HSBC 2015 Annual Report Download - page 183

HSBC HOLDINGS PLC
181
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
Risk management of insurance
manufacturing operations in 2015
We measure the risk profile of our insurance
manufacturing businesses using an economic capital
approach, where assets and liabilities are measured on
a market value basis and a capital requirement is held
to ensure that there is less than a 1 in 200 chance of
insolvency over the next year, given the risks that the
businesses are exposed to. The methodology for the
economic capital calculation is largely aligned to the new
pan-European Solvency II insurance capital regulations,
which are applicable from 2016.
The risk profile of our life insurance manufacturing
businesses did not change materially during 2015, however
there was a decrease in liabilities under insurance contracts
to $70bn (2014: $74bn) arising from the transfer to
‘Liabilities of disposal groups held for sale’ in respect of
the planned disposal of our operations in Brazil.
Asset and liability matching
(Audited)
A principal tool used to manage exposures to both financial
and insurance risk, in particular for life insurance contracts,
is asset and liability matching. In many markets in which we
operate it is neither possible nor appropriate to follow a
close asset and liability matching strategy. For long-dated
non-linked contracts, in particular, this results in a duration
mismatch between assets and liabilities. Portfolios are
structured to support these projected liabilities, with limits
set to control the duration mismatch.
The tables below show the composition of assets and
liabilities by contract and by geographical region and
demonstrate that there were sufficient assets to cover the
liabilities to policyholders in each case at the end of 2015.
The Brazilian insurance operations are reported as a
disposal group held for sale at 31 December 2015. The
assets and liabilities of this disposal group are included
within ‘Other assets and liabilities’ in the table below. The
UK pensions business was reported as a disposal group
held for sale at 31 December 2014 and the sale of this
business was completed during August 2015. As a result,
$6.8bn of total assets and $6.7bn of total liabilities were
derecognised.
Our most significant life insurance products are investment
contracts with DPF issued in France and insurance contracts
with DPF issued in Hong Kong.
Our exposure to financial risks arising in the balance sheet
below varies depending on the type of contract issued. For
unit-linked contracts, the policyholder bears the majority of
the exposure to financial risks whereas for contracts with
DPF, the shareholder (i.e. HSBC) is exposed to financial
risks to the extent that the exposure cannot be managed
by utilising any discretionary participation.
The majority of financial risks are borne by the shareholder
for all other contract types.
Balance sheet of insurance manufacturing subsidiaries by type of contract
(Audited)
Insurance contracts Investment contracts
With
DPF
Unit-
linked Annuities Other35
With
DPF36
Unit-
linked Other
Other
assets and
liabilities37 Total
$m $m $m $m $m $m $m $m $m
Financial assets 31,801 6,569 1,138 6,618 21,720 2,271 3,935 5,531 79,583
–
trading assets
–
–
2
–
–
–
–
–
2
–
financial assets designated at fair
value 4,698 6,435 296 563 6,421 2,000 1,859 1,015 23,287
–
derivatives 49
–
–
4111 129 62 256
–
financial investments
–
HTM38 22,840
–
468 2,334
–
–
1,387 3,050 30,079
–
financial investments
–
AFS38 1,743
–
312 3,685 13,334
–
23 1,233 20,330
–
other financial assets39 2,471 134 60 32 1,854 270 637 171 5,629
Reinsurance assets 202 264
–
951
–
–
–
–
1,417
PVIF40
–
–
–
–
–
–
–
5,685 5,685
Other assets and investment
properties 838 111 105 888 6 23 4,576 6,448
Total assets 32,841 6,834 1,149 7,674 22,608 2,277 3,958 15,792 93,133
Liabilities under investment contracts
–
–
–
–
–
2,256 3,771
–
6,027
–
designated at fair value
–
–
–
–
–
2,256 3,771
–
6,027
–
carried at amortised cost
–
–
–
–
–
–
–
–
–
Liabilities under insurance contracts 32,414 6,791 1,082 7,042 22,609
–
–
–
69,938
Deferred tax41 11
–
11 3
–
–
–
1,056 1,081
Other liabilities
–
–
–
–
–
–
–
5,553 5,553
Total liabilities 32,425 6,791 1,093 7,045 22,609 2,256 3,771 6,609 82,599
Total equity
–
–
–
–
–
–
–
10,534 10,534
Total liabilities and equity at
31 December 201542 32,425 6,791 1,093 7,045 22,609 2,256 3,771 17,143 93,133