Barclays 2008 Annual Report Download - page 228

226 Barclays PLC Annual Report 2008 |Find out more at www.barclays.com/annualreport08
Notes to the accounts
For the year ended 31st December 2008
26Insurance assets and liabilities
Insurance assets
Reinsurance assets are £123m (2007: £157m) and relate principally to the Group’s long-term business. Reinsurers’ share of provisions relating to the Group’s
short-term business are £32m (2007: £94m). The reinsurance assets expected to be recovered after more than one year are £91m (2007: £63m).
Insurance contract liabilities including unit-linked liabilities
Insurance liabilities comprise the following:
2008 2007
£m £m
Insurance contract liabilities:
– linked liabilities 125 1,398
– non-linked liabilities 1,908 2,347
Provision for claims 119 158
Insurance contract liabilities including unit-linked liabilities 2,152 3,903
Insurance contract liabilities relate principally to the Group’s long-term business. Insurance contract liabilities associated with the Group’s short-term
non-life business are £73m (2007: £174m).
Movements in insurance liabilities and reinsurance assets
Movements in insurance assets and insurance contract liabilities were as follows:
2008 2007
Gross Reinsurance Net Gross Reinsurance Net
£m £m £m £m £m £m
At beginning of year 3,903 (157) 3,746 3,878 (172) 3,706
Change in year (1,751) 34 (1,717) 25 15 40
At end of year 2,152 (123) 2,029 3,903 (157) 3,746
Assumptions used to measure insurance liabilities
The assumptions that have the greatest effect on the measurement of the amounts recognised above, and the processes used to determine them were
as follows:
Long-term business – linked and non-linked
Mortality – mortality estimates are based on standard industry and national mortality tables, adjusted where appropriate to reflect the Group’s own
experience. A margin is added to ensure prudence – for example, future mortality improvements for annuity business.
Renewal expenses level and inflation – expense reserves are a small part of overall insurance liabilities, however, increases in expenses caused by
unanticipated inflation or other unforeseen factors could lead to expense reserve increases. Expenses are therefore set using prudent assumptions. Initial
renewal expense levels are set by considering expense forecasts for the business and, where appropriate, building in a margin to allow for the increasing
burden of fixed costs on the UK closed life book of business. The inflation assumption is set by adding a margin to the market rate of inflation implied by
index-linked gilt yields.
Short-term business
Short-term business – for single premium policies the proportion of unearned premiums is calculated based on estimates of the frequency and
severity of incidents.
Changes in assumptions
There have been no changes in assumptions in 2008 that have had a material effect on the financial statements.
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.