HSBC 2006 Annual Report Download - page 231

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Following the disposal of the non-life insurance
portfolio in Brazil in 2005, credit non-life business
now represents the largest single class and is
concentrated in the US and the UK. This business is
originated in conjunction with the provision of loans.
Insurance risk
(Audited)
The principal insurance risk faced by HSBC is that
the cost of claims combined with acquisition and
administration costs may exceed the aggregate
amount of premiums received and investment
income. HSBC manages its insurance risks through
the application of formal underwriting, reinsurance
and claims procedures designed to ensure
compliance with regulations.
The Group manages insurance risk by
diversifying insurance business by type and
geography and by focusing on risks that are
straightforward to manage which, in the main, are
related to core underlying banking activities (for
example, credit life products). The following tables
provide an analysis of the insurance risk exposures
by geography and by type of business. These tables
demonstrate the Group’s diversification of risk.
Personal lines tend to be higher volume and with
lower individual value than commercial lines, which
further diversifies the risk. Compared to non-life
business, life business tends to be longer term in
nature and frequently involves an element of savings
and investment in the contract. Separate tables are
therefore provided for life and non-life business,
reflecting their very distinct risk characteristics. The
life insurance risk table provides an analysis of
insurance liabilities as the best available overall
measure of the insurance exposure. The table for
non-life business uses written premiums as
representing the best available measure of risk
exposure.
Both life and non-life business insurance risks
are controlled through high level procedures set
centrally, and can be supplemented with procedures
set locally which take account of specific local
market conditions and regulatory requirements. For
example, central authorisation is required to write
certain classes of business, with restrictions applying
particularly to commercial and liability non-life
insurance. For life business in particular, local
ALCOs monitor the risk exposures.
As indicated in the specific comments relating
to particular classes, use is also made of reinsurance
as a means of further mitigating exposure, in
particular to aggregations of catastrophe risk.
Analysis of life insurance risk – policyholder liabilities
(Audited)
Europe
Hong
Kong
Rest of
Asia-
Pacific
North
America
Latin
America
Total
US$m US$m US$m US$m US$m US$m
At 31 December 2006
Life (non-linked)
Insurance contracts with DPF1 ....................... 195 6,001 193 – – 6,389
Credit life ........................................................ 130 – – 200 – 330
Annuities ........................................................ 271 – 26 1,106 1,370 2,773
Term assurance and other long-term
contracts ..................................................... 1,134 75 89 – 236 1,534
Total life (non-linked) ........................................ 1,730 6,076 308 1,306 1,606 11,026
Life (linked) ........................................................ 1,270 765 402 – 1,248 3,685
Investment contracts with DPF1 ......................... – – 20 – – 20
Life insurance policyholders’ liabilities ............. 3,000 6,841 730 1,306 2,854 14,731
At 31 December 2005 (restated2)
Life (non-linked)
Insurance contracts with DPF1 ........................... 155 3,886 152 – – 4,193
Credit life ........................................................ 156 – – 196 – 352
Annuities ........................................................ 202 – 22 1,075 1,091 2,390
Term assurance and other long-term
contracts ..................................................... 1,063 68 82 – 221 1,434
Total life (non-linked) ........................................ 1,576 3,954 256 1,271 1,312 8,369
Life (linked) ........................................................ 1,201 536 332 – 826 2,895
Investment contracts with DPF1 ......................... – – 9 – – 9
Life insurance policyholders’ liabilities ............. 2,777 4,490 597 1,271 2,138 11,273