Accountability

A.1 The Board
“an effective board…collectively responsible for the success of the company”

The schedule of matters reserved to the Board for its own and its committees’ decisions provides that the Board’s primary obligation is to lead and control the Company and its business, with exclusive decision making powers over such matters as: overall strategy and resources; risk appetite; investment strategy; remuneration policies; accounting policies; capital expenditure, acquisitions and debt facilities over certain thresholds; and certain key Group policies, appointments and categories of public announcements. The detailed implementation of all these matters, and day-to-day business, are left to management, which reports formally to the Board at least quarterly on underwriting, financial and other operational matters and objectives. The current schedule of matters reserved to the Board is available in the ‘Corporate Governance’ section of ‘Investor Relations’ on the Company’s website or from the Company Secretary on request.

The Board meets regularly, usually at full strength, as demonstrated in the ‘Board meeting attendance in 2007’ table opposite. The NEDs met on a number of occasions during the year without executive directors or other executive management present, including at least once without the Chairman. The Chairman chairs full NED meetings and the senior independent director chairs meetings when the Chairman is not present.

A.2 Chairman and chief executive
“clear division of responsibilities”

There is a division of responsibilities on the Board between the Chairman, who is responsible for leading and running the Board and related matters such as Board induction and evaluation, and the Group Chief Executive, who has executive responsibility for running the Group’s business. A statement detailing this division of responsibilities, which includes provision for the Chairman’s role in ensuring accountability of the Chief Executive to him and to the Board, in shareholder relations and in ensuring constructive relations between executive and non-executive directors, has been approved by the Board.

A.3 Board balance and independence
“a balance of executive and non-executive directors
(…in particular independent NEDs)”

The balance of the Board, its strong independent representation and the sharing of Committee work is set out in earlier sections of this Board Corporate Governance statement. Mr Buchanan is the appointed senior independent director designated as an appropriate director to whom shareholders’ concerns may be conveyed if contact through the normal channels of Chairman, Chief Executive or Finance Director has failed to resolve them or is inappropriate.

A.4 Appointments to the Board
“formal, rigorous and transparent procedure for the
appointment of new directors…expected time
commitments of NEDs”

The Company’s Articles of Association (“Articles”) set out clear powers of removal, appointment, election and re-election of directors. A director may be removed either by a unanimous resolution of fellow directors or by an ordinary resolution of the Company in general meeting. As regards appointments, the Board may appoint additional directors at any time but such appointees must, if they wish to continue, be elected by shareholders by an ordinary resolution at the AGM following their appointment. The Articles also provide that no term of office may exceed the period between election or re-election by shareholders and the AGM in the third year following such election or re-election. In certain circumstances, in accordance with the Code, directors are proposed for election for shorter periods.

The process for nomination to the Board and for considering succession planning is set out in the Nomination Committee report below. The Board continues to satisfy itself that the Chairman has sufficient time available to devote to his duties as non-executive Chairman of the Company and of AUL. The letters of appointment of the Chairman and the other NEDs, which are available for inspection at the Company’s registered office, set out the following expected minimum annual time commitments to the Company and AUL :

• Chairman of the companies: 75 days
• Audit and Rermuneration Committee chairmen: 30 days
• Other NEDs: 20 days.
  

A.5 Information and professional development “timely quality information…induction on joining…regular update (of) skills and knowledge”

The Board is supplied in a timely manner with the appropriate information to enable it to discharge its duties, including providing constructive challenge to, and scrutiny of, management. Further information is obtained by the Board from the executive directors and other senior executives as appropriate. All directors are provided with written materials on their
responsibilities as directors of a public company and on other relevant regulatory, legal, accounting and insurance industry matters. Updating information on technical and/or industry matters is provided to the Board with opportunities for discussion and, during 2007, a separate session for the Boards of the Company and AUL took place on directors’ duties, the Disclosure and Transparency Rules and related matters. In addition, the Company encourages, facilitates and monitors other professional development for both executive and non-executive directors as is required for their particular roles.

The Company maintains a model director induction programme, which is tailored to suit the needs of each new director joining the Board and which the director who joined late in the year, Mr Feinstein, is completing in April 2008. Procedures are in place for directors to take independent professional advice, when necessary, at the Company’s expense.

The Board and its committees are supported by the Company Secretary who, under the direction of the Chairman, advises the board on all governance matters and helps to ensure good communication and information flows within the Board, including between executive and non-executive directors and between the Board and its Committees. He also facilitates the Board updating and induction work outlined above. Executive level committees are also serviced, attended and minuted by the Secretary or another member of his team.

A.6 Performance evaluation
“formal and rigorous annual evaluation of its own
performance”

Since the last annual report the Board has undertaken its annual evaluation of the performance of the Board, its Committees and each director. These were initiated by a questionnaire completed by each director giving his assessment of both collective and individual performances. The results of the evaluation of the Board as a whole were summarised by the Chairman at its meeting in February 2008 and the Board agreed its conclusions. Each Board Committee evaluated its performance in late 2007, and the conclusions were also reported to the Board.

The Chairman also discussed any issues arising from the evaluation of each individual director, including the performances of executive directors in respect of their boardroom as opposed to executive roles (which are evaluated as part of the Group’s regular Performance Development Review process), with the director concerned. The Chief Executive’s total performance is reviewed by the Chairman.

The Chairman’s own evaluation was conducted by the NEDs led by the senior independent director, taking into account the views of the executve directors. The senior independent director discussed and agreed the conclusions with the Chairman.

A.7 Re-election
“re-election at regular intervals…planned and progressive
refreshing of the board”

The Articles of Association of the Company provide that, following a director’s election by shareholders at the Annual General Meeting immediately following his or her initial appointment by the Board, each director’s term of office before being required to submit himself or herself to shareholders for re-election is three years. If an NED has served on the Board for nine years or more, this is shortened to one year.

Details of the procedures whereby appointments and re-appointments to the Board are considered are set out in the Nomination Committee report below. Board and individual directors’ evaluations are taken into account by that committee when considering specifications for new NEDs, succession planning and nominations for re-election at AGMs (including that of the Chairman and Mr Mylvaganam in 2008). Further details of the terms of appointment of both the non-executive an executive directors are also set out in the Directors’ Remuneration report.

B.1 The level and make-up of remuneration “levels…sufficient to attract, retain and motivate directors…avoid paying more than is necessary…significant proportion (of executive remuneration) linked to performance”

The Directors’ Remuneration report sets out the policies and practices which demonstrate the Company’s implementation of this Code principle and provisions.

B.2 Procedure
“formal and transparent procedure”

The above sections entitled ‘Board composition and independence’ and ‘Board and Committee meetings and attendance’ demonstrate the appropriate membership and meeting frequency of the Renumeration Committee. There are generally four or five main meetings each year with a number of other meetings to implement formally decisions that have already been made or to deal with urgent matters. Further details of the Remuneration Committee’s terms of reference and the Board’s policy and practices regarding NED remuneration and terms of office are set out in the Directors’ Remuneration report.

C.1 Financial reporting
“present balanced and understandable assessment of…position and prospects”

The Audit Committee’s role in ensuring that the Group’s financial reporting meets the standards of transparency and balance that are required and in monitoring reporting to regulators are set out in more detail in the Audit Committee report following this report. A ‘going concern’ statement is included in the Directors’ report.

C.2 Internal control
“sound system of internal control”

The Board’s statement and commentary on its review of the effectiveness of the Group’s system of internal control is set out in the ”Board internal control statement’ below.

C.3 Audit Committee and auditors “formal and transparent arrangements for…(applying) financial reporting and internal control principles”

The role of the Audit Committee and the conduct of the relationship with the auditors is set out in the Audit Committee report below.

D.1 Dialogue with institutional shareholders
“dialogue based on mutual understanding of objectives”

The Company is committed to a process of continuing dialogue with its shareholders. In addition to usual briefings on financial results, the Company presents at brokers’ seminars and makes appropriate contact with institutional investors and their representative bodies when there are specific matters to discuss. Feedback reports from the Company’s stockbrokers, Hoare Govett Ltd, are circulated to the full Board after each round of investor presentations and shareholder views on the Company are regularly discussed at Board meetings. A survey is independently conducted on behalf of the Board approximately every eighteen months of institutional shareholders’ investment criteria and their perceptions of the Company, its management and its investor communications.

D.2 Constructive use of Annual General Meeting “use AGM to communicate with investors and encourage their participation”

Amendments to the Articles may only be made by special resolution at a general meeting of shareholders of the Company, usually the AGM. In order for a special resolution to be passed, it must be approved by 75% or more of the shares voted on the resolution, either in person or by proxy.

Shareholders are encouraged to attend the AGM by the Chief Executive making a presentation there on the Group’s progress. The Company has a high level of voting participation at its AGMs, receiving proxies representing 74%, 77% and 73% of its shares in issue in 2005, 2006 and 2007 respectively. Electronic proxy voting, details of which are included in the 2008 AGM circular and Notice of Meeting, is made available. The totals of proxy votes on each resolution, including details of any votes withheld, are announced at the meeting after each resolution has been dealt with on a show of hands and the full proxy voting results are always announced through a regulatory news service and on the Company’s website. In the event of a close result as indicated by the proxies held by the chairman of the meeting, the chairman would call a poll, but this has not yet proved necessary.