SHAREHOLDER RIGHTS DIRECTIVE
It is important that customers understand the company they are taking a policy out with , so we are sharing this information – and by the way this also complies with EU and FCA rules. We are required to provide certain disclosures regarding our UK insurance business, where investment is being made in shares traded on a regulated market.
A. Shareholder engagement policy
Currently LICI UK funds are managed by Investec Wealth & Investment (IW&I) on a discretionary fund management basis. The funds are invested by IW&I as per the board approved investment policy and within the limits laid down in the LICI UK risk appetite.
The Shareholders Rights Directive II (SRD II) aims to promote effective stewardship and long-term investment decision-making by enhancing the transparency of asset managers’ investment strategies. The Financial Reporting Council (FRC) also issued the UK Stewardship Code (‘the Code’) in 2010, with revision anticipated in summer 2019.
As an investment firm that provides portfolio management services to investors, IWI is considered an SRD asset manager. The Investec Wealth & Investment’s (IW&I) engagement policy in line with the requirements under SRD II is as below:
- Integration of shareholder engagement within IW&I’s investment strategy
We regularly engage directly with company boards outside of the traditional AGM cycle, on matters ranging from remuneration to mandate change.
Separate Equity and Collective Corporate Governance Committees oversee the execution of our governance responsibilities.
- Monitors investee companies on relevant matters, including:
b) financial and non-financial performance and risk;
c) capital structure; and
d) social and environmental impact and corporate governance.
IW&I has a dedicated Research team that monitors all the investments that it actively covers. News flow is followed closely and, when deemed appropriate, conclusions are communicated to Investment Managers. When we make purchases on behalf of our clients, our aim is to make investments that can be held for the long-term and as such we pay regard to fundamental factors including how the company is managed, its market position, balance sheet leverage, capital allocation policy and its returns on capital. We make use of third party services to augment our view from a social and environment perspective.
- Conducts dialogues with investee companies
Engagement with investee companies will most likely be through direct dialogue with the management team or through exercising voting rights at General Meetings. If we think a
company is not being managed in the interests of our clients, we will decide how best to engage with the company to address this.
IW&I regularly engages directly with management to discuss any issues as they arise, both through in-house meetings (affording Investment Managers an opportunity to raise their own points) and through contact at presentations and conferences.
Where we wish to escalate matters, we can exercise any voting rights we have discretion over. Going further, we can put forward shareholder resolutions and discuss matters with the Company’s advisers, its non-executive directors or the Chairman. We are prepared to combine forces with other shareholders to increase pressure on management.
From time to time, where our holdings are insufficient to apply appropriate pressure to the Company or we feel our concerns have not been adequately addressed, we may consider disinvestment.
- Exercises voting rights and other rights attached to shares
We employ a third party proxy advisory company to provide detailed governance analysis on several hundred of our key holdings. We then use the output of this forensic analysis of ballot papers to shape, but not dictate, our engagement activity around AGMs. We will not routinely vote in every meeting, particularly if there is nothing contentious or our holding size renders our vote to all practical extents insignificant, but we will vote where we deem either the issue in question or our holding significant.
- Cooperates with other shareholders
IW&I is willing to act with like-minded shareholders where appropriate and where it is in the interests of our clients, so long as in doing so we are able to comply with insider dealing or concert party rules.
- Communicates with relevant stakeholders of the investee companies
At present IW&I aims to report to interested clients where we have voted against management or voted to encourage management to adopt a resolution that could lead to a change in how they operate. Disclosure would be limited to those shares held by each of those clients, rather than a report on all activity carried out by IW&I. We do not currently report on all our voting and are unlikely to report on activities where we have engaged with management as we would want management of these companies to know that our discussions are confidential. A central record of voting activity is maintained on behalf of IW&I.
- Manages actual and potential conflicts of interests in relation to the firm’s engagement
IW&I has a Company Policy on Conflicts of Interest. The policy highlights the businesses within IW&I and those that we do not undertake. Our policy also outlines how we manage any conflicts that do arise, including any conflicts of interest which may arise as a result of engagement. A copy of our conflicts policy is available to all our clients in our Terms and Conditions, and can also be obtained upon request from the Head of Compliance by other interested parties.
B. Investment strategy and arrangements with asset managers
Also under the EU and FCA rules we are required to provide the following public disclosures regarding our arrangements with asset managers:
||LICI UK’s approach
|1. How the arrangement with the asset manager incentivises the asset manager to align its investment strategy and decisions with the profile and duration of the liabilities of the life insurer’s long-term liabilities.
||LICI UK has a Board approved investment policy that forms the basis for investments by our fund manager IW&I. Our board approved risk appetite is determined by the Chief Actuary, taking into account the profile and duration of LICI’s long-term liabilities and is embedded in the investment policy.
Among other things the duration of investments are range aligned with that of long term liabilities and this is a part of our investment policy. LICI UK conduct quarterly review meetings with the IW&I to ensure that investments are aligned to the investment policy.
|2. How that arrangement incentivises the asset manager to make investment decisions based on assessments about medium to long-term financial and non-financial performance of the investee company and to engage with investee companies to improve their performance in the medium to long-term.
||The asset manager is incentivised to grow the fund value as their sole remuneration is directly linked to the value of the fund. In addition, if the investments were underperforming relative to benchmarks in the long term, the investment manager knows that LICI UK could change to a different investment manager.
|3. How the method and time-horizon of the evaluation of the asset manager’s performance and the remuneration for asset management services are in line with the profile and duration of the liabilities of the life insurer, in particular, long-term liabilities, and take absolute long-term performance into account.
||The quarterly review focuses on the long term performance of the fund rather than the short term. As mentioned earlier, the duration of investments are range aligned with those of liabilities through the investment policy and the remuneration for the asset manager is directly linked to the value of the fund.
|4. How the life insurer monitors portfolio turnover costs incurred by the asset manager and how it defines and monitors a targeted portfolio turnover or turnover range.
||We do not currently monitor portfolio turnover as this is not subject to limits in the investment policy and fund agreement with the asset manager. However, turnover costs will be reflected in investment performance and therefore monitored indirectly.
|5. The duration of the arrangement with the asset manager.
||Our current arrangements with asset managers will continue as long as the asset managers deliver investment growth in the long term.
The above statements will be reviewed on an annual basis and updated in the event of any material changes.