Statement of corporate governance

Application of principles of good corporate governance

There is, and historically there has been, throughout the company and the group, a commitment to high standards of corporate governance. The directors continue to develop procedures which ensure that, where the board considers it appropriate, the Beazley group will comply with the UK Corporate Governance Code.

Compliance with code provisions

The board confirms that the company and the group has, save for the composition of the board and the completion of a full board assessment, complied with the provisions set out in the UK Corporate Governance Code for the year ended 31 December 2010. The company increased the number of independent non executive directors through the appointment of Ken Sroka in November 2010 and Rolf Tolle in December 2010 resulting in an equal number of executive and independent non executive director at 31 December 2010.

The board is accountable to the company’s shareholders for good governance and the statements set out below describe how the principles identified in the revised UK Corporate Governance Code have been applied by the group.

The board

The board consists of a non-executive chairman, Jonathan Agnew, together with seven independent non-executive directors, of which Andy Pomfret is the senior non-executive director, and seven executive directors, of which Andrew Horton is chief executive. All seven of the non-executive directors, who have been appointed for specified terms, are considered by the board to be independent of management and free of any relationship which could materially interfere with the exercise of their independent judgement.

Biographies of current board members appear in the corporate governance section of this report. These indicate the high level and wide range of business experience that are essential to manage a business of this size and complexity. A well defined operational and management structure is in place and terms of reference exist for all board committees. The roles and responsibilities of senior executives and key members of staff are clearly defined.

The full board meets at least five times each year and more frequently where business needs require. The board has a schedule of matters reserved for its decision including, inter alia: strategic matters; statutory matters; approval of financial statements and dividends; appointments and terminations of directors, officers and auditors; appointments of committees and setting of terms of reference; review of group performance against budgets; approving of risk management strategy and material contracts; and determining of authority levels within which management is required to operate. The board has also appointed an executive committee with delegated responsibility for particular matters such as considering the business plan, the underwriting, risk and regulations, investments and operations.

There is an agreed principle that directors may take independent professional advice if necessary at the company’s expense, on the basis that the expense is reasonable. This is in addition to the access which every director has to the company secretary. The secretary is charged by the board with ensuring that board procedures are followed.

To enable the board to function effectively and directors to discharge their responsibilities, full and timely access is given to all relevant information. In the case of board meetings, this consists of a comprehensive set of papers, including regular business progress reports and discussion documents regarding specific matters.

The composition of and appointments to the board of both executive and non-executive directors are considered by the nomination committee. The recommendations of the nomination committee are ultimately made to the full board, which considers them before any change is made. The remuneration committee considers any remuneration package of executive directors before it is offered to a potential appointee. The members of the audit, remuneration and nomination committees are set out below.

Any director appointed by the board during the year is required, under the provisions of the company’s articles of association, to retire and seek re-election by shareholders at the next annual general meeting. The articles also require that each director retires and seeks re-election at an annual general meeting at least once in any three-year period.

Full details of directors’ remuneration and a statement of the company’s remuneration policy are set out in the directors’ remuneration report in the corporate governance section of this report. The members of the remuneration committee and the principal terms of reference of the committee also appear in the corporate governance section.

Meetings with non-executive directors

The chairman holds meetings as required with the non-executive directors without the executive directors being present.

Board performance evaluation

Under the UK Corporate Governance Code, the board is required to undertake a formal and rigorous evaluation of its own performance and that of its committees and individual directors. This was last carried out in 2009 and we continued to implement the recommendations arising from the review into 2010. In line with our policy, a further evaluation will be carried out in 2011.

Individual attendance by directors at regular meetings of the board and of committees

In addition to the 5 regular board meetings, there were a further 7 meetings to consider potential corporate transactions and changes to board membership. Attendance of these meetings was generally high.

Director

Board

Audit committee

Remuneration committee

Nomination committee

No. of meetings

No. attended

No. of meetings

No. attended

No. of meetings

No. attended

No. of meetings

No. attended

J G W Agnew

5

5

-

-

-

-

3

3

A F Beazley

4

2

-

-

-

-

G P Blunden

5

5

6

6

1

1

3

3

M L Bride

5

5

 -

-

 -

-

-

 -

A P Cox

 -

-

-

-

-

 -

-

 -

N H Furlonge

5

5

 -

-

-

-

-

-

J G Gray

5

5

 -

-

-

-

-

-

A G K Hamilton

5

5

6

6

5

5

3

3

D A Horton

5

5

-

-

-

-

-

-

D L Jones

2

2

2

2

2

2

1

1

P J O’Connor

5

5

-

-

5

5

-

-

N P Maidment

5

5

-

-

-

 -

-

-

A D Pomfret

5

5

5

5

3

3

V J Sheridan

5

5

6

6

 -

 -

-

-

K P Sroka

1

1

-

-

 -

-

-

-

R W Tolle

 -

-

-

 -

-

-

-

-

C A Washbourn

5

5

-

-

-

-

-

-

On 2 June 2010 Dan Jones resigned from the board and audit, remuneration and nomination committees to assume an executive role heading broker relations within Beazley. Ken Sroka was appointed to the board on 12 November and to the remuneration committee on 6 December 2010. Rolf Tolle was appointed to the board and the audit committee on 6 December 2010 and Adrian Cox was appointed to the board on 6 December 2010.

Board committees

The company has established properly constituted audit, remuneration and nomination committees of the board.

Audit committee

The audit committee currently comprises Gordon Hamilton (committee chairman from 1 January 2010), Vincent Sheridan, George Blunden and Rolf Tolle. Dan Jones was a member of this committee until 2 June 2010 when he resigned. The committee regularly meets without any executive management being present and the committee holds regular meetings with the head of internal audit and with the external auditor.

The committee’s main objectives are, inter alia: to monitor the integrity of the company’s financial statements and any other formal announcements relating to the company’s financial performance; review significant financial reporting judgements contained in them, before submission to and approval by, the board, and before clearance by the external auditors; review the company’s internal financial controls and the company’s internal control and risk management systems; approve the appointment or termination of appointment, of the head of internal audit and monitor and review the effectiveness of the company’s internal audit function; and review the arrangements by which employees of the company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters.

The committee also reviews any matters raised by the external auditors and internal audit. The chief executive, the finance director, and the risk management director are invited to attend part of each meeting of this committee. The audit committee received a number of presentations during the year on operational and underwriting activities. The external auditors are invited to attend meetings regularly. The auditors have unrestricted access to the members of the audit committee, and the committee ensures that meetings are used as aforum for discussion and communication between compliance, internal audit, the external auditors and the board. The committee receives regular updates and monitors the status of actions taken by management to address issues raised by both external and internal audit. Risk management provides reports to the audit committee on the risk assessment and the self-certification from risk owners of the operating effectiveness of internal controls. The audit committee undertakes a regular appraisal of its performance in relation to best practice. Findings of this review are formally reported to the board.

In respect of any firm of external auditors and consulting actuaries which may be appointed by any group company, the audit committee is also responsible for recommending their appointment and termination; recommending their terms of reference; receiving regular reports, independent of management where necessary; determining their independence; monitoring their performance; and approving their fees.

Following a recommendation from the audit committee, the board has adopted a policy in relation to the provision of non-audit services by the auditors. The objective is to ensure that the provision of such services does not impair the external auditor’s objectivity. The policy specifically disallows certain activities to be provided by the auditor such as bookkeeping and accounting services, internal actuarial service and executive remuneration services. The policy requires pre-approval for all other material services such as due diligence assistance, tax services and advice on accounting and audit matters.

The aim is to limit the total spend on non-audit services to a maximum of the annual audit fee unless it is deemed to be in the shareholders’ interest from an efficiency and effectiveness point of view.

The split between audit and non-audit fees for the year under review is disclosed in the notes to the financial statements. All of these are considered by the audit committee not to affect the auditors’ independence or objectivity.

The committee’s terms of reference are published on the company’s website.

Remuneration committee

The remuneration committee comprises Andy Pomfret (who was appointed chairman from 1 January 2010), Gordon Hamilton, Padraic O’Connor, George Blunden (who was appointed on 12 November 2010) and Ken Sroka (who was appointed on 6 December 2010). The work of the remuneration committee is covered further in the directors’ remuneration report in the corporate governance section.

Copies of executive directors’ service contracts and the terms and conditions of appointment of the non-executive directors are available for inspection at the company’s office during normal business hours.

The terms of reference of the remuneration committee are published on the company’s website.

Nomination committee

The nomination committee consists of Jonathan Agnew as the chairman, together with George Blunden, Andy Pomfret and Gordon Hamilton. Dan Jones left the committee in June. It meets as required and makes recommendations to the board on all board appointments, including the selection of non-executive directors. During 2010 the nomination committee carried out the search for additional non executive directors. Independent external advisors were engaged to support the search which resulted in the nomination committee recommending the appointment of Ken Sroka. The committee also recommended the appointments of Role Tolle and Adrian Cox in December 2010. The committee has reviewed the constitution of the committees and recommended the appointment of George Blunden and Ken Sroka to the remuneration committee and of Rolf Tollto the audit committee. The committee has also considered the performance and succession plans for the executive directors. In 2011 the committee will oversee a full board assessment as well as that of the committees and individual director performance.

The terms of reference of the nomination committee are published on the company’s website.

Shareholder communication

The company places great importance on communication with shareholders. The full report and accounts and the interim report will be available from www.beazley.com and upon request, will be mailed to shareholders and to other parties who have an interest in the group’s performance. The company responds to individual letters from shareholders and maintains a separate investor relations centre within the existing www.beazley.com website as a repository for all investor relations matters.

There is regular dialogue with institutional shareholders as well as general presentations, attended by executive directors, after the preliminary and interim results. The board is advised of any specific comments from institutional investors to enable them to develop an understanding of the views of major shareholders. All shareholders have the opportunity to put forward questions at the company’s annual general meeting.

The company has the authority within its articles to communicate with its shareholders using electronic and website communication and to allow for electronic proxy voting.

Audit and internal control

The respective responsibilities of the directors and the auditors in connection with the accounts are explained in the statement of directors' responsibilities and independent audit report, and the statement of directors on going concern.

The board confirms that there is a continuous process for identifying, evaluating and managing any significant compliance issues and risks facing the group. All significant risks are captured in the Beazley risk register and monitored on a monthly basis. The risk register and the relating internal capital assessment process is subject to review,challenge and approval by the board.

The directors are responsible for the group’s system of internal control and for reviewing its effectiveness. However, such a system can only provide reasonable, but not absolute, assurance against material misstatement or loss. The system is designed to manage rather than eliminate the risk of failure to achieve business objectives within the risk appetite set by the board.

The key procedures that the directors have established to ensure that internal controls are effective and commensurate with a group of this size include:

  • the day-to-day supervision of the business by the executive directors;

  • review and analysis by the various group committees of standard monthly, quarterly and periodic reporting as prescribed by the board;

  • review of financial, operational and assurance reports from management; and

  • the review of any significant issues arising from external audits.

Further information on the role of the audit committee is set out above. The committee, on behalf of the board, approves the internal audit plan and any subsequent changes. Internal audit reports directly to the audit committee, whose terms of reference include approving the appointment or termination of appointment, of the head of internal audit and monitoring and reviewing the effectiveness of the company’s internal audit function. The new head of internal audit joined the company in January 2010 and the internal audit team has been further strengthened during the year to assist the audit committee and the board in evaluating and assessing the internal control environment in an increasingly complex economic and regulatory environment.

Further information on risk management at Beazley is contained in the notes to the financial statements.