HSBC 2006 Annual Report Download - page 233

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are renewable annually and the underwriters have
the right to refuse renewal or to change the terms and
conditions of the contract at the time.
A key aspect of risk management in the
insurance business, in particular the life insurance
business, is the need to match assets and liabilities.
Models are used to assess the impact of a range of
future scenarios on the value of financial assets and
associated liabilities. The results of the modelling are
used by ALCOs to determine how the assets should
be matched with liabilities. Of particular importance
for a number of lines of business, such as annuities,
is the need to match the expected pattern of cash
flow which, in some cases, can extend for many
years. The following table shows the composition of
assets and liabilities and demonstrates that there was
an appropriate level of matching at the end of 2006.
It may not always be possible to achieve complete
matching of asset and liability durations, partly
because there is uncertainty over the receipt of all
future premiums and partly because the duration of
liabilities may exceed the duration of the longest
available dated fixed interest investments.
Balance sheet of insurance operations by type of contract
(Audited)
Insurance contracts Investment contracts
Contracts
with
DPF1
Unit-
linked Annuities
Term
assurance2
Non-life
Unit-
linked Other
Other
assets3
Total
US$m US$m US$m US$m US$m US$m US$m US$m US$m
At 31 December 2006
Financial assets:
– trading assets ............ – – – – 117 – – 39 156
– financial assets
designated at fair value 1,418 2,998 366 950 94 10,041 1,597 974 18,438
– derivatives ................ 96 417 – – – 363 3 – 879
– financial investments 3,842 – 1,223 390 1,554 – 1,441 2,173 10,623
– other assets ............... 794 52 719 138 712 222 428 632 3,697
Total financial assets ......... 6,150 3,467 2,308 1,478 2,477 10,626 3,469 3,818 33,793
Reinsurance assets ............. 2 58 271 773 665 – – 48 1,817
PVIF .................................. – – – – – – – 1,549 1,549
Other assets and
investment properties .... 538 203 395 356 215 154 204 614 2,679
Total assets ........................ 6,690 3,728 2,974 2,607 3,357 10,780 3,673 6,029 39,838
Financial liabilities
designated at fair value . – – – – – 10,003 3,275 – 13,278
Liabilities under investment
contracts carried at
amortised cost ............... – – – – – – 216 – 216
Liabilities under insurance
contracts ........................ 6,389 3,685 2,773 1,864 2,939 – 20 – 17,670
Deferred tax ...................... – – – – – – – 403 403
Other liabilities ................. – – – – – – – 2,322 2,322
Total liabilities .................. 6,389 3,685 2,773 1,864 2,939 10,003 3,511 2,725 33,889
Shareholders’ equity ......... – – – – – – – 5,949 5,949
Total liabilities and
shareholders’ equity4 .... 6,389 3,685 2,773 1,864 2,939 10,003 3,511 8,674 39,838