HSBC 2015 Annual Report Download - page 222

Report of the Directors: Risk (continued)
Appendix to Risk – Policies and practices
HSBC HOLDINGS PLC
220
HSBC subsidiaries that manufacture insurance products establish control procedures complying with the guidelines and
requirements issued by Group Insurance and local regulatory requirements. Country level oversight is exercised by local
insurance risk management committees. Country Chief Risk Officers (‘CRO’s) have reporting lines locally and functional
reporting lines into the Group Insurance CRO, who has overall accountability for risk management in insurance operations
globally. The Group Insurance Risk Management Committee oversees the control framework globally and is accountable to the
RBWM Risk Management Committee on risk matters.
In addition, local ALCOs monitor and review the duration and cash flow matching of insurance assets and liabilities.
All insurance products, whether manufactured internally or by a third party, are subjected to a product approval process prior
to introduction.
Financial risks
(Audited)
Our insurance businesses are exposed to a range of financial risks, including market risk, credit risk and liquidity risk. Market
risk includes interest rate, equity and foreign exchange risks. The nature and management of these risks is described below.
Manufacturing subsidiaries are exposed to financial risks when, for example, the proceeds from financial assets are not
sufficient to fund the obligations arising from insurance and investment contracts. In many jurisdictions, local regulatory
requirements prescribe the type, quality and concentration of assets that these subsidiaries must maintain to meet insurance
liabilities. These requirements complement Group-wide policies.
Market risk
(Audited)
Market risk is managed through limits approved by the RMM for HSBC Holdings. An
allocation of the Group-wide market risk appetite is provided to the Insurance
business by Group Traded Risk. These limits are then apportioned between different
Insurance entities to support the strategic aims of the business.
The market risk team supporting insurance within Wholesale Market Risk and the
Group Insurance CRO are responsible for setting market risk management policies
and measurement techniques applied to the Insurance activities of HSBC.
At entity level the appetite for market risk is expressed through detailed market risk
mandates. Investment Officers hold day-to-day responsibility for managing assets
so as to remain within the mandates and are answerable to the local ALCOs. ALCOs
hold wider responsibility over longer-term actions related to liabilities that are
necessary to remain within the agreed mandates.
ALCOs act to implement the strategy of the Executive Committee which, in turn, is
answerable to the Board. The Board holds ultimate accountability over the risk
profile held and targeted within each company.
Description of market risk
The main features and exposures of products manufactured by our insurance
manufacturing subsidiaries which generate market risk, and the market risk to which
these features expose the Group, are discussed below.
Interest rate risk arises from a mismatch between asset yields and the investment returns implied by the guarantees payable to
policyholders by insurance manufacturing subsidiaries. When asset yields are below guaranteed yields, products may be closed to
new business, repriced or restructured. A list of the different types of guarantees within our insurance contracts is outlined
below.
Global Insurance Risk
Chairman/CEO
Risk Management Meeting
of the GMB
HSBC Holdings Board
Board and Executive
Committee of Entity
Asset and Liability Committee
of Entity
Entity Investment Officer
Group Traded Risk
General measuresSpecific measures