Corporate governance

Introduction

The introduction and following sections are located in the Corporate Governance statement in the 2012 Annual Report.

QBE places importance on corporate governance and being a good corporate citizen. The Group has a vision and six ONE QBE values that recognise its customers, people, shareholders and the community. QBE believes that a culture that rewards transparency, integrity and performance will promote its long-term sustainability and the ongoing success of its business.

This corporate governance statement aims to disclose in summary form as clearly and objectively as possible QBE’s corporate governance standards and practices so that they can be readily understood by our shareholders, policyholders and other stakeholders. QBE also continues to focus on other equally important issues such as the strength of its outstanding claims provision and the quality of its reinsurance protections.

The ASX Corporate Governance Council (ASX CGC) has issued eight principles and, as part of them, made 30 recommendations. Each principle is discussed below.

ASX CGC principle 1: lay solid foundations for management and oversight

Board functions

In accordance with its charter, the Board:

• oversees corporate governance;
• selects and supervises the Group Chief Executive Officer;
• provides direction to management;
• approves the strategies and major policies of the Group;
• monitors performance against plan;
• considers regulatory compliance;
• monitors people-related strategies (including people development and succession planning); and
• reviews information technology and other resources.

The Board ensures it has the information it requires to be effective including, where necessary, independent professional advice. A non‑executive director may seek such advice at the company’s cost with the consent of the Chairman. All directors would receive a copy of such advice. Non-executive directors may attend relevant external training courses at QBE’s cost with the consent of the Chairman.

Strategic issues and management’s detailed budgets and three year business plans are reviewed at least annually by the Board. The Board receives updated forecasts during the year. Visits by non-executive directors to the Group’s offices in key locations are encouraged. To help the Board to maintain its understanding of the business and to effectively assess management, directors have regular presentations by the divisional Chief Executive Officers and other senior managers of the various divisions on topics, including budgets, three year business plans and operating performance. They have contact with senior employees at numerous times and in various forums during the year. The Board meets regularly in Australia and, due to QBE’s substantial overseas operations, usually spends five days in the UK and the US each year. Meetings are held in other overseas offices as and when the Board considers it appropriate. This year, the Board met in Hong Kong. Each meeting normally considers reports from the Group Chief Executive Officer and the Group Chief Financial Officer, together with other relevant reports. The Board regularly meets in the absence of management. The Chairman and Group Chief Executive Officer in particular, and board members in general, have substantial contact outside Board and Committee meetings.

The Board delegates responsibility to the Group Chief Executive Officer for management of the business on a day to day basis.

Committees

The Board is supported by several committees which meet regularly to consider the audit and risk management processes, investments, remuneration and other matters. The main committees of the Board were the Audit and Risk Committee, the Investment Committee and the Remuneration Committee. Committees operate under a written charter approved by the Board. Any non-executive director may attend a committee meeting. The committees have free and unfettered access to QBE’s senior managers during their meetings and may consult external advisers at QBE’s cost, including requiring their attendance at committee meetings. Committee membership is reviewed regularly. The Chairman of the Remuneration Committee changed in October 2012 following Mr Bleasel’s retirement.

In addition, the Board has established for 2013 a Risk and Capital Committee to replace the previous Funding Committee. Both of these committees comprise Mr JM Green (Chairman), Mr JA Graf, Ms BJ Hutchinson AM and Ms IYL Lee. This new committee will usually meet four times a year.

As a consequence, in 2013, the Audit and Risk Committee will become the Audit Committee.

A report on each committees last meeting is provided to the next Board meeting. The Company Secretary acts as secretary to all committees. Details of directors’ attendance at board and committee meetings are outlined in the table of meeting attendance set out in the directors’ report on page 82 of the 2012 Annual Report.

Delegated authorities

QBE has operated under an extensive written system of delegated authorities for many years. In particular, a written delegated authority with specified limits is approved by the Board each year to enable the Group Chief Executive Officer to conduct the Group’s business in accordance with detailed budgets and business plans. This authority deals with topics such as underwriting, reinsurance protection, claims, investments, acquisitions and expenses. The Group Chief Executive Officer delegates his authority to management throughout the Group on a selective basis taking into account expertise and past performance. Compliance with delegated authorities is closely monitored by management and adjusted as required for actual performance, market conditions and other factors. Management and the Group’s internal audit teams review compliance with delegated authorities and any breach can lead to disciplinary procedures, including dismissal in serious cases.

Evaluating senior executives

The Remuneration Committee receives information on the performance of the Group Executive, being the senior executives as defined by the ASX CGC (namely those employees who have the opportunity to materially influence the integrity, strategy, operation and financial performance of the QBE Group).

A performance development plan (PDP) involves a meeting between the relevant member of the Group Executive, the Group Chief Executive Officer and the Group Executive Officer, People and Communications to:

• review past performance;
• discuss career opportunities; and
• consider areas of further development.

PDPs occur periodically in accordance with the process above, and several took place in 2012. In addition, the Board continually monitors the performance of the Group Executive through regular contact and reporting.

ASX CGC principle 2: structure the Board to add value

Board of directors

Directors are selected to achieve a broad range of skills, experience and expertise complementary to the Group’s insurance activities. Details of individual directors are included on pages 70 and 71 of the 2012 Annual Report and can also be found on the QBE website at www.qbe.com. The Board currently comprises eight directors including an independent Chairman, the Group Chief Executive Officer and six independent non-executive directors applying the “independence” definition of the ASX CGC. Applying this definition, the Board has determined that a non-executive director’s relationship with QBE as a professional adviser, consultant, supplier, customer or otherwise is not material unless amounts paid under that relationship exceed 0.1% of revenue.

The roles of Chairman and Group Chief Executive Officer are not exercised by the same individual.

The period for which a director has served on a board is not part of the ASX CGC’s independence definition. Nevertheless, as a general guide, the Board has agreed that a non-executive director’s term should be approximately 10 years. The Board considers that a mandatory limit on tenure would deprive the Group of valuable and relevant corporate experience in the complex world of international general insurance and reinsurance. Ms BJ Hutchinson AM has been a nonexecutive director since September 1997 and Chairman since July 2010. She was re-elected as a director at the 2012 AGM. QBE’s other directors believe that Ms Hutchinson AM continues to exercise independent judgment and, through her QBE experience, makes an important contribution. They also believe that the Chairman’s experience gained from directorships in other businesses provides an advantage to QBE.

Similar reasons apply to Mr CLA Irby and Ms IYL Lee who joined the Board in June 2001 and May 2002 respectively. Mr Irby was re-elected as a director at the 2011 AGM, while Ms Lee was re-elected at the 2012 AGM. Mr Irby will retire from the Board on 31 March 2013.

The Chairman oversees the performance of the Board, its committees and each director. The Board regularly reviews its performance. The Chairman reports the overall result to the Board and it is discussed by all directors. Recommendations for either improvement or increased focus are agreed and then implemented. For the first time, the board review procedure was facilitated by an independent consultant. The procedure included written answers and questions completed confidentially by each director, the Group Executive and QBE’s company secretaries together with interviews. The consultant discussed her findings with the Chairman and Group Chief Executive Officer and then with the Board as a whole. Recommendations for either improved or increased focus were agreed and are being implemented. This review procedure is a precursor to other directors determining whether to support, via the notice of meeting, a non-executive director for re-election at an AGM. The last board review was completed in accordance with the process above in February 2013, ahead of nominating Mr JA Graf for election and Messrs DM Boyle and JM Green for re-election at the 2013 AGM. The last board review included the Audit and Risk, Investment and Remuneration Committees as the main committees of the Board. The review concluded that each committee was operating soundly and meeting the terms of its charter.

QBE’s constitution provides that no director, except the Group Chief Executive Officer, shall hold office for a continuous period in excess of three years or past the third AGM following a director’s appointment, whichever is the longer, without submission for re‑election at the next AGM. Under QBE’s constitution, there is no maximum fixed term or retirement age for non-executive directors.

Directors advise the Board on an ongoing basis of any interest they have that they believe could conflict with QBE’s interests. If a potential conflict does arise, either the director concerned may choose not to, or the Board may decide that he or she should not, receive documents or take part in board discussions whilst the matter is being considered.

Board selection process

The Board believes that its composition, including selection, appointment, renewal and retirement of members, is of such importance that it is the role of the Board as a whole to review. As a result, all directors are members of the nomination committee.

The Board believes that orderly succession and renewal contributes to strong corporate governance and is achieved by careful planning and continual review. Directors consider the size and composition of the Board regularly and at least once a year as part of the board review procedure. The Board has a skills matrix covering the competencies and experience of each member. When the need for a new director is identified, the required experience and competencies of the new director are defined in the context of this matrix and any gaps that may exist. Generally a list of potential candidates is identified based on these skills required and other issues such as geographic location and diversity criteria. External consultants may be employed where necessary to search for prospective board members. Candidates are assessed against the required skills and on their qualifications, backgrounds and personal qualities. In addition, candidates are sought who have insurance experience, a proven track record in creating shareholder value, utmost integrity, a commitment to corporate governance, the required time to commit to the position, a strategic mindset, a preparedness to constructively question and challenge and an independence of mind. The Board has adopted non-executive director nomination guidelines.

During the year, Mr LF Bleasel AM retired as a director, Mr JA Graf was appointed as a director, Mr FM O’Halloran retired as Group Chief Executive Officer and Mr JD Neal succeeded him.

ASX CGC principle 3: promote ethical and responsible decision making

Group guidelines

The Group has adopted a code of conduct for Australian Operations, Group head office and Group Investment division which forms the basis for the manner in which these employees perform their work involving both legal obligations and the reasonable expectations of stakeholders. The code of conduct requires that business be carried out in an open and honest manner with our customers, shareholders, employees, regulatory bodies, outside suppliers, intermediaries and the community at large. The code also deals with confidentiality, conflicts of interest and related matters. The non-executive directors have adopted a code of conduct for themselves which is substantially the same as the code above.

Other divisions have developed codes of conduct based on the Group code above, with some differences to allow for the requirements of the particular countries in which the division operates.

There are other Group policies covering anti-discrimination, employment, harassment, QBE values and behaviours, health and safety, privacy, whistle-blowing and many other business practices. These policies, like the code of conduct, are underpinned by the Group’s vision and values statements. The vision and values statements form part of the induction information given to newemployees.

QBE in Australia follows the general insurance code of practice, a self-regulated code developed by the Insurance Council of Australia (ICA) relating to the provision of products and services to customers of the general insurance industry in Australia. A revised code of practice commenced in July 2012. The code is currently being reviewed by an independent consultant for the ICA. The consultant’s recommendations are expected by mid 2013.

QBE in Australia is a member of the Financial Ombudsman Service, an Australian Securities and Investment Commission (ASIC) approved external dispute resolution body which deals with general insurance disputes between consumers and insurers.

Similar insurance practice rules apply to the Group in certain other countries outside Australia.

Details of indemnification and insurance arrangements are included in the directors’ report on page 81 of the 2012 annual report.

The following documents are available either in the corporate governance area of QBE’s website or on request from a company secretary:

• board charter;
• role of non-executive directors;
• Audit, Investment, Remuneration and Risk and Capital Committee charters;
• non-executive director nomination guidelines;
• code of conduct for non-executive directors;
• code of conduct for Australian Operations, Group head office and Group Investment division;
• trading policy for dealing in securities of QBE Insurance Group Limited or other entities by directors and senior Group executives;
• workforce diversity policy;
• continuous disclosure guidelines;
• shareholder communication guidelines; and
• QBE’s constitution.

Diversity

The Group aims to create a workplace that is fair and inclusive in order to attract and retain the best people to do the job. QBE in Australia has been assessed as compliant with the Workplace Gender Equity Act (for locally-based employees) for 2012.

In 2010, QBE considered changes to the ASX CGC’s Principles and Recommendations with regard to gender diversity. These changes were integrated into the workforce diversity policy that was first approved by the Remuneration Committee in December 2010 under its charter from the Board. The policy has been communicated to employees across the Group to promote awareness and proactive management practices regarding workplace diversity and inclusion. The Group embraces diversity, including differences in ethnic background, gender, age, sexual orientation, religion and disability.

Divisional CEOs manage divisional diversity and inclusion plans aligned to the objectives in this policy.

Specific objectives include:

• reasonable participation of women in senior leadership roles;
• participation of women in accelerated talent programs that provide development focused on attainment of leadership roles;
• regular monitoring and management of pay equity between women and men within job families in each region;
• improved awareness of options for flexible working arrangements and family support programs available in each region; and
• availability of employee education specific to the benefits of work force diversity and manager education, focusing on work force diversity management, including role redesign to encourage flexible working arrangements.

In order to make diversity and inclusion integral to the culture of QBE, QBE has established a Group Workforce Diversity Committee which is responsible for reviewing and making recommendations to the Remuneration Committee on the Group’s workforce diversity and inclusion practices and objectives. The Remuneration Committee monitors progress of the Workforce Diversity Committee. Most recently, the committee suggested actively promoting flexible work arrangements around the Group. This activity yielded global flexible work principles communicated by the Group Chief Executive Officer to employees in 2012 and a goal to launch formal flexible work policies in Group head office and all divisions during 2013.

Diversity measurement

QBE is committed to creating a culture of diversity and inclusion around the Group. To ensure this expectation is consistently met, measurable objectives for fostering inclusive, diverse workgroups have been added to performance objectives to people leaders at the top three levels of the organisation.

Additionally, QBE has set specific targets to ensure gender diversity across the Group. The Remuneration Committee in December 2010 set a target for 25% of all senior head office roles and 20% of all senior roles within the divisions to be held by females by December 2012. A summary of women’s roles at QBE is provided below:

DIVERSITY OBJECTIVE	31 DECEMBER 2012	31 DECEMBER 2011
Women in workforce	56%	57%
Group Board positions	37.5%	37.5%
Executive positions	9%	7%
Senior executive positions (Group head office)	24%	17%
Senior executive positions (divisions)	19%	17%

 

QBE is considering restating its targets of improving the number of women in senior executive positions now that the targets are close to being achieved. When the diversity targets were initially established, the focus was on gender; as we look forward, the organisation is also considering how to widen the diversity agenda throughout QBE.

Insurance and other regulation

General insurance and, to a lesser extent, reinsurance are heavily regulated industries. In addition to accounting, legal, tax and other professional teams, QBE has personnel who focus on regulatory matters. Regulators in Australia include ASIC, the Australian Competition and Consumer Commission, APRA, the Australian Privacy Commissioner and relevant state authorities for compulsory third party motor insurance and workers’ compensation insurance. These regulatory bodies enforce laws which deal with a range of issues, including capital requirements and consumer protection. Similar local laws and regulations apply to the Group’s operations outside Australia.

Share trading policy

QBE revised its policy in 2013 for directors and senior Group executives relating to the purchase and sale of QBE securities. This is in addition to the insider trading provisions of the Corporations Act 2001.

In particular, the policy states that directors and senior Group executives should:

• never actively trade the company’s securities;
• not hedge unvested entitlements as well as not hedge vested entitlements counting towards an executive's minimum shareholding requirement; and

• notify any intended transaction to nominated people within the Group, including notification of any hedging.

QBE will disclose any hedging in the remuneration report.

The policy identifies set periods during which directors or senior Group executives may buy or sell QBE’s securities, being one to 30 days after each of the release of QBE’s half year results, the release of QBE’s Annual Report and the date of the AGM, and also one day after the issue of any prospectus until the closing date. Any QBE share dealings by directors are promptly notified to the ASX.

ASX CGC principle 4: safeguard integrity in financial reporting

Audit Committee

The membership of the Audit Committee may only comprise non-executive directors. This committee normally meets four times a year. The Chairman must be a non-executive director who is not the Chairman of the Board. The current members are Mr DM Boyle (Chairman), Mr JA Graf, Ms IF Hudson, Ms BJ Hutchinson AM and Ms IYL Lee.

The role of the Audit Committee is to oversee the credibility of QBE’s financial reporting process. This includes review of:

• the financial reporting to APRA, ASIC, the ASX and shareholders;
• financial reporting risks;
• the Group’s accounting policies, practices and disclosures; and
• the scope and outcome of external and internal audits.

This committee’s scope includes reviewing the financial statements (including items such as the outstanding claims provision, and reinsurance recoveries), internal controls, financial reporting, tax compliance and significant changes in accounting policies.

Other non-executive directors normally attend Audit Committee meetings which consider the 30 June and 31 December financial reports. Meetings of this committee usually include, by invitation, the Group Chief Executive Officer, the Group Chief Financial Officer, the Group Chief Actuary, the Group Chief Risk Officer, the Group Head of Internal Audit and the external auditor. As appropriate, other relevant senior managers also attend.

The Audit Committee has free and unfettered access to the external auditor. The external auditor, the Group Head of Internal Audit and the Group Chief Actuary have free and unfettered access to this committee.

External auditor independence

QBE firmly believes that the external auditor must be, and must be seen to be, independent. The external auditor confirms its independence in relation to the 30 June and 31 December financial reports and the Audit Committee confirms this by separate enquiry. The Audit Committee has contact with the external auditor in the absence of management in relation to the 30 June and 31 December financial reports and otherwise as required. The external auditor normally confers with the Audit Committee in the absence of management as part of each meeting.

QBE has issued an internal guideline on external auditor independence. Under this guideline, the external auditor is not allowed to provide the excluded services of preparing accounting records, financial reports or asset or liability valuations. Furthermore, it cannot act in a management capacity, as a custodian of assets or as share registrar.

The Board believes some non-audit services are appropriate given the external auditor’s knowledge of the Group. QBE may engage the external auditor for non-audit services other than excluded services subject to the general principle that fees for non-audit services should not exceed 50% of all fees paid to the external auditor in any one financial year. External tax services are generally provided by an accounting firm other than the external auditor.

The external auditor has been QBE’s auditor for many years. As a diverse international group, QBE requires the services of one of a limited number of international accounting firms to act as auditor. It is the practice of QBE to review from time to time the role of the external auditor. The Corporations Act 2001, Australian professional auditing standards and the external auditor’s own policy deal with rotation and require rotation of the lead engagement partner after five years. In accordance with such policy, the lead engagement partner of the external auditor rotated in 2009 and will again in 2014.

Actuarial review

It is a longstanding practice of the directors to ensure that the Group’s insurance liabilities are assessed by actuaries. The Group’s outstanding claims provision is reviewed by experienced internal actuarial staff. Actuarial staff are involved in forming an independent view, separate from management, of the central estimate and the probability of adequacy of the outstanding claims provision and premium liabilities, premium rates and related matters. Around 96% of QBE’s central estimate is also reviewed by external actuaries. External actuaries are generally from organisations which are not associated with the external auditor.

CEO/CFO certificates

The Group Chief Executive Officer and Group Chief Financial Officer provide the Board with certificates in relation to risk management and internal control as recommended by the ASX CGC and on the financial reports as required by the Corporations Act 2001.

Internal audit

A global internal audit function is critical to the risk management process. QBE’s internal audit function reports to senior management and the Audit Committee on the monitoring of the Group’s worldwide operations. Internal audit provides independent assurance that the design and operation of the controls across the Group are effective. The internal audit function operates under a written charter from the Audit Committee. Other governance documents include a reporting protocol, internal audit manual, internal audit issue rating system, internal audit opinion levels and internal audit timetables. A riskbased internal audit approach is used so that higher risk activities are reviewed more frequently. The Group’s internal audit teams work together with the external auditor to provide a wide audit scope.

Investment Committee

The membership of the Investment Committee may only comprise non‑executive directors. The Investment Committee normally meets four times a year. The Chairman must be a non-executive director who is not the Chairman of the Board. The current members are Ms IYL Lee (Chairman), Mr JA Graf, Mr JM Green, Mr CLA Irby and Ms BJ Hutchinson AM. Meetings of the Investment Committee usually include, by invitation, the Group Chief Executive Officer, the Group Chief Investment Officer and the Group Chief Financial Officer. As appropriate, other relevant senior managers also attend.

The role of the Investment Committee is to oversee QBE’s investment activities. This includes review of:

• investment objectives and strategy;
• investment risk management;
• currency, equity and fixed interest exposure limits;
• credit exposure limits with financial counterparties; and
• Group treasury.

The Investment Committee’s scope includes review of economic and investment conditions as they relate to QBE and overseeing investment performance, including the performance of any defined benefit superannuation funds sponsored by QBE.

ASX CGC principle 5: make timely and balanced disclosure

Continuous disclosure

ASX Listing Rule 3.1 requires QBE to inform the ASX immediately once QBE is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of QBE’s shares. Procedures are in place to ensure that items which potentially require announcement to the ASX are promptly notified to Group head office for assessment and released as required. Depending upon content, either the Board or the Group Chief Executive Officer is responsible for authorising market releases. All market releases are posted promptly to the Group’s website.

QBE takes the spirit of its continuous disclosure obligations very seriously and issues frequent market releases during the year to satisfy those obligations. A list of the material releases made since 1 January 2012 is included on page 180 of the 2012 Annual Report.

ASX CGC principle 6: respect the rights of shareholders

Communication with shareholders

The Corporations Act 2001 no longer requires QBE to distribute an Annual Report to all shareholders except to those who elect to receive it. QBE also produces a half year report which is sent to all shareholders who elect to receive it. Both reports are available on the QBE website. The website also contains historical and other details on the Group. Shareholders can discuss their shareholding with either the shareholder services department or the share registrar, both located in Sydney.

The AGM is held in Sydney each year, usually in April; however, in 2013, it will be held on 27 March. Shareholders are encouraged to attend the AGM in person or by proxy. Most resolutions in the notice of meeting have explanatory notes. During the AGM, shareholders may ask questions of either the Chairman or the external auditor.

Communications with analysts, investors, media, rating agencies and others

The Group Chief Executive Officer, Group Chief Financial Officer, Group Chief Risk Officer, General Counsel and Company Secretary, Head of Investor Relations, divisional chief executives and divisional finance officers generally deal with analysts, investors, media, rating agencies and others, taking account of regulatory guidelines including those issued by the ASX on continuous disclosure. The presentations on the 30 June and 31 December results and other major presentations are sent to the ASX before the presentations commence and are available promptly on the Group’s website. The 30 June and 31 December presentations are also webcast live and subsequently archived on the Group’s website.

ASX CGC principle 7: recognise and manage risk

Risk management

QBE’s core business is the underwriting of risk. The Group’s successful performance over many years clearly establishes its substantial risk management credentials.

It is QBE’s policy to adopt a rigorous approach to managing risk throughout the Group. Risk management is a continuous process and an integral part of quality business management. QBE’s approach is to integrate risk management into the broader management processes of the organisation. It is QBE’s philosophy to ensure that risk management remains embedded in the business and that the risk makers or risk takers are themselves the risk managers.

Diversification is used as a tool to reduce the Group’s overall insurance risk profile by spreading exposures, thereby reducing the volatility of results. QBE’s approach is to diversify insurance risk, both by product and geographically. Product diversification is achieved through a strategy of developing strong underwriting skills in a wide variety of classes of business. A combination of core and speciality products under the control of proven employees skilled in such products allows QBE to lead underwrite in many of the markets in which we operate. Geographic diversification is achieved by operating in 48 countries.

QBE has a global risk management framework that defines the risks that QBE is in business to accept and those that we are not, together with the material business risks that QBE needs to manage and the framework and standards of control that are needed to manage those risks.

The foundation of our risk management is the obligation and desire to manage our future and create wealth for our shareholders by maximising profitable opportunities through:

• achieving competitive advantage through better understanding of the risk environment in which we operate;
• optimising risk and more effectively allocating capital and resources by assessing the balance of risk and reward;
• adequate pricing of risk;
• avoiding unwelcome surprises by reducing uncertainty and volatility, such as by controlling aggregate exposures and maintaining sound reinsurance arrangements;
• complying with laws and internal procedures; and
• improving resilience to external events.

The Group has established internal controls to manage material business risks in the key areas of exposure relevant to QBE. The broad risk categories are strategic and business risk, insurance risk, credit risk, market risk, liquidity risk and operational risk. Internal controls and systems are designed to provide reasonable assurance that the assets of the Group are safeguarded, insurance and investment exposures are within desired limits, reinsurance protections are adequate, counterparties are subject to security assessment and foreign exchange exposures are within predetermined guidelines.

The Board approves a comprehensive risk management strategy (RMS) and reinsurance management strategy (REMS) annually, both of which are lodged with APRA. The RMS outlines the principles, framework and approach to risk management adopted by the Group, deals with all areas of significant business risk to the Group and outlines the Group’s risk appetite. The REMS covers topics such as the Group’s strategy in respect of the selection, approval and monitoring of all reinsurance arrangements. The Group’s reinsurance management framework is made up of the Group Reinsurance Forum (determines risk appetite and reinsurance strategy), the Group Security Committee (assesses reinsurer counterparty security), the Group Aggregate Management Committee (monitors aggregate accumulation), the Group Technical Committee (controls the adequacy of reinsurance coverage) and finally the Group Commutations Committee (facilitates Group commutation opportunities). The committees meet regularly throughout the year and report as required to the Group Reinsurance Forum.

While the RMS and REMS are approved by the Board, QBE believes that managing risk is the day to day responsibility of the Group head office and the business units, and that all staff need to understand and actively manage risk. The business units are supported by risk management teams, compliance teams and by senior management. Further information on risk management is provided on pages 66 to 69 of the 2012 Annual Report and in note 5 to the financial statements.

Management has reported to either the former Audit and Risk Committee (and will report to the Risk and Capital Committee) or the Board on the effectiveness of QBE’s management of its material business risks.

Environmental risk management

QBE is a corporation involved in an industry that seeks to play a role, in conjunction with governments, individuals and organisations, in managing and reducing environmental risk. In an initiative to collaborate with the United Nations Environment Program, QBE, together with a number of other major international insurers, is a signatory to a statement of environmental commitment by the insurance industry.

The Group Chief Risk Officer is responsible for monitoring and managing ongoing risks and opportunities relating to climate change in order to mitigate any adverse effect on QBE’s businesses and to protect shareholders’ funds. Reports have been provided to the former Audit and Risk Committee.

Measurement of the Group’s environmental impact to date has focused on two key carbon emission metrics, being business air travel and electricity usage. Based on these key metrics, the Group’s estimated carbon emissions (CO2e) for 2012 were 57,455 tonnes (2011 52,957 tonnes), an increase of 8.5%. This can be summarised as:

• 1,160 tonnes of scope 1 direct greenhouse emissions due to natural gas and oil consumption used for heating (2011 1,306 tonnes);
• 36,396 tonnes of scope 2 indirect greenhouse emissions from electricity consumption (2011 36,541 tonnes); and
• 19,899 tonnes of scope 3 other indirect greenhouse emissions, defined as emissions relating to travel (2011 15,110 tonnes).

QBE is a participant in the annual Carbon Disclosure Project (CDP) survey. The CDP is an independent, not-for-profit organisation which acts as an intermediary between shareholders and corporations on all climate change related issues, providing climate change data from the world’s largest corporations to the global market place.

QBE’s response to the latest CDP questionnaire, CDP2012, was published in October 2012 and is available on our website in the investor information section.

ASX CGC principle 8: remunerate fairly and responsibly

Remuneration Committee

The membership of the Remuneration Committee may only comprise non-executive directors. The Remuneration Committee normally meets four times a year. The Chairman must be a non‑executive director who is not the Chairman of the Board. The current members are Ms IF Hudson (Chairman), Mr DM Boyle, Mr JM Green and Ms BJ Hutchinson AM. Meetings of the Remuneration Committee usually include, by invitation, the Group Chief Executive Officer and the Group Executive Officer, People and Communications.

QBE’s governance of remuneration focuses on aligning the remuneration and reward strategy and frameworks with robust risk management practices and strong governance principles.

The role of the Remuneration Committee is to oversee QBE’s major remuneration practices. The Remuneration Committee, in particular, assesses the appropriateness of remuneration frameworks and practices in order to fairly and responsibly reward the Group Chief Executive Officer and other members of the Group Executive. The Remuneration Committee ensures rewards are commensurate with performance and that remuneration levels are competitive in the various markets in which QBE operates. The Remuneration Committee has access to detailed external research from independent consultants.

The Remuneration Committee’s scope includes:

• recommendations on the total remuneration (fixed and at-risk) of the Group Chief Executive Officer and executives reporting to him;
• review of short-term and deferred incentives such as equity-based plans;
• review of superannuation;
• review of performance measurement criteria, succession plans and other major human resource practices;
• monitoring of PDPs for the Group Executive and other seniorpositions;
• recommendations on non-executive director remuneration to the Board;
• review of reward structures (including incentive schemes) for employees of APRA regulated entities (such as risk and financial control employees) in accordance with the requirements of APRA prudential standards relating to the governance of remuneration; and
• review of workplace diversity.

The Remuneration Committee recognises that the key to achieving sustained performance is to motivate and retain quality employees and align executive reward with changing shareholder wealth. The Remuneration Committee has the discretion to reduce deferred equity awards to the Group Executive where financial results subsequently deteriorate.

QBE has operations and staff in 48 countries with differing laws and customs. QBE’s remuneration policy therefore reflects the fact that QBE is a global organisation, whilst also taking into account local remuneration levels and practices.

Details of remuneration

Details of remuneration of executives and non-executive directors, such as employee entitlements under the Employee Share and Option Plan, deferred equity awards and superannuation are included in the remuneration report on pages 84 to 104 and in notes 30 and 31 to the financial statements of the 2012 Annual Report.