HSBC 2008 Annual Report Download - page 265

263
At 31 December 2007
Life linked Life non-linked Non-life Other
contracts1 contracts2 insurance3 assets4 Total7
US$m US$m US$m US$m US$m
Trading assets
Debt securities ...................................... – 37 22 35 94
Financial assets designated at fair value
Treasury bills ........................................ 51 – 96 34 181
Debt securities ...................................... 7,741 3,591 28 2,272 13,632
Equity securities ................................... 10,386 8,822 6 686 19,900
18,178 12,413 130 2,992 33,713
Financial investments
Held-to-maturity:
Treasury bills ........................................ – – – – –
Debt securities ...................................... – 6,253 144 408 6,805
– 6,253 144 408 6,805
Available-for-sale:
Treasury bills ........................................ – 2 126 130 258
Other eligible bills ................................ – – 176 172 348
Debt securities ...................................... – 13,677 563 2,065 16,305
Equity securities ................................... – 10 62 164 236
– 13,689 927 2,531 17,147
Derivatives ................................................ 302 83 1 30 416
Other financial assets6 .............................. 1,282 4,376 1,175 1,483 8,316
19,762 36,851 2,399 7,479 66,491
1 Comprise life linked insurance contracts and linked long-term investment contracts.
2 Comprise life non-linked insurance contracts and non-linked long-term investment contracts.
3 Comprises non-life insurance contracts.
4 Comprise shareholder assets.
5 Does not include financial assets of associated insurance company, Ping An Insurance.
6 Comprise mainly loans and advances to banks, cash and intercompany balances with other non-insurance legal entities.
7 Does not include financial assets of insurance manufacturing associate, Ping An Insurance.
The table demonstrates that for linked contracts,
HSBC typically designates assets at fair value. For
non-linked contracts, the classification of the assets
is driven by the nature of the underlying contract.
The table also shows that approximately
62.9 per cent of financial assets was invested in debt
securities at 31 December 2008 (2007: 55.4 per cent)
with 19.7 per cent (2007: 30.3 per cent) invested in
equity securities.
In life linked insurance, premium income less
charges levied is invested in a portfolio of assets.
HSBC manages the financial risks of this product on
behalf of the policyholders by holding appropriate
assets in segregated funds or portfolios to which the
liabilities are linked. Typically, HSBC retains some
exposure to market risk as the market value of the
linked assets influences the fees charged by HSBC
and thereby affects the recoverability of expenses
incurred by the Group in managing the product. The
assets held to support life linked liabilities
represented 19.4 per cent of the total financial assets
of HSBC’s insurance manufacturing subsidiaries at
the end of 2008 (2007: 29.7 per cent).
Market risk
(Audited)
Insurance and investment products manufactured by
HSBC’s insurance manufacturing subsidiaries
typically comprise features or combinations of
features which may not be easily or exactly
replicated by investments. Market risk arises when
mismatches occur between product liabilities and the
investment assets which back them; for example,
mismatches between asset and liability yields and
maturities give rise to interest rate risk.
Description of market risk
(Audited)
The main features of products manufactured by
HSBC’s insurance manufacturing subsidiaries which
generate market risk, and the market risk to which
these features expose the subsidiaries, are discussed
below.
Long-term insurance or investment products
may incorporate either one investment return
guarantee or a combination thereof, divided into the
following categories: