HSBC 2014 Annual Report Download - page 170

HSBC BANK PLC
Notes on the Financial Statements (continued)
168
26 Liabilities under insurance contracts
Accounting policy
The group issues contracts to customers that contain insurance risk, financial risk or a combination thereof. A contract under which
the group accepts significant insurance risk from another party by agreeing to compensate that party on the occurrence of a specified
uncertain future event, is classified as an insurance contract. An insurance contract may also transfer financial risk, but is accounted
for as an insurance contract if the insurance risk is significant.
Liabilities under insurance contracts
Liabilities under non-linked life insurance contracts are calculated by each life insurance operation based on local actuarial principles.
Liabilities under unit-linked life insurance contracts are at least equivalent to the surrender or transfer value which is calculated by
reference to the value of the relevant underlying funds or indices.
A liability adequacy test is carried out on insurance liabilities to ensure that the carrying amount of the liabilities is sufficient in the
light of current estimates of future cash flows. When performing the liability adequacy test, all contractual cash flows are discounted
and compared with the carrying value of the liability. When a shortfall is identified it is charged immediately to the income statement.
Future profit participation on insurance contracts with discretionary participation features
Where contracts provide discretionary profit participation benefits to policyholders, liabilities for these contracts include provisions for
the future discretionary benefits to policyholders. These provisions reflect actual performance of the investment portfolio to date and
management expectation on the future performance in connection with the assets backing the contracts, as well as other experience
factors such as mortality, lapses and operational efficiency, where appropriate. This benefit may arise from the contractual terms,
regulation, or past distribution policy.
Investment contracts with discretionary participation features
While investment contracts with discretionary participation features are financial instruments, they continue to be treated as
insurance contracts as permitted by IFRS 4. The group therefore recognises the premiums for those contracts as revenue and
recognises as an expense the resulting increase in the carrying amount of the liability.
In the case of net unrealised investment gains on these contracts, whose discretionary benefits principally reflect the actual
performance of the investment portfolio, the corresponding increase in the liabilities is recognised in either the income statement or
other comprehensive income, following the treatment of the unrealised gains on the relevant assets. In the case of net unrealised
losses, a deferred participating asset is recognised only to the extent that its recoverability is highly probable. Movements in the
liabilities arising from realised gains and losses on relevant assets are recognised in the income statement.
Liabilities under insurance contracts
2014
Gross
Reinsurers’
Share
Net
£m
£m
£m
Non-linked insurance contracts1
At 1 January
836
(448)
388
Claims and benefits paid
(140)
80
(60)
Movement in liabilities to policyholders
223
(117)
106
Transfer to liabilities of disposal groups held for sale
(338)
328
(10)
Exchange differences and other movements
(49)
15
(34)
At 31 December
532
(142)
390
Investment contracts with discretionary participation features
At 1 January
15,987
–
15,987
Claims and benefits paid
(1,407)
–
(1,407)
Movement in liabilities to policyholders
1,933
–
1,933
Transfer to liabilities of disposal groups held for sale
–
–
–
Exchange differences and other movements2
(430)
–
(430)
At 31 December
16,083
–
16,083
Linked life insurance contracts
At 1 January
2,405
(43)
2,362
Claims and benefits paid
(247)
3
(244)
Movement in liabilities to policyholders
284
(7)
277
Transfer to liabilities of disposal groups held for sale
(1,521)
–
(1,521)
Exchange differences and other movements3
(14)
–
(14)
At 31 December
907
(47)
860
Total liabilities to policyholders
17,522
(189)
17,333