Barclays 2006 Annual Report Download - page 199

31 Insurance assets and liabilities (continued)
Uncertainties associated with cash flows related to insurance contracts and risk management activities
Long-term insurance contracts (linked and non-linked)
For long-term insurance contracts where death is the insured risk, the most significant factors that could detrimentally affect the frequency and
severity of claims are the incidence of disease, such as AIDS, or general changes in lifestyle, such as in eating, exercise and smoking. Where survival
is the insured risk, advances in medical care and social conditions are the key factors that increase longevity.
The Group manages its exposure to risk by operating in part as a unit-linked business, prudent product design, applying strict underwriting criteria,
transferring risk to reinsurers, managing claims and establishing prudent reserves.
Short-term insurance contracts
For payment protection contracts where inability to make payments under a loan contract is the insured risk, the most significant factors are the
health of the policyholder and the possibility of unemployment which depends upon, among other things, long-term and short-term economic
factors. The Group manages its exposure to such risks through prudent product design, efficient claims management, prudent reserving
methodologies and bases, regular product, economic and market reviews and regular adequacy tests on the size of the reserves.
Absa insures property and motor vehicles, for which the most significant factors that could effect the frequency and severity of claims are climatic
change and crime. Absa manages its exposure to risk by diversifying insurance risks accepted and transferring risk to reinsurers.
Sensitivity analysis
The following table presents the sensitivity of the level of insurance contract liabilities disclosed in this note to movements in the actuarial
assumptions used to calculate them. The percentage change in variable is applied to a range of existing actuarial modelling assumptions to derive
the possible impact on net profit after tax. The disclosure is not intended to explain the impact of a percentage change in the insurance assets and
liabilities disclosed above.
2006 2005
Net profit Net profit
Change in after tax Change in after tax
variable impact variable impact
%£m %£m
Long-term insurance contracts:
Improving mortality (annuitants only) 10 23 10 19
Worsening of mortality (assured lives only) 10 25 10 28
Worsening of base renewal expense level 20 23 20 20
Worsening of expense inflation rate 10 9 10 5
Short-term insurance contracts:
Worsening of claim expense assumptions 10 9 10 13
Any change in net profit after tax would result in a corresponding increase or decrease in shareholders’ equity.
The above analyses are based on a change in a single assumption while holding all other assumptions constant. In practice this is unlikely to occur.
Options and guarantees
The Group’s contracts do not contain options or guarantees that could confer material risk.
Barclays PLC
Annual Report 2006 195
Financial statements
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