HSBC 2009 Annual Report Download - page 270

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Insurance operations > Insurance risk
268
Analysis of life insurance risk – liabilities to policyholders49
(Audited)
Europe
Hong
Kong
Rest of
Asia-
Pacific
North
America
Latin
America
Tota l
US$m US$m US$m US$m US$m US$m
At 31 December 2009
Life (non-linked).................................................. 2,998 14,456 526 1,026 1,973 20,979
Insurance contracts with DPF50 ...................... 1,128 14,095 227 – – 15,450
Credit life ........................................................ 953 – 20 50 – 1,023
Annuities ......................................................... 452 – 28 777 1,554 2,811
Term assurance and other long-term
contracts ..................................................... 465 361 251 199 419 1,695
Life (linked) ........................................................ 2,125 2,896 437 – 3,528 8,986
Investment contracts with DPF50,51...................... 20,979 – 35 – – 21,014
Insurance liabilities to policyholders .................. 26,102 17,352 998 1,026 5,501 50,979
At 31 December 2008
Life (non-linked).................................................. 2,962 11,320 343 1,006 1,739 17,370
Insurance contracts with DPF50 ...................... 1,015 11,213 216 – – 12,444
Credit life ........................................................ 252 – – 65 – 317
Annuities ......................................................... 379 – 28 805 1,363 2,575
Term assurance and other long-term
contracts ..................................................... 1,316 107 99 136 376 2,034
Life (linked) ........................................................ 1,548 2,276 310 – 1,933 6,067
Investment contracts with DPF50,51 ..................... 17,732 – 34 – – 17,766
Insurance liabilities to policyholders .................. 22,242 13,596 687 1,006 3,672 41,203
For footnotes, see page 291.
(Audited)
The above table of liabilities to life insurance
policyholders highlights that the most significant
products are investment contracts with DPF issued
in France, insurance contracts with DPF issued in
Hong Kong and unit-linked contracts issued in
Hong Kong, Latin America and Europe.
The liabilities for long-term contracts are set by
reference to a range of assumptions which include
lapse and surrender rates, mortality and expense
levels. These assumptions typically reflect each
entity’s own experience. Economic assumptions,
such as investment returns and interest rates, are
usually based on market observable data. Changes in
underlying assumptions affect the liabilities. The
sensitivity of profit after tax and shareholders’ equity
to changes in both economic and non-economic
assumptions are considered below in ‘Sensitivity of
HSBC’s insurance subsidiaries to risk factors’ and
‘Sensitivity analysis’.
Insurance risk arising from life insurance
depends on the type of business, and varies
considerably. The principal risks are mortality,
morbidity, lapse, surrender and expense levels.
The main contracts which generate exposure to
mortality and morbidity risks are term assurance
contracts and annuities. These risks are monitored on
a regular basis, and are primarily mitigated by
medical underwriting and by retaining the ability in
certain cases to amend premiums in the light of
experience. The risk associated with lapses and
surrenders is generally mitigated by the application
of surrender charges, though other management
actions, such as managing the level of bonus
payments to policyholders, may be taken. Expense
risk is generally managed through pricing. The level
of expenses in the contract will be one of the factors
considered when setting premiums.