incentive schemes to ensure continued contribution to shareholder value and that these are administered in terms of the rules; and
  • Advising on the remuneration of Non-Executive Directors.

The Remuneration Committee comprises two Independent Non-Executive and two Non-Executive Directors as shown here.

The Chief Executive Officer and the Head of People Management attend meetings by invitation but are excused when their own remuneration and ratings are discussed by the committee.

Remuneration policy

The overall purpose of the Company's total remuneration policy is to attract, retain, motivate and reward all employees appropriately. The remuneration philosophy is aimed at encouraging sustainable long-term performance of the Company and at all times aligning performance with the strategic direction and specific value drivers of the business, as well as the interests of stakeholders, in a manner that does not encourage excessive risk-taking.

The Company defines total reward as a combination of all types of rewards, including financial and non-financial, indirect and direct, intrinsic and extrinsic rewards, and its total remuneration policy forms part of total reward and supports the Zurich Employee Value Proposition (EVP).

The Company's market position is to remunerate individuals in line with their performance, while ensuring that there is a distribution of remuneration around the market median when performance is on par with predetermined financial and non-financial targets.

The key principles underpinning the remuneration policy are:

  • The governance and management of remuneration in the Company by the committee, Executive and management to ensure statutory and regulatory compliance as well as alignment with codes of good remuneration practice.
  • Supporting the EVP by offering an appropriate mix of total reward for its various employee groups that will attract, motivate and retain talented employees, and will stimulate employee satisfaction and engagement.
  • Transparency of and regular communication to all employees on remuneration.
  • Paying for performance, while ensuring appropriate distribution around the desired market position and reflecting the skills in demand.
  • Managing remuneration and ensuring fairness, and internal and external equity.

Variable pay

Variable pay is the annual pay made in cash that is not guaranteed and is based on performance. Its aim is to:

  • Reward outstanding performance and achievements;
  • Incentivise the creation of value for the Company;
  • Motivate people to achieve a higher level of performance; and
  • Retain professional personnel in the short and long term.

Performance remuneration in the form of incentives, bonuses and profit sharing is included in certain employment categories and is dependent on the performance rating and grading of the individual concerned, as well the Company's and the Zurich Group's overall performance.

Guaranteed remuneration

Guaranteed remuneration comprises a cost-to-company package which includes benefits such as medical aid, retirement funding and funeral cover.

Executive Directors have standard employment contracts, with no notice periods, and there are no additional costs to the Group. Non- Executive Directors receive fees for their services as Directors and for serving on Board committees. These fees reward the Directors fairly for their time, service and expertise. The fee structure is based on an annual benchmarking of Non-Executive Directors' fees in a defined financial sector. Non-Executive Directors do not participate in incentive schemes and they do not hold options. Details of the remuneration paid to Executive and Non-Executive Directors have been included here.

Nominations Committee report

Nominations Committee meetings are held as the committee deems appropriate. The committee met four times during the year under review and all members were present at the meetings.

The committee makes recommendations to the Board on the appointment of Executive and Non-Executive Directors, including recommendations on the composition of the Board generally as well as the balance between Executive and Non-Executive Directors appointed to the Board. The expertise, skills, experience and past performance of Directors who retire by rotation are also assessed prior to making recommendations in respect of their re-election.

In addition, the committee exercises oversight over matters pertaining to the appointment of senior management, hence the involvement on the committee of the Chief Executive Officer.

The Nominations Committee comprises two Independent Non-Executive Directors and the Chief Executive Officer as shown
here
.

During the period under review, the committee agreed and documented the role description and responsibilities of the Chairman and furthermore established documented succession policies in respect of the appointment of the Chief Executive Officer, the Chairman and other directors. The committee ensured that the Board received regular training and facilitated the Board evaluation process. The committee further considered and recommended the reappointment of members of the Audit Committee and those directors retiring by rotation, for approval at the Annual General Meeting as shown in the Notice to Shareholders.

The committee evaluated and is pleased to confirm the independence of the Company's Independent Non-Executive Directors.

Social, Ethics and Transformation Committee report

The Board established a Social, Ethics and Transformation Committee (SETCO) on 19 October 2011 in terms of the Companies Act, 1998. As a consequence, the Transformation Committee ceased to exist and all its duties and responsibilities devolved into SETCO. The committee's functions include oversight over the following:

  • Social corporate responsibility matters.
  • Stakeholder relations.
  • Environmental matters.
  • Health and safety.
  • Labour and employment issues.
  • Prevention of corruption and fraud (as prescribed in the Companies Act).
  • BBBEE, employment equity and transformation matters.

The committee has established its terms of reference and will meet on a quarterly basis. Members of the Transformation Committee became the initial members of SETCO and the Head of Risk and Head of Forensic Services have received standing invites to attend meetings of the committee. Details of membership of the Committee can be found here.

Risk and Control Committee report

The Risk and Control Committee (RCC) comprises members of the Executive Committee, Internal Audit, Risk Management and Legal and Compliance. The committee meets quarterly and reports to the Audit Committee.

The role of the RCC is to provide assurance to the Audit Committee that the risk management policy and strategy set by the Audit Committee is operating effectively. The committee ensures that a risk policy, framework and methodology is in place for the Group to identify, analyse and manage risks, to protect policyholders, ensure that management acts on any suspected fraudulent or criminal behaviour and comply with statutory laws and regulations. The committee also focuses strongly on managing risks to the Company's business continuity plans and ensures that employee health and safety is a priority and is proactively managed.

During the year, a wide range of risks that could affect the Group's risk profile were reviewed by the committee. These included:

Risks associated with the global economic slowdown that is affecting South Africa, Zurich's ability to sustain profitable growth in a challenging trading environment, especially in view of the current soft insurance market.

Regulatory risk is another key risk that the Company faces. While changes in regulation are welcome, the amount, complexity and pace of these changes will continue to weigh on insurers and put a strain on resources. Certain regulations may skew the competitive landscape and will require adequate enforcement mechanisms to ensure a level playing field.

Sustainability report and assurance

Having laid the foundations for sustainable practices over the years, we have continued to focus on driving sustainability into our activities. Our core values – integrity, excellence, customer centricity, teamwork, professionalism and accountability – are based on the clear analysis of the risks, challenges and opportunities the Company faces in creating resilient day-to-day business in a time of increasing uncertainty.

We recognise that the only effective approach to sustainability is one in which sustainable practices and philosophies are at the core of every aspect of the organisation – impacting positively on people, philosophies, economics, the environment and the country as a whole.

For this reason, the Company's approach to sustainability is a holistic and integrated one that brings together economic, environmental, social and cultural elements to ensure that sustainability is inextricably woven into the DNA of the organisation and enables it to realise its vision of becoming a leader in sustainability.

We have provided a snap shot of the Company's sustainability initiatives and developments, particularly in the areas of environmental, social and cultural sustainability here.