HSBC 2012 Annual Report Download - page 246

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Risk management of insurance operations > Economic assumptions / Non-economic assumptions
244
Movements in PVIF and total equity of insurance operations
(Audited)
2012 2011
PVIF
Total
equity
PVIF
Total
equity
US$m US$m US$m US$m
At 1 January .................................................................................. 4,092 10,629 3,440 9,778
Change in PVIF of long-term insurance business ........................ 737 737 726 726
Value of new business written during the year73 .......................... 1,027 943
Movements arising from in-force business:
– expected return ...................................................................... (420) (428)
– experience variances74 ........................................................... 12 1
– changes in operating assumptions ......................................... (3) (222)
Investment return variances .......................................................... (18) (103)
Changes in investment assumptions ............................................. 78 294
Other adjustments ......................................................................... 61 241
Return on net assets ...................................................................... – 1,232 – 1,057
Capital transactions ...................................................................... – (1,525) – (500)
Disposals of subsidiaries/portfolios ............................................. – (382) – (96)
Exchange differences and other ................................................... 18 (702) (74) (336)
At 31 December ............................................................................ 4,847 9,989 4,092 10,629
For footnotes, see page 249.
Other adjustments for 2012 included a one-off
gain of US$119m for a PVIF asset recognised on
linked insurance business in Brazil. For 2011, other
adjustments related to the US$243m gain recognised
upon refinement of the PVIF calculation.
Key assumptions used in the computation of PVIF for main life insurance operations
(Audited)
2012 2011
UK Hong Kong France UK Hong Kong France
% % % % % %
Risk free rate .......................................................... 1.53 0.60 2.12
2.24
1.47 2.77
Risk discount rate .................................................. 2.03 7.46
4.05
2.74
8.00 5.95
Expense inflation ................................................... 2.84 3.00
2.00
3.45
3.00 2.00
Economic assumptions
(Audited)
The following table shows the effect on the PVIF of
reasonably possible changes in the main economic
assumption, risk-free rates, across all insurance
manufacturing subsidiaries.
Due to certain characteristics of the contracts,
the relationships are non-linear and the results of
the sensitivity testing should not be extrapolated to
higher levels of stress. The sensitivities shown are
before actions that could be taken by management
to mitigate effects and before resultant changes in
policyholder behaviour.
Sensitivity of PVIF to changes in economic
assumptions
(Audited)
PVIF at 31 December
2012 2011
US$m US$m
+ 100 basis point shift in
risk-free rate ................ 137 128
– 100 basis point shift in
risk-free rate ................ (191) (91)