Barclays 2005 Annual Report Download - page 179

Barclays PLC
Annual Report 2005 177
3.5
25 Insurance assets and liabilities (continued)
Capital position statement
The Group’s total capital resources available for its life insurance businesses were as follows:
2005 2004
Available capital resources for life business £m £m
Total shareholders’ equity in the life business 417 276
Unallocated divisible surplus (UDS) and other sources of capital 15 –
Conversion to regulatory basis (36) 8
Total available capital resources 396 284
Less: surplus (207) (154)
Capital resource requirement 189 130
2005 2004
Reconciliation of capital resources £m £m
Shareholder equity available for life business (see above table) 417 276
Shareholders’ equity attributed to other businesses 17,009 15,594
Total shareholders’ equity excluding minority interests 17,426 15,870
Other capital resources attributable to other businesses 19,467 13,171
Total other capital resources 19,467 13,171
Total capital resources 36,893 29,041
Capital management and constraints on the transfer of capital
Capital resource requirements are assessed at company level in accordance with local laws and regulations. However, the aim is that each life fund
should be able to meet its own liabilities. In the event that this should not be the case, shareholders’ equity attributed to businesses other than life
insurance are available to meet its liabilities to the extent that they could not otherwise be met. Conversely, there are some constraints in moving
capital out of the life funds.
The capital management objective is to ensure that sufficient capital is in place to meet liabilities as they fall due. This is supported by risk
management policies designed to manage key risks to the life business – credit risk, market risk, liquidity risk, operational risk and insurance risk.
Capital management policies include requirements to:
•Manage credit risk by adopting prudent parameters as constraints for investment managers and by diversifying reinsurance amongst a
selection of well capitalised providers.
•Hold a suitably diversified portfolio of admissible assets of a value sufficient to cover technical provisions and of a suitable currency, term, safety,
and yield to ensure that cash inflows from those assets will be sufficient to meet expected cash flows from its insurance liabilities as they fall due.
Although there are a number of factors influencing the capital position of the life business, the key factors include equity risk, inflation risk, mortality
shock, and morbidity shock.
Liabilities are sensitive to a downturn in the economy and the investment market, such as increased mortgage protection claims, policy lapses and
surrenders at a time when it is difficult to liquidate assets. Barclays has a policy to choose assets which match the nature and the term of the liability
and this policy would continue to be applied to any changes in market conditions.
Options and guarantees
The Group’s life contracts do not contain options or guarantees that could confer material risk.