Corporate governance G4-34

Liberty Seguros follows the Liberty Mutual Group’s “do the right thing” precept for managing its business and relationships. This principle is supported by the Compliance area, which pursues strict compliance and transparency policies for all processes. The area also has the following responsibilities:



Together with other areas, monitoring and ensuring the internal controls system’s implementation, adequacy, strengthening and operation in order to mitigate risks in proportion to the complexity of the business.

Spreading the controls culture to ensure compliance with the laws and current regulations, and alignment with best practices internationally.

Ensuring adherence to the abovementioned aspects through procedures designed to reduce or eliminate potential conflicts of interest. G4-41

Determining principles and elements related to internal policies that ensure transparent disclosure while protecting the interests of shareholders, customers, employees and other stakeholders.



 
The management staff in the Company is also supported by the Internal Audit area, which is tasked with reviewing:
Internal control environment, including the level of adherence to internal policies and local regulations.
The controls systems’ efficacy in terms of minimizing business risk, including reviews of general controls, software, technology infrastructure and integrated business processes.
The accuracy of data produced and applicable levels of confidence for decision-making purposes.


The Company also has an Audit Committee, consisting of three independent members based on the criteria for independence determined by its internal regulations, which meet all applicable legal requirements – and the Ethics Committee, which has members from Compliance, Legal and Humans Resources.

Participation G4-16

Liberty Seguros participates in working groups, discussion forums, seminars and congresses held by the National Confederation of General Insurance, Private Pension and Life, Supplementary Healthcare and Special Savings Companies. In 2016, the Company’s representatives were on CNseg’s Internal Controls and Risk Management committees.

Risk management

G4-2

Liberty Seguros is exposed to certain key risks that may affect its strategic and financial objectives to a greater or lesser extent, as follows:

  • Insurance risk: the Company has specific acceptance and pricing criteria for each line of business, thus minimizing anti-selection risk and ensuring appropriate levels of competitiveness and profitability for the risks carried. Appropriate pricing for the main lines of business is ensured by the Actuarial Department and underwriting units, which also develop pricing models and policies.
  • Market and liquidity risks: in order to mitigate financial risks associated with its investment portfolio, the Company actively manages assets and liabilities with a conservative asset allocation strategy favoring mostly government bonds and high liquidity private securities.
  • Credit risk: Liberty’s strict credit risk policy for acquisitions of financial assets is based on the criterion of investing in sound institutions in the “AA” - “B +” risk rating range.
  • Operational risk: the risk management structure takes an integrated view of operational risks in order to identify, assess, treat and monitor them. The effectiveness is objectively assessed by the Company’s Internal Audit.

Liberty manages risks both qualitatively and quantitatively by fulfilling the capital requirement criteria issued by the National Council for Private Insurance (CNSP in Portuguese) and the Private Insurance Superintendence (SUSEP in Portuguese, an entity attached to the Ministry of Finance). Liberty’s strategy consists of maximizing the Company’s capital by diversifying operations across different branches of insurance and sales channels and by continuously improving pricing processes.

Compliance

Liberty Seguros’ structured Compliance Program includes training and communication material to educate staff and foster compliance principles for all employees. The program follows Liberty Mutual’s Compliance guidelines and is constantly updated to align with business requirements and Brazilian legislation such as the Anti-Corruption Law or the Clean Company Law of 2013.

Since 2013, the Company’s Compliance area has been working to minimize ethical risks or any legal issues by maintaining internal anti-money laundering and anti-corruption controls and rules, among other initiatives. Acceptance processes for risks and claims are mapped in accordance with the regulations, rules and legal provisions defined by SUSEP and CNSP and by applicable legislation. Annual updates are processed and all risks detected are monitored on a quarterly basis.

The Company also has anti-corruption and due-diligence procedures in place for service providers. The process includes an assessment of third party risks and adoption of procedures depending on their risk ratings.

In 2016, in line with its commitment to aiming for continuous improvement and providing guidance for employees, the Company issued rules on the receipt of gifts, presents and invitations

Code of Ethics and Anti-Corruption Policy G4-56

As the Company’s key compliance document, Liberty Seguros’ Code of Ethics and Corporate Conduct establishes honesty, integrity and “doing the right thing” as the Company’s guiding principles. In this respect, employees are required to fill out a questionnaire every year to ensure their awareness of the document’s guidelines. The questionnaire also provides an opportunity to report any conflict of interest. The findings that emerge from this process are analyzed by the Ethics Committee, which then issues recommendations. Reports of this nature and other ethical complaints related to situations involving violation of the code of ethics may also be reported by telephone or e-mail through the Company’s confidential Compliance Helpline channel, which is managed by Liberty Mutual in the United States, but is also equipped to provide responses in Portuguese.

There are also mandatory training events to underline Liberty Mutual’s anti-corruption policy guidelines and ensure that employees are aware of them. Additionally, in the course of 2016, the Company ran global communication campaigns for compliance that focused on the Code of Ethics, customer data privacy, and the receipt of presents or gifts.

Business management

Since 2013, Liberty Mutual Group companies have adopted the Liberty Management System (LMS) for continuous improvement and efficiency. This system applies business management concepts, methodologies and tools related to changing ways of thinking and behaving. Developed from the latest management methodologies (such as Lean Manufacturing, Six Sigma, Customer Experience and Design Thinking) and adapted to local particularities, LMS poses robust and comprehensive methods of diagnosing and troubleshooting to ensure Liberty Seguros has the capability and speed required to achieve its strategic objectives.

For this purpose, leaders may rely on support from internal consultants who will move into a business unit for a certain period of time and work together with the entire team through immersion in the unit’s strategy, processes and management to devise the transformation process. The business unit plays the leading role in this process and participates by running diagnostics and designing solutions to improve customer experience, process efficiency, team engagement and business results.

On concluding the deployment phase, to ensure that solutions are organized and sustained through a comprehensive improvement mechanism, Liberty’s Plan Do Check Act or Adjust (PDCA) cycle is one of the tools use. In the new context, leaders are better prepared to manage people planning, processes, and development.

In order to foster and deepen this transformation trend and build it out Company-wide, a number of employees are carefully selected as champions to run activities that include engaging, training and supporting leaders and their teams with initiatives for adopting the culture of effective meetings, identifying and deploying improvements and eliminating waste. By the end of 2016, Liberty Seguros’ business units had 45 LMS champions actively engaged.

There are also team meetings held periodically at every level throughout of the Company. Meetings are guided by visual management panels to help monitor performance and detect problems. Discussions start with employees in their units and then move up the Organization’s levels to reach the meeting of the CEO with his executive officers meetings, thus sees to it that information is quickly shared, while streamlining both operational and strategic decision-making.

By using these continuous improvement procedures, Liberty Seguros ensures the adoption and sharing of opportunities to energize evolution in the model by working from four perspectives: Customer Value, People Engagement, Quality and Productivity, and Financial Return.

Over three years, LMS identified 17,443 improvements, of which 10,256 have already been put in place.

Another important milestone was the gemba experience – gemba is the Japanese word for the place where things happen – or as the Company say, where “you’ll see it happen”. Liberty’s employees move away from their own positions to learn about or deepen their knowledge of a new process. They may examine new problems, listen to customer needs or learn more about best practices in the Organization and elsewhere. In 2016, there were 8,288 of these gemba experiences.

LMS highlights


Hours worked for accounting close were cut from 18 to 8 hours per professional, thus directly impacting their quality of life.
The Company improved its complaints handling process. Brazil’s top consumer complaints website (Reclame Aqui) posts showed that the proportion of its customers who complained but then said they “would do business with us again” rose from 44.4% to 52.6%.

Production was up by R$2.2 million using WhatsApp to communicate with brokers in accordance with the Company’s Sales Methodology.
Efficiency rose 15 p.p., from 56% to 71%, for Liberty’s collection process, by rating customers by claims and probability of cancelling.


Applause Program


To stimulate continuous-improvement based management, the Company has a recognition program known as Aplauso (Applause). Each leader, together with their team, chooses an improvement that will affect their results. On a quarterly basis, each team selects up to three improvements to submit to the Applause committee, which consists of leaders from different departments with a wide range of competencies. They pick out the three best projects across the Company on the basis of their financial results, productivity and engagement, customer experience impact and the innovative character of the improvement in question.

At the end of each year, after these three levels of recognition which have different rewards and take place quarterly, Liberty’s CEO and executive officers select the period’s three most significant improvements. Those chosen will then take part in an award-giving event to win a weekend of cultural activities to be enjoyed with a companion.

Strategy

Liberty Seguro’s strategy is based on three pillars – diversified portfolio, exceptional customer and broker experience, and exceptional employee experience – operating on the basis of priorities: business ethics, profitability and growth. The goal is to constantly grow as a leading brand associated with differentiated services for all customers and partners. The Company’s ambition is to continue to be among the three best-known independent insurers. To do so, Liberty is developing initiatives to ensure that insureds are aware of the full potential of their policies and make good use of them, including additional services and benefits such as collecting vehicles for servicing or fitness and nutrition advice and assistance. In this context, the Company’s main strengths are Exceptional Customer Service and People, so Liberty is investing heavily and continuously on these lines.

Liberty Seguros’ insurance portfolio is mostly Auto, which accounted for over 80% at the end of 2016. The Company has also invested in other lines to enhance portfolio composition, mainly Life (individual and group), Home, and Small and Medium Businesses (SME). The Company offers specific coverage to meet the needs and demands of various niches, with the aim of reaching a 76%/24% ratio between Auto and other products.

In addition, the Company has consolidated operations, such as telemarketing sales of insurance, increased its share of Affinity accounts and cooperatives, while taking steps to expand business in key markets such as Brazil’s Southern region.

The Company’s main strengths are Exceptional Customer Service and People

Expansion

Liberty Seguros’ expansion strategies include achieving broader presence in Brazil’s Southern region, where its revenues were over R$1 billion in 2016. The Company’s 20 subsidiaries make Liberty one of the largest insurers in terms of capillarity in this region, which accounts for almost 40% of overall production.

The Company is a leader in Auto Insurance in Santa Catarina, fourth in Paraná and fifth in Rio Grande do Sul. All this business has been consolidated through partnerships with insurance brokers, building close and strong relationships that contributed decisively to Liberty’s success in the South.

The Company will be further expanding to reach more key regions around the country by the end of 2017. Liberty is opening two new branches: one in Ipatinga (State of Minas Gerais) and another in Feira de Santana (State of Bahia). Nine managers will be allocated to these regions and remote directors will be prospecting customers.



Principles for Sustainability in Insurance (PSI) G4-15

Based on the belief that environmental, social and governance issues are the cornerstones of every business and that sustainability is the only road to development, Liberty signed the Principles for Sustainability in Insurance (PSI) in 2015 and renewed its commitment in 2016. This voluntary initiative was developed by the United Nations Environment Program’s Financial Initiative (UNEP FI). The aim is to provide tools that can reduce risk, create innovative solutions and improve business performance in the global insurance industry, thus contributing to environmental, social and economic sustainability.

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